New Jersey Law Journal: Unauthorized Litigation Against the Sponsor: When a Condo Board’s Failure to Obtain a Pre-Suit Vote Becomes Grounds for Dismissal
For sponsors that construct and sell large-scale, multi-unit condominium developments, being subject to lawsuits brought by condominium associations alleging construction and design defects, whether ultimately meritorious or not, is a common occurrence. However, the bylaws that govern the condominium association may prohibit the board of the association (Board) from initiating litigation unless a certain percentage of unit owners vote to authorize it. Thus, sponsors faced with litigation should immediately evaluate whether the Board has, in fact, complied with the bylaws’ requirement to obtain the authorizing vote prior to plunging the parties into litigation.
This article discusses the import of provisions within bylaws that require an affirmative vote of unit owners authorizing the Board of a condominium association to initiate litigation and discusses whether and under what circumstances a sponsor may move to dismiss the lawsuit where the Board initiates litigation without complying with pre-suit voting requirements. A discussion of some of the relevant case law from New Jersey as well as from New York and other jurisdictions is provided.
Lawsuits Alleging Defects in the Building’s Common Elements — A Background
When a sponsor finishes constructing a residential development and control of the condominium association has been transitioned from the sponsor to the unit owners, it is not uncommon for the sponsor to face a lawsuit brought by the Board alleging defects in the building’s design and construction. These suits typically assert claims for negligence, breach of contract, and breach of express and implied warranties due to alleged defects in the building’s common elements, i.e., the shared areas and commonly owned aspects of the building such as roofs, basements, halls, corridors, lobbies, stairways, elevators, and parking areas, as well as the structural elements of the building. In New Jersey, claims may also be asserted under New Jersey’s Planned Real Estate Development Full Disclosure Act or the Consumer Fraud Act for alleged misrepresentations contained in the offering statement and marketing materials regarding the building’s construction, common elements, and common amenities. Under established precedent, barring extraordinary circumstances, only the condominium association, rather than individual unit owners, have standing to sue for alleged defects to the common elements. Siller v. Hartz Mountain Assocs., 93 N.J. 370, 380 (1983).
Common element lawsuits can take years to litigate, often involve numerous defendants, and are almost always significantly costly for all parties involved. Indeed, costs accrue rapidly as the parties typically engage in voluminous written and oral discovery. Often the parties must also retain consulting and testifying experts to analyze and opine regarding the alleged defects and conditions of the building. On the plaintiff side, the high costs of litigating common element defect cases may fall on the unit owners, who typically must fund the litigation by paying special assessments levied upon them by the condominium association. Even in situations where counsel for the association works pursuant to a contingency fee arrangement, engaging in litigation may still entail a lengthy process, resulting in the association waiting years to receive a recovery, which is then reduced by the attorneys’ fees owed under the fee arrangement. Instead of expensive and time-consuming litigation, unit owners may prefer to pursue less expensive alternative dispute resolution mechanisms such as guided mediation or simply engaging in negotiations with the sponsor to obtain a settlement or the sponsor’s cooperation in remediating the perceived defect. Once litigation is filed, it may also negatively impact the value of the unit owners’ investments in several respects. It may adversely impact the marketability of the units by bringing negative publicity to the condominium development. Condominium developments involved in pending litigation may be placed on lenders’ blacklists, making it difficult for prospective purchasers to obtain financing.
Given the time and immense costs that are attendant to litigation, the bylaws that govern condominium associations may contain a provision expressly prohibiting the association from initiating litigation unless a certain percentage of all unit owners vote to authorize it. Many bylaws also contain a provision requiring that the unit owners be provided with adequate, advanced, written notice of the meeting at which the vote to authorize litigation takes place. Taken together, these pre-suit voting and notice provisions in bylaws ensure that the unit owners have a say in whether the costs of litigation are justified and prudent given the extent of the damages to be alleged or the likelihood of a recovery.
Who Has an Interest To Ensure That the Condominium Association Obtains the Requisite Pre-suit Authorization From Unit Owners?
