Raising the Bar on Building Inspections

New Jersey is taking big steps to ensure the safety of co-op and condo residents and avoid a catastrophe like the Champlain Towers collapse in Florida in 2021. On Jan. 8, Gov. Phil Murphy signed legislation upending the way New Jersey co-ops and condos deal with structural inspections — and how they pay for them. 

Previously, there were no statewide requirements for inspections, reserve studies or funding reserves. The new law puts forth timelines for inspections based on the age of the building, as well as qualifications for inspectors. The real changes, though, are in the financing. Co-ops and condos are now required to conduct capital reserve studies that must be updated every five years; co-ops or condos that have never conducted a study or have one that’s older than five years must complete a new study by Jan. 8, 2025. From there, the law has several timelines for building a reserve fund based on the results of the reserve study, any repairs required and how much money the building currently has. 

While no distinction is being made between co-ops and condos when it comes to the reserve study and fund requirements, the law does offer condos — which, unlike co-ops, are typically restricted from spending certain amounts of money without securing unit-owner approval — a shortcut around that process. The law contains an override provision that is narrowly tailored to critical structural issues, giving condo boards the authority to spend money, impose assessments and borrow funds without unit-owner approval in certain circumstances. 

“In a scenario where the override would apply,” says Matthew Earle, a partner at the New Jersey law firm Kates Nussman Ellis Farhi & Earle, “you would need a certification from a professional engineer saying that you have a structural issue that if it’s not addressed, you either have a life safety problem or further deterioration. You have a crisis that needs to be addressed and there’s really no other choice. You’re not going to let a bunch of people die because owners can’t vote the right way on something.”

What this means for co-ops and condos across the river in New York, though, remains to be seen. New York City has a patchwork of local laws and regulations when it comes to structural inspections and repairs, but there are currently no reserve study or reserve fund requirements. Although condos are required by Fannie Mae and Freddie Mac to have a 10% line item in their operating budget that funds reserves to qualify for financing, co-ops — which have more financing options — don’t have to follow the same rule. In reality, though, many do. “Even if it’s not required,” says Pat Niland, president of First Funding of New York, “that’s something everyone seems to be doing these days.” 

Reactions to New Jersey’s sweeping reforms are mixed. 

“Could New York mandate that buildings have certain reserves?” asks Michael Willner, a member of the law firm Norris McLaughlin. “It’s possible, but it is hard to mandate across the board. From a practical standpoint, New York could replicate what New Jersey did, but because of the complexity and the variation in the type of properties that you’re dealing with, I just don’t see it. Rather than a 10% mandate, I could see a requirement where we have to start doing reserve studies regularly, have them on file and make sure that we adhere to them.” 

Niland disagrees, saying that similar legislation for New York buildings is long overdue. “New Jersey’s new law requires that all boards now do what only the most professional and forward-thinking boards have done in the past,” he says. “New York should follow New Jersey’s example. Boards will balk, but eventually they will realize that it is much cheaper to fix or upgrade things before they become more expensive surprises.”