On January 8, 2024, Governor Murphy signed into law Senate Bill S2760 (and its companion legislation, Assembly Bill A4384), which is informally known as the “Structural Integrity Bill.” The New Jersey Chapter of the Community Associations Institute (CAI-NJ) and its Legislative Action Committee (LAC) worked diligently with New Jersey lawmakers in the wake of the tragic Champlain Towers collapse in June 2021 to draft, revise, and ultimately get this vital legislation passed. The Structural Integrity Bill imposes new requirements on community associations concerning structural inspections and reserve studies.

Structural Inspection Requirements

With respect to structural inspections, residential buildings utilizing a load-bearing system comprised of steel, concrete, masonry, heavy timber, or some combination thereof are categorized as “covered buildings” and are subject to the legislation. Notably, single-family homes and low-rise, wood-framed construction are not included within the scope of the law’s structural inspection requirements.

For covered buildings older than 15 years (based on the certificate of occupancy date), the association must obtain an initial “baseline” structural evaluation by a New Jersey licensed structural engineer within two years of January 8, 2024. For buildings newer than 15 years old, a structural evaluation must be obtained at the 16-year mark. If the structural evaluation yields a determination that there are structural concerns, the association must make necessary repairs within a deadline imposed by the structural engineer.

After obtaining the baseline structural evaluation, associations must obtain follow-up inspections every 10 years if the building is less than 20 years old. If the building is older than 20 years, follow-up inspections must occur every five years. If damage is found by an engineer to a building’s structural system, there must be a follow-up inspection within 60 days.

Reserve Study Requirements

In addition to structural inspections, the Structural Integrity Bill requires associations to update reserve studies. If more than five years have passed since an association’s last reserve study, an updated study must be obtained within one year. Associations with reserve studies performed within the last five years must obtain an updated study within five years from the previous study.

If a reserve shortfall is identified through an updated study, associations must immediately begin making up the deficiency through dues increases and other budgeting methods. However, if doing so would require an increase in unit owner dues in excess of 10%, and depending on the nature and extent of the shortfall, associations will have up to 10 years to make up the shortfall.

The Structural Integrity Bill is nuanced and includes many additional requirements, provisions, and exceptions. The attorneys in our Community Association Law and Transition and Construction Defect Practice Groups are well-versed in the legislation and available to answer general or community-specific questions about its implications.

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In New Jersey (and virtually all other states), construction defect cases for common interest community associations are heavily reliant on expert witnesses. Even if a building system is obviously defective — in that windows leak every time it rains, cracks have developed in walls, and sidewalks have sunken from improper soil compaction — the association must still present expert reports and testimony to prove its case at trial. Litigation expert reports in construction defect cases must generally address the following five issues:

1. How was the building supposed to be constructed, as required by architectural plans, manufacturer installation instructions, building code, and industry standard?
2. How was the building actually built, and how does the as-built construction divert from what was required?
3. How are the construction defects causing damage to the building?
4. What needs to be done to remediate the defects and damage?
5. How much will the remediation cost?

With respect to issue 5 – how much will the remediation project cost – a litigation expert will typically generate a professional construction cost estimate. A cost estimate takes each element from an architect or engineer’s proposed repair design scope and assign it an itemized cost. The cost for each item typically includes the price for that particular material and the labor to install it. The cost estimate also includes certain other costs for the repair project such as demolition, fencing, permits, contingencies, architectural design and oversight, insurance, bonding, profit and overhead, etc. A typical cost estimate can have hundreds, if not thousands, of itemized costs for a large repair.

Because construction defect cases, especially large ones for condominium and homeowner associations, take upwards of five or more years from filing the initial complaint until the time of trial, many currently pending cases in New Jersey have cost estimate reports that were generated and produced to defense counsel prior to the COVID-19 pandemic. Although some cost estimates may be only a few years old, they are almost certainly outdated and in need an update.

Over the last three years, construction costs have risen dramatically due to many domestic and global factors: soaring construction demand, skyrocketing inflation and interest rates, COVID-19 delays and supply chain disruptions, labor shortages, civil unrest and the Russian/Ukraine war. As a result, prices for construction materials continue to rise. According to a September 2022 report from Associated Builders & Contractors, Inc. (ABC), residential construction costs have risen as high as 40.5% since February 2020. While this average is largely impacted by extraordinary price increases for materials such as structural metal (54.2%), iron and steel (69.2%) and crude petroleum (84.3%), even more common residential construction materials have increased dramatically over the last three years, such as lumber (36.5%), asphalt roofing and siding products (36.2%), concrete (23.1%) and plumbing fixtures and fittings (16.2%). While cases that have been somewhat dormant during COVID-related court delays are now active again, association litigants which have pre-pandemic (or even mid-pandemic) construction cost estimates should confer with their attorneys and experts to make sure the construction cost estimates contain the most up to date pricing data available. Failing to update construction cost estimate reports, and then basing settlements and/or trial testimony on outdated data, will almost certainly result in a settlement or jury verdict that is not consistent with the costs the association will actually incur when it starts bidding the project.

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