For residential developers operating in New Jersey, transition litigation can be a bane of the developer’s operation. A cottage industry of attorneys, engineers and architects seeks out condominium and homeowner associations in transition and lures them to invest in finding design or construction deviations with the prospect of a big pay day. They file canned complaints asserting a laundry list of claims that often include a claim for double damages and attorney’s fees under the New Jersey Planned Real Estate Development Full Disclosure Act (“PREDFDA”). There is, however, a question whether PREDFDA even applies to transition litigation brought by an Association.
Under PREDFDA, a developer that makes a false representation or omits a material fact from its registration or public offering statement “shall be liable to the purchaser for double damages suffered, and court costs expended, including reasonable attorney’s fees ….” A “purchaser” is “any person or persons who acquires a legal or equitable interest in a unit, lot, or parcel ….” Thus, a plain reading of PREDFDA suggests that a condominium or homeowner association that does not acquire a legal or equitable interest in a unit, lot or parcel is not a “purchaser” with standing to assert a claim for double damages and attorney’s fees under PREDFDA.
While we have been largely successful on behalf of our developer clients in obtaining dismissals of PREDFDA claims for double damages, a few courts have declined to follow the plain language of the legislature.
Three different Judges in Hudson County, and a Judge in Somerset County, have followed the plain language of the statute and held that only a “purchaser,” not an Association, has standing to assert a claim under PREDFDA’s enhanced damage provision. Conversely, the Appellate Division, in an unpublished, non-precedential decision, and one Essex County Judge have held that because an Association “stands in the shoes” of purchasers with respect to the common elements, it has standing to assert a PREDFDA claim relating to those common elements.
Until an appellate court issues a published decision addressing the issue, Developers should be diligent in challenging what appears to be a misuse of a statute intended to protect unwitting consumers, not Associations looking for a cash grab.
If you have questions about New Jersey PREDFDA? Contact Don Taylor at 732.855.6434 or Dan Kluska at 732.855.6033.
New Jersey Statutes annotated on Westlaw in this blog post are used here with permission from Thomson Reuters.
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