In this case, 23 purchasers of units at Tomes Landing Condominium in Cecil County sued the Condominium Council and the management company for alleged misleading resale certificates.  The certificates stated that there were no know violations of the building or health codes.  The subject units were purchased between January 5, 2000 and October 8, 2004.  In December 2004, the owners were notified of a special assessment to fund a $3,921,838 repair project to correct building defects.  An August 1999 Replacement Reserve Study that identified problems with the condominium’s retaining walls had not been disclosed to the owners prior to the purchase of their units.  The suit included a claim that this failure to disclose constituted an unfair and deceptive