New Jersey R.2021 d.074 (N.J.A.C. 5:26-8.6, 8.7): Developer Assessment and Reserve Rules

Quick Answer

DCA's 2021 amendments (R.2021 d.074, effective July 19, 2021) tightened the rules for how a developer-controlled association collects, budgets and spends money. They cap the one-time working capital contribution at nine times the monthly common expense assessment, require reserve budgets and reserve studies with an independent engineer or architect letter of adequacy, restrict use of reserves, and require a three percent line item for unpaid owner assessments. These rules apply while the developer controls the board. Statutes passed since then (P.L.2023, c.214 and P.L.2025, c.132) add reserve study duties for all associations of planned real estate developments.

At a Glance

What the Law Says

Working capital contribution (5:26-8.6(a))

• Until the association makes an assessment, the developer pays all expenses of the common elements and facilities.
• On acquiring title, each new member "may be required to make a one-time, non-refundable and non-transferable, working capital contribution." It may not "exceed nine times the amount of the monthly common expense assessment for that unit at the time of closing."
• During developer control, working capital funds must sit "in a separate account located in a bank that is FDIC-insured and authorized to do business in the State of New Jersey."
• Use is limited to one-time start-up operations (for example office equipment and utility deposits), and not construction of a management office or off-site equipment. It may pay unforeseen expenses instead of a special assessment, but not normal budget expenses, capital improvements, reserves, repairs to defective construction, or certain budget deficits tied to closing schedules.
• While the developer holds a board majority, working capital may not be used "to pay for budget line items, to minimize the assessments needed to operate the association, or to lower the amount due from the developer."

Developer share and deficits (5:26-8.6(b))

• The developer pays a full share of assessments on developer units, in the proportion in the governing documents.
• If the year ends with an operating fund deficit, the developer pays it within 60 days of the start of the new budget year. The developer is not responsible where the deficit results from unforeseen expenses beyond its reasonable control, including when unpaid owner assessments exceed three percent of the budget. In that case the developer-controlled board may use working capital, after approving it at a meeting open to owners and stating the basis in the minutes.
• A surplus is recalculated and credited or refunded in the same shares. Owners other than the developer vote on whether to refund or credit; if no quorum, the board decides.
• For an immediate need caused by force majeure, the board may impose a special assessment, and owners and the developer pay their respective shares.

Reserve budgets (5:26-8.7(a))

• During developer control the budget must provide for common expenses and "adequate reserve funds for repair and replacement."
• "Adequate reserve funds" means money dedicated to repair or replace common elements at the end of their useful life, per the most recent reserve study, "without the need for special assessments or loans," with contributions set for items with useful lives up to and including 30 years, and for roofs regardless of life.
• An independent licensed engineer or architect determines the amount to hold as part of the reserve study.
• Reserves sit in a segregated account in the association's name, in an FDIC-insured New Jersey-authorized bank. After the first owner is elected to the board, withdrawals require one signatory from the developer and one from the owner-elected members.
• A developer-controlled board may use reserves for a common element only if it was in the reserve study, has used at least 90 percent of its useful life (or a majority vote of a quorum of non-developer owners approves), and the reserve account is fully funded under the budget.

New reserve studies (5:26-8.7(b))

• A new study is required when an expandable project application is filed (updated for each phase), and when as-built common elements differ from plans or the public offering statement.
• The study must be "accompanied by a letter of adequacy prepared by an independent licensed architect or engineer."
• While the developer controls the board, the developer pays for the study, and it is not a common expense.

Other developer-control rules (5:26-8.7(c) to (g))

• Developer budgets must include "an expense line item equal to three percent of common expenses" for unpaid owner assessments.
• A developer-controlled budget may not include a developer subsidy that holds down the monthly assessment unless fully disclosed in the public offering statement as a special notice.
• An annual audit by an independent public accountant must be delivered to each owner within 90 days after the fiscal year ends.
• The developer must post a bond or other guarantee acceptable to DCA until management contracts entered while it controlled the board expire.
• At least 60 days before the next budget year, the developer gives the owner-controlled board a written statement of anticipated closings and new common elements.

