New Jersey Micheve v. Wyndham Place (2005): Capital Fee

Quick Answer

In Micheve, L.L.C. v. Wyndham Place at Freehold Condominium Association, the Appellate Division held on November 3, 2005 that a condominium association could not charge a $750 non-refundable "working capital contribution" only to people who take title to a unit. The court said that charge broke the Condominium Act's rule that common expenses are shared by all owners by percentage interest. The board's "business judgment" argument did not save it.

At a Glance

The Dispute

In April 2002 the association's board adopted a resolution requiring a "one time non-refundable working capital contribution of $750" whenever title to a unit was acquired. The same resolution added a one-time $125 processing fee.

Micheve acquired a unit by sheriff's deed in March 2003 and resold it in June 2003. At the closing the association charged both fees, plus other amounts. Micheve sued to recover the $750. The trial court, on summary judgment, found the $750 charge, imposed only on new purchasers, violated the Condominium Act and the association's master deed and bylaws, and ordered a refund.

The association's own records, as described in the opinion, said only that "certain fees must be assessed to new unit owners" to maintain a standard of care. The association did not claim the money went to anything other than common expenses.

What the Court Held

The court framed the question as "whether a condominium association may impose a non-refundable capital contribution fee whenever there is a transfer of title to a condominium unit," and answered no.

First, it relied on N.J.S.A. 46:8B-17, which says common expenses "shall be charged to unit owners according to the percentage of their respective undivided interests in the common elements" or in other proportions the master deed or bylaws provide. The association's master deed and bylaws mirrored that rule, and the bylaws required special assessments for capital expenses to be imposed on the same basis. The Act also defines common expenses broadly, including all expenses of administration, maintenance, repair and replacement of the common elements.

Second, the court compared the fee to two earlier decisions. In Thanasoulis v. Winston Towers 200 Ass'n (New Jersey Supreme Court, 1988), a higher parking fee for nonresident owners was invalid because it shifted the common-expense burden unevenly. In Chin v. Coventry Square Condo. Ass'n (App. Div. 1994), a rental fee was invalid to the extent it exceeded the cost of reviewing lease documents and inspecting common elements. The court called the capital fee "the same type of discriminatory imposition of common expenses upon one class of unit owners."

Third, it rejected the business judgment argument. Quoting an earlier decision, the court said a court first asks whether the association's action was authorized by statute or by its own bylaws or master deed, and only then whether it was fraudulent, self-dealing or unconscionable. Because this charge violated the Act and the governing documents, the rule "has no applicability."

The opinion also notes two limits. The association had not tried to show the fee covered extra costs of a transfer, and the plaintiff did not challenge the $125 processing fee, which appeared to cover those transfer expenses. The court also recorded that, in a companion 2004 decision between the same parties, it had held a foreclosure-sale buyer is not liable for the prior owner's fees, and the association conceded repayment of those amounts.

Why It Matters for Associations

Boards

The case turns on who pays and what the money is for. A charge that falls only on one class of owners and simply adds to the operating or capital budget is the pattern the court rejected. A fee tied to the actual cost of a specific transaction, such as reviewing documents, was treated differently in Chin and left unchallenged in this case.

Owners and buyers

If a closing statement shows a flat transfer or capital fee, our reading is that the first question is what the fee pays for and whether the statute, master deed or bylaws authorize it. Ask for the written basis before closing.

Open question: later legislation

This decision is from 2005. The Act's powers section now contains language on capital contribution or resale fees (see our page on 46:8B-15). We did not research how, if at all, that language changes the Micheve analysis, and we did not run a citator check. Confirm with counsel before relying on or charging any such fee.

Related New Jersey Law

• N.J.S.A. 46:8B-17: how common expenses are shared
• Thanasoulis v. Winston Towers 200 Association (1988)
• N.J.S.A. 46:8B-15: association powers, fines and resale fee cap
• N.J.S.A. 46:8B-21: assessment liens and priority
• New Jersey HOA laws and regulations guide

Board Checklist

• List every fee charged at sale, resale or lease and write down what each one pays for.
• Check each fee against the master deed, bylaws and N.J.S.A. 46:8B-17 before the next closing.
• Keep records of the actual cost of transfer work (document review, certificates, move-in) so any fee can be tied to it.
• Do not use a transfer fee as a general source of operating or capital funds without counsel's sign-off.
• Put fee changes through the process your governing documents require, and record the board's reasoning in the minutes.
• Ask counsel whether the current statute's fee language affects any fee you charge.

Frequently Asked Questions

What did the association charge in this case?

A one-time $750 non-refundable working capital contribution on every acquisition of title, plus a $125 processing fee.

Did the court strike down the processing fee too?

No. The buyer did not challenge the $125 processing fee, and the court noted it appeared to cover the association's transfer expenses.

Why did the business judgment rule not apply?

The court said the rule governs decisions within the association's authority. Because the fee violated the Condominium Act and the association's own documents, the court did not reach that stage.

Does this mean associations can never charge a fee at transfer?

No. The court focused on a fee that was not tied to any extra transfer cost and was used for ordinary common expenses. It treated a cost-based fee differently by citing Chin and by leaving the processing fee alone.

Does the case cover homeowners associations that are not condominiums?

The opinion applies the Condominium Act. Whether a planned community can charge such a fee depends on its own documents and law, so ask counsel.

Is this decision still good law?

We did not run a citator check and did not review later legislation or cases. Confirm with counsel.

Where This Comes From

We read the full published opinion of the Appellate Division (Docket A-1014-04T2, decided November 3, 2005) as posted by Justia. Descriptions of Thanasoulis, Chin and the 2004 Micheve decision come from how this opinion describes them, not from our own reading of those cases.

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Legal disclaimer: This article is general information, not legal advice. Laws change and associations differ. Confirm the current statute text and how it applies to your governing documents with a licensed New Jersey attorney before acting.