When a condominium association rushes to the courthouse to sue the sponsor without first obtaining authorization from the unit owners, as required by the bylaws or other applicable authority, clearly the unit owners’ right to have a say in whether to commence litigation has been violated. A flouting of the bylaw’s pre-suit authorization requirement also runs afoul of the law’s recognition that a condominium association’s Board, as a fiduciary, has a duty to act in the best interest of the unit owners, including by seeking authorization for its acts when it is mandated to do so. As the Supreme Court of New Jersey has recognized, “[t]he association’s board of directors, trustees or other governing body have a fiduciary relationship to the unit owners, comparable to the obligation that a board of directors of a corporation owes to its stockholders. Acts of the governing body should be properly authorized.” Siller, 93 N.J. at 382.Furthermore, in Billig v. Buckingham Towers Condo. Ass’n I, the Appellate Division noted that “[l]itigation ought to be a last resort, not a first one” and that “before the unit owners can be burdened with the financial onus and other burdens of litigation, they must be assured that their elected board has made reasonable efforts otherwise to resolve the dispute.” 287 N.J. Super. 551, 564 (App. Div. 1996) (condominium association lacked standing to bring foreclosure action because it was not authorized by a formal resolution). Further, the Billig court noted that the association’s “decision to engage in litigation … must be a collective decision of the board” and should be “properly memorialized.” A Board’s reluctance to seek the unit owners’ authorization to file the lawsuit may signal that a substantial number of owners favor seeking a resolution of the alleged defects through less expensive alternatives to litigation or signal that many unit owners do not support pursuing litigation at all.
In addition to the unit owners, the sponsor also has an interest in making sure the condominium association has received authorization from the requisite number of unit owners for the lawsuit. In Port Liberte II Condo. Assn. v. New Liberty Residential Urban Renewal, a condominium association initiated a lawsuit against the developers of a multi-unit residential development alleging common element defects without first obtaining the unit-owners’ authorization by vote as required under the bylaws. 435 N.J. Super. 51 (App. Div. 2014). The court in Port Liberte II held that because the unit owners subsequently ratified the unauthorized litigation by an affirmative vote, the plaintiff-condominium association had cured its lack of standing to bring the suit. Notably, the court in Port Liberte II also held that the developers, “who are strangers to the relationship between the Association and the unit owners, h[ad] no standing to enforce the unit owner’s rights under the by-laws.” The developer-defendants had asserted that it had an interest “in ensuring that plaintiff was the proper party to pursue the lawsuit, so as to avoid future litigation by dissenting unit owners, … [an interest which the court concluded] was satisfied when … the unit owners voted to authorize the lawsuit.
In other words, where the Board files a lawsuit without the required authorization by the unit owners, there is a risk that a group of dissenting unit owners (who are of the belief that the Board’s actions lack legitimacy) may engage in subsequent litigation to assert similar claims or even competing litigation in an attempt to wrest control of the litigation from the Board’s grasp. In such a scenario, both the sponsor and the courts would be subject to needless and duplicative litigation costs.
If the Board Does Not Obtain the Requisite Pre-Suit Authorization, May the Sponsor Move to Dismiss the Lawsuit on That Basis?
Whether a sponsor or third party has standing to raise the argument that the Board failed to obtain authorization for the litigation varies across jurisdictions. Currently, in New Jersey State law, there is a dearth of published case law passing on the precise question of whether a sponsor may obtain dismissal of a suit alleging common element defects where the plaintiff-condominium association does not first obtain the requisite unit-owner approval as required under the applicable bylaws. In Porte Liberte II, it was undisputed that the unit owners subsequently voted to ratify the Board’s initial unauthorized filing of the lawsuit, so the question of whether the sponsor could dismiss the lawsuit where there was never an authorizing vote was not before the court. (The unit owners’ vote ratifying the litigation “satisfied any legitimate concern defendants may have had about the possibility of duplicative future litigation. That should have been the end of the issue.”). As noted above, the court in Porte Liberte II, however, concluded that the developer-defendants “ha[d] no standing to enforce the by-laws or to protect the owners’ financial interests,” which it characterized as “be[ing] akin to letting the proverbial fox protect the interests of the chickens.” Thus, a sponsor facing a lawsuit brought by the Board of a condominium association should consider whether the sponsor still has an ownership interest in the development, which may confer standing to enforce the Board’s compliance with the bylaws’ pre-suit voting requirements.
