Are homeowner associations governmental or quasi-governmental entities? Until last year, most attorneys who practice community association law would have said the answer was clearly, and appropriately, no. But a New Jersey appeals court called that long-standing assumption into question when it decided that a community association, in fact, plays the role of a municipal government, and its rules and regulations must, therefore, pass constitutional muster.
That decision, in Committee for a Better Twin Rivers v. Twin Rivers Homeowners Association, rattled the common interest ownership community, because of its potential to severely restrict the authority of community association boards to establish and enforce regulations governing their communities. But the community association world is breathing easier now, because the New Jersey Supreme Court recently overturned the ruling. In a unanimous opinion, the state’s highest court concluded that “the nature, purpose, and primary use of Twin Rivers’ property is for private purposes and does not favor a finding that the association’s rules and regulations violated plaintiffs’ constitutional rights.”
A National Bellwether
Although the decision applies only in New Jersey, it is viewed as something of a national bellwether, because New Jersey is among the few states to require private entities to provide some constitutional protections. Most states have concluded that only governmental actors can interfere with an individual’s constitutional rights. The U.S. Supreme Court has agreed, but has held that states may provide broader protections if they choose, and the New Jersey courts have gone further in that direction than any others.
In a 1982 decision (State v. Schmid), the state’s Supreme Court decided that Princeton University’s rule barring leafleting on campus violated the free speech rights of individuals; in a 1994 decision (New Jersey Coalition against the War in the Middle East v. J.M. B. Realty Corp.), the court held that the owner of a regional shopping center could not prevent anti-war protesters from leafleting on the property because that rule also impinged on the free speech rights of individuals. Based on those decisions, it seemed that if any courts were going to impose constitutional standards on the rules of homeowner associations, New Jersey’s were the most likely candidates. But the state’s Supreme Court declined the opportunity Twin Rivers offered to push that legal envelope.
The suit involved a complaint filed by a small group of dissident owners in Twin Rivers (a sprawling planned community with about 10,000 residents) and the American Civil Liberties Union, contending that the association’s rules restricting the size and location of signs and limiting access to a community newsletter and a common meeting room violated the rights of owners to freedom of speech and freedom of assembly.
A trial court ruled against the plaintiffs, finding that Twin Rivers was a private corporation, not a governmental actor, and thus was not required to provide constitutional protections to its residents. But a unanimous three-judge appellate court disagreed. In a 67-page opinion, the appeals court found that constitutional standards rather than the prevailing “business judgment rule” should apply to decisions of the community association.