Termination of a Condominium under New Jersey Law: A Comprehensive Overview

Introduction:
Condominium living has gained immense popularity in New Jersey, offering a unique housing option for individuals seeking the benefits of homeownership without the responsibilities of maintaining an entire property. While condominiums provide numerous advantages, there may come a time when termination becomes necessary due to various reasons. This article aims to provide a comprehensive overview of the termination process for condominiums under New Jersey law.

Understanding Condominium Terminations:
Termination of a condominium refers to the process of dissolving the condominium association and converting the property into an alternative form of ownership or use. This can be a complex and legally involved procedure, requiring compliance with specific legal requirements and obtaining the consent of a significant majority of unit owners.

Termination Methods:
In New Jersey, the Condominium Act (N.J.S.A. 46:8B-1 et seq.) provides two methods for terminating a condominium: by agreement or judicial action.
1. Termination by Agreement: Termination by agreement occurs when all unit owners consent to the termination and execute a written termination agreement. According to New Jersey law, the agreement must be signed by at least 80% of the unit owners or, if a lower percentage is stated in the association’s governing documents, by the percentage specified.
The agreement should outline the terms of termination, including provisions for the disposition of common elements and individual units, allocation of proceeds, and any liabilities or expenses incurred during the termination process. Once the agreement is executed, it must be recorded with the county clerk where the property is located. This is normally referred to as a Deed of Revocation.
2. Termination by Judicial Action: In certain circumstances, a condominium may be terminated through a judicial action initiated by a unit owner, the association, or other interested parties. This typically occurs when it is not possible to obtain the required percentage of unit owner consent.
To pursue termination through judicial action, the petitioner must file a complaint in the Superior Court of New Jersey, seeking a court order to terminate the condominium. The court will evaluate the petition, considering factors such as the best interests of the unit owners and any potential adverse impact on individual owners. If the court determines that termination is warranted, it will appoint a trustee or receiver to oversee the termination process.

Distribution of Assets and Liabilities:
One of the critical aspects of condominium termination is the fair distribution of assets and liabilities among the unit owners. New Jersey law mandates that the proceeds from the termination be distributed among unit owners in proportion to their respective interests in the common elements, unless otherwise agreed upon in the termination agreement.
Additionally, any remaining debts, expenses, and liabilities, including mortgages and liens, should be satisfied from the proceeds. If the proceeds are insufficient to cover these obligations, the unit owners may be required to contribute their pro-rata share to cover the shortfall.
Further considerations include the possible requirement to notify the mortgage holder. The mortgage documents should be reviewed to determine if the mortgagee must be notified. Another consideration is the local taxing authority. Depending on the municipality involved, it may require that new tax lots and blocks be created. Termination of the Condominium may also affect the level of property taxes, and possibly income taxes. The contours of taxes are beyond the scope of this article. Nevertheless, in the overall process, a surveyor may need to be contacted to set out an entirely new metes and bounds description of the new property regime. Before any process is started to terminate a Condominium Association, it is recommended that knowledgeable legal counsel be consulted.

Conclusion:
Terminating a condominium in New Jersey is a multifaceted process that requires careful consideration and adherence to legal requirements. Whether through an agreement or judicial action, it is crucial to consult with legal professionals specializing in condominium law to ensure compliance with legal requirements and that the interests of all parties involved are protected.

Thomas C. Martin, Esq.
Partner,
Price, Meese, Shulman & D’Arminio, P.C.

June 7, 2023