Courts in other jurisdictions have permitted the sponsor/developer to enforce pre-suit voting requirements against the condominium association where the sponsor/developer is also a unit owner. See, e.g., De Soleil S. Beach Residential Condo. Ass’n v. De Soleil S. Beach Ass’n, 315 So. 3d 58, 63 (Fla. Dist. Ct. App. 2020) (affirming summary judgment entered in developer’s favor where condominium association lacked standing to bring action for declaratory judgment regarding its power to collect assessments because it failed to satisfy pre-suit voting requirement contained in the association’s governing declaration); see also Bethany Trace Owners’ Ass’n v. Whispering Lakes I, 97 So. 3d 334, 335 (Fla. 2d DCA 2012) (affirming trial court’s determination that defendant corporation had the right to enforce statutory authorizing vote requirement because it was a member of the homeowner’s association).Conversely, some jurisdictions recognize that third parties to the bylaws governing the condominium association nevertheless have standing to enforce the Board’s compliance with the bylaws where the third party “has an interest in ensuring … the suit was properly authorized, so as to prevent individual unit owners from later bringing similar claims … on the basis that [the condominium association]’s prior actions were invalid.” Kim v. Hemingway House Condo. Ass’n, 2020 IL App (1st) 190603-U, Paragraph 26 (law firm had standing to challenge the plaintiff-condominium association’s standing to bring counterclaim alleging breach of fiduciary duty where the plaintiff-condominium association failed to hold an authorizing vote as required under the bylaws).
In actions brought in New York State Supreme Court, sponsors have achieved dismissal of claims alleging common element defects where the condominium Board commenced litigation without holding a vote to authorize the litigation as required by the condominium’s bylaws. See Bd. of Managers of Clermont Greene Condo. v. Vanderbilt Mansions, 44 Misc. 3d 1205(A), 997 N.Y.S.2d 97 (N.Y. Sup. 2014) (granting the sponsor’s motion to dismiss claims alleging defects and breach of contract where the condominium board lacked capacity to sue at the time the action was filed because it failed to hold an authorizing vote as required under the bylaws). Likewise, in New York State Supreme Court, claims brought by the condominium Board against the sponsor have been dismissed where the sponsor’s appointees to the Board were excluded from the pre-suit meeting held to decide whether to authorize the litigation. See Bd. of Managers of Chelsea 19 Condo. v. Chelsea 19 Assocs., 32 Misc. 3d 1219(A), 934 N.Y.S.2d 32 (Sup. Ct. 2009), aff’d on other grounds, 73 A.D.3d 581, 905 N.Y.S.2d 8 (2010).
Conclusion
When faced with a lawsuit alleging common element defects, a sponsor should consider whether the bylaws that govern the Board of the condominium association’s authority contain a pre-suit voting requirement and then assess whether the Board complied with that obligation before filing the complaint. To this end, the sponsor may consider requesting from the Board any meeting minutes or documentation that memorializes the vote authorizing the litigation. Otherwise, once the litigation has proceeded past the motion to dismiss stage, the sponsor may seek discovery regarding whether the bylaw’s pre-suit voting requirements were satisfied by serving the plaintiff with requests to admit, interrogatories, and/or document requests targeted to this issue. Counsel for the sponsor should also pay particular attention to whether the law of the jurisdiction in which the lawsuit is pending requires the sponsor to be a unit owner to have standing to enforce the Board’s compliance with the bylaws’ pre-suit voting requirement.
For both the sponsor and unit owners alike, the bylaws’ litigation authorization provision prevents a rush to the courthouse, allowing the parties to explore a negotiated settlement without simultaneously having to shoulder the accumulating costs of discovery and motion practice that come with litigation. It encourages unit owners and the Board to engage in a well-reasoned and deliberative process before shouldering unit owners with the onus and financial burdens of litigation.
Reprinted with permission from the December 17, 2025 issue of the New Jersey Law Journal. © 2025. ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.