What You Need to Know

• Importance of Fact-Finding. The case underscores the need for proper fact-finding. The Appellate Court remanded the case for further hearings, citing unresolved factual issues like the reasonableness and enforceability of the height restrictions and whether the home complied with FEMA flood elevation standards.
• Summary Judgment Standard. The case illustrates the importance of having a complete and well-developed factual record when seeking summary judgment, as material factual disputes prevent the resolution of legal issues at that stage.

Introduction

In a recent case from the New Jersey Appellate Division, the Court remanded an order granting summary judgment, finding that the record contained disputed material facts where a property owner contested a homeowners’ association’s authority to enforce building height restrictions.

Background

Plaintiffs John and Janice Gross own a home (the “Property”) within a private residential community governed by a homeowners’ association (the “OBS Club”) in the Township of Toms River. In the late 1940s, their Property was part of a larger tract of land owned by the Patnaudes family, who subdivided the land and sold hundreds of parcels in deeds containing restrictions and covenants, many of which became part of the residential community today.

The Grosses’ chain of title for the Property included three sales. First, in 1947, the Property was sold from the Patnaudes to the Fitzpatricks, subject to restrictions and conditions in the deed, which was duly recorded (the “Genesis Deed”). Next, in 1964, the Fitzpatricks sold the Property to the O’Keefes, subject to covenants and conditions contained in the prior deeds of record. Finally, in 1980, the Grosses purchased the Property from the O’Keefes, subject to covenants and conditions in the prior deeds of record.

The 1947 Genesis Deed included three major restrictions: (1) a restriction that all the property owners in the community must join the property owners’ association and abide by its rules; (2) restrictions on the front, back, and side setbacks for dwellings, and a width restriction; and (3) a general restriction stating that “[n]o building, alteration, or addition shall be made without the written approval of [the property owners’ association].” Notably, the Genesis Deed provided that the property owner would be “required to be members of a property owners' association known or to be known as ‘OCEAN BEACH CLUB’ and to faithfully abide by its rules.”

In 1948, the OBS Club was incorporated, and it adopted by-laws with the goal of “promoting and protecting the general welfare and property rights of the property owner members in their use and enjoyment of their property” in the community. According to the by-laws, any person or group of persons will become members of the OBS Club “on the date of acquisition of title to the property” in the community. In 1989, the OBS Club amended its by-laws to impose building height restrictions on certain buildings in the community, and in 2014, it adopted construction rules requiring approval before any type of construction or demolition activities.

Between October 2020 and May 2021, the Grosses submitted building plans to the OBS Club, seeking approval to construct a new single-family residence on their property in compliance with Federal Emergency Management Agency (“FEMA”) regulations and local ordinances. The OBS Club denied their application due to its height restrictions. When the parties could not reach an agreement over the building plans, the Grosses sued, seeking injunctive relief declaring that the OBS Club did not have the authority to impose and enforce building restrictions on their property.

After hearing arguments, the Chancery Court granted partial summary judgment in favor of the Grosses, declaring that the Property was not subject to the OBS Club’s height restrictions.

Appeal

On appeal, the central issue was whether the OBS Club had the authority to adopt building restrictions beyond the restrictions contained in the Genesis Deed. The OBS Club argued that it is and always has been the property owners’ association referenced in the 1947 Genesis Deed. Additionally, it argued that there were genuine issues of material fact regarding its authority to impose height restrictions, making the issue inappropriate for summary judgment. During the pendency of the appeal, the township approved the Grosses’ construction plan and the house was built at a height greater than the OBS Club’s height restriction.  The OBS Club argued that the Chancery Court failed to consider the language of the Genesis Deed and made factual findings on disputed issues.

The Appellate Division first addressed whether the OBS Club is the property owners’ association referred to in the Genesis Deed and whether the OBS Club could enact additional restrictive covenants by analyzing the language of the Genesis Deed and the factual record.

There, the Court noted that the Genesis Deed expressly contemplated a homeowners’ association that could establish any rules or regulations it chooses, and that building alterations or additions could not be made without the approval of the association. The Court recognized that on summary judgment, all facts must be construed in favor of the non-moving party, which required accepting OBS Club’s factual contention that it was the association referenced in the Genesis Deed. While it was unclear whether the Grosses dispute that OBS Club is the association referenced in the Genesis Deed, they did dispute the Club’s right to adopt restrictions beyond what was expressly provided in the Deed.

In that vein, the Court found the existing record on appeal left critical factual issues unresolved, including whether OBS Club was the recognized homeowners’ association and whether it had the authority to impose additional height restrictions. The Court also reasoned that the Chancery Court failed to consider whether the height restriction was reasonable and enforceable against the Grosses, and remanded for a fact-finding hearing.

Additionally, after supplemental briefing, the Appellate Division determined that factual issues exist concerning whether the new home complies with the FEMA flood elevation standard, and whether OBS Club’s height standards are enforceable against the home that is now built. As such, the Court reversed, vacated, and remanded the Chancery Court’s orders with instructions to resolve these issues on remand through an evidentiary hearing or trial.

Takeaways

This case highlights the importance of developing the factual record and understanding the standard required for summary judgment. Here, many disputed material facts existed that prevented both the trial and appeals court from appropriately resolving the issues based on the record before it.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Matthews Florez at mflorez@riker.com, Kori Pruett at kpruett@riker.com or Shelley Wu at swu@riker.com.