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 home owner 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.

Considering the "broadly applicable right to free speech" granted under the state constitution, the court reasoned, "in balancing the interests of the parties, [we conclude that the homeowners'] rights to engage in expressive exercises, including those relating to public issues in their own community…must take precedence over the [association's] private property rights."

Balancing Interests

The state Supreme Court disagreed. Like the lower court, the Supreme Court assessed the competing interests of property owners and the community association, but unlike the appeals court, it concluded that the balance tipped in the association's favor. The key question, the state's high court said, is "whether this case presents one of those limited circumstances where, in the setting of a private community, the association's rules and regulations are limited by the constitutional rights of plaintiffs." The court's short answer to that question was — no.

Writing the unanimous opinion, Justice John Wallace stated: "In balancing plaintiffs' expressional rights against the association's private property interest, the association's policies do not violate the free speech and right of assembly clauses [of the New Jersey Constitution]."

The court rejected the central argument in the plaintiffs' suit — that in establishing and enforcing rules for the community, the association was "acting as a municipality." Equally significant, the court recognized that while individual constitutional rights are fundamental, "they are not absolute." There are circumstances, the court noted, "where citizens may waive or otherwise curtail their rights."

Those circumstances exist in a common interest ownership community, where, the court said, owners enter into a contractual relationship with the association in which they agree voluntarily to abide by its rules. "The mutual benefit and reciprocal nature of those rules and regulations and their enforcement is essential to the fundamental nature of the communal arrangement that Twin Rivers residents enjoy," Justice Wallace explained.

No Invitation to Public Use

The court's earlier decisions imposing constitutional principles on private owners hinged in part on a finding that the owners to some extent "invited public use" of their property. That wasn't the case at Twin Rivers, the court said, noting, "The mere fact that owners may sell or rent property to members of the public who are invited to come into Twin Rivers and inspect such property hardly constitutes a public invitation."

The framework the court established in its earlier decisions for assessing a private entity's constitutional obligations, Justice Wallace explained, requires balancing "the fairness of the restrictions imposed by the [Twin Rivers] association in relation to plaintiffs' free speech rights." This test, too, tilted toward the association, the court concluded, because the restrictions at issue were "minor" and "not unreasonable or oppressive."

Another important balancing question — "whether there exist convenient and feasible alternative means for individuals to engage in substantially the same expressional activity" — also weighed against the plaintiffs. The court found that the owners had other means of expressing themselves (by establishing a competing newsletter, for example), and had other avenues for challenging rules with which they disagreed, including campaigning to replace existing board members with representatives who shared their opposing views.

The Twin Rivers decision clearly and strongly affirms the authority of home owner association to govern common interest communities. But it also recognizes limits on that authority. While associations may restrict the constitutional rights of individual owners, the court noted, those restrictions must be "reasonable as to time, place and manner. Our holding does not suggest that the residents of a home owner association may never successfully seek constitutional redress against a governing association that unnecessarily infringes their free speech rights," the court emphasized.

The attorneys representing the Twin Rivers plaintiffs cited that statement as evidence that the court's decision was "mixed," opening the door, they suggested, to future litigation that will more precisely and (they hope) more narrowly define the limits of a board's governing authority.

Grasping at Straws

We think the plaintiffs' attorneys are grasping at straws — and flimsy straws, at that. It is difficult to read this decision as anything other than an unambiguous victory for homeowner associations — a recognition that the viability of common interest communities depends on their ability to govern reasonably and the willingness of owners to be governed reasonably by them.

The decision — not at all "obtuse," as plaintiffs' attorneys complained, but cogently reasoned and clearly written — did not change anything. The decision's significance lies rather in what the court did not do. It did not stand existing laws governing nonprofit volunteer board members on their head, as a ruling in the other direction would have done; it did not apply constitutional standards to the rules and regulations adopted by homeowner associations; it did not impose limits that would prevent associations from restricting the rights of individual owners when necessary to advance the interests of the community.

The court recognized the possibility that some regulations could violate the constitutional rights of owners, but it found that the regulations at issue in the Twin Rivers case did not cross that line. The message to governing boards is clear but not surprising: Your regulations must be fair and reasonable, they must not violate public policy, and they must be authorized by the community's covenants or bylaws. That's not new legal ground; just good governance and common sense.