What This Means in Practice

For boards in transition from developer control

These rules are a checklist for what the developer-controlled board should have done: segregated reserve account, dual signatories after the first owner joins the board, a reserve study with a letter of adequacy, working capital kept separate and used only for allowed purposes, and an audit. An owner-controlled board can compare the turnover records against this list. Our reading: gaps are a topic to raise with counsel, not something these rules resolve by themselves.

For owners and buyers

The nine-times cap applies to a one-time working capital contribution "at the time of closing." DCA's response in the notice says the contribution is tied to the monthly assessment because it ties to the budget.

Do these rules still describe reserves for owner-controlled associations?

No. In the notice, DCA confirmed a commenter's reading that reserve analysis was then an obligation of the developer during development and that "once the association is owner-controlled, new reserve studies are not required." That was DCA's 2021 statement. It is no longer a complete picture, because DCA's current FAQ says the reserve study requirements in N.J.S.A. 45:22A-44.2 and 44.3 apply to all associations of planned real estate developments (subject to a $25,000 exemption). Do not rely on the 2021 comment for current law. See the capital reserve study page.

Open questions (our reading)

• How DCA applies the 90 percent useful-life test to components not tracked in the study is not addressed in the text we read.
• The notice says no specific reserve study form is prescribed.
• Whether and how these rules interact with the post-2023 statutory reserve funding rules for a developer-controlled association is not addressed in the text we read. Confirm with counsel.

Timeline

Related New Jersey Law

• N.J.A.C. 5:26 overview
• N.J.S.A. 45:22A-44.2: capital reserve study
• N.J.S.A. 45:22A-44.3: reserve funding
• DCA structural integrity and reserve FAQ
• New Jersey HOA laws and regulations

Board Checklist

• Find the latest reserve study and the architect or engineer letter of adequacy in the turnover records.
• Confirm reserve funds sit in a segregated account in the association's name.
• Check how working capital contributions were collected, held and spent.
• Compare any contribution to nine times the monthly assessment at closing.
• Review developer-controlled budgets for the three percent delinquency line item.
• Request the annual audits for the developer-control period and the bond or guarantee documents.
• Ask counsel to review any gaps against 5:26-8.6 and 8.7.

Frequently Asked Questions

What is the maximum working capital contribution in New Jersey planned developments?

Under N.J.A.C. 5:26-8.6(a), it may not exceed nine times the monthly common expense assessment for the unit at closing.

Where must the developer keep working capital and reserves?

In accounts at FDIC-insured banks authorized to do business in New Jersey. Reserves must be in a segregated account in the association's name.

Can a developer-controlled board spend reserves on any repair?

Only if the item was in the reserve study, has used at least 90 percent of its useful life (or non-developer owners approve by majority vote of a quorum), and the account is fully funded under the budget.

Who pays for a reserve study during developer control?

The developer, and the cost is not a common expense.

Why must budgets include three percent for unpaid assessments?

5:26-8.7(e)(1) requires developer budgets to include a line item equal to three percent of common expenses to account for unpaid owner assessments.

Do these rules apply after owners take control?

Most of 5:26-8.6 and 8.7 is written for periods of developer control. The 2023 and 2025 statutes add separate reserve duties that apply later.

Where This Comes From

We read DCA's adoption notice and rule text for R.2021 d.074 (53 N.J.R. 1213(a), July 19, 2021), available at nj.gov, the current text of N.J.A.C. 5:26-8.7 and its history note in a public regulations mirror, and DCA's reserve FAQ. We did not read 5:26-8.6 in its current published form separately from the notice.

How APM Helps

Association Property Managers provides remote HOA and condo management for associations in New Jersey, starting at a flat $99/month per community with no per-door fees or long-term contracts. See remote management in New Jersey, browse every New Jersey state-law guide, or request a free proposal, delivered within three business days. Laws and licensing rules differ by state, and we confirm the requirements for New Jersey when we build your proposal.

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.