Mulligan v. Panther Valley Property Owners Association

Superior Court of New Jersey, Appellate Division · 2001 · Property

Propertycommon interest developmenthomeowners associationrestrictive covenantsbylaw amendmentsdeclaration amendmentsreasonablenessbusiness judgment rule

Facts

Plaintiff owns a home in Panther Valley and, as an owner, is a member of the nonprofit property owners association that governs the community through an elected board. In 1998, the membership adopted six amendments, five of which plaintiff challenged: a ban on residency by Tier 3 Megan's Law registrants, authorization to file a Notice of Continuing Violation, a fee-shifting provision for association enforcement suits, a new procedure for member inspection of books and records, and minimum qualifications for board candidates. The challenged provisions were amendments adopted long after plaintiff bought her home in 1976, and the declaration could be amended by a simple majority vote of members. The case was handled summarily, and the appellate court reviewed the substance of the amendments rather than the procedures by which they were adopted.

Issue

What standard should a court use to review later-adopted amendments to the declaration and bylaws of this common-interest community, and under that standard which of the challenged amendments are valid? In particular, could the court uphold the Tier 3 residency ban on the record presented?

Rule

In this context, later-adopted amendments to a common-interest community's governing documents are reviewed for reasonableness, not under the business judgment rule, where the amendments were adopted substantially after the owner purchased, are not original recorded restrictions, and can be adopted by only a simple majority of the membership. Such amendments are not entitled to a strong presumption of validity. Amendments may be upheld if reasonable, but a publicly recorded notice of violation requires prior notice to the owner, and a court should not decide a broad policy question on an insufficient record.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In 2024, the members of Cedar Bluffs Residential Association in Columbus, Ohio adopted an amendment to the declaration banning short-term rentals. Nora Patel bought her house in the community in 1999, the original recorded declaration contained no such restriction, and the declaration permits amendment by a simple majority of members.

If Nora challenges the substance of the amendment, what standard should a court most likely apply?

Explanation. The majority held that in this setting later-adopted amendments to governing documents are reviewed for reasonableness, not under the business judgment rule, when they were adopted substantially after the owner purchased, were not part of the original recorded restrictions, and could be enacted by only a simple majority. Such amendments do not receive a strong presumption of validity. (Derived from Mulligan v. Panther Valley Property Owners Association (n.d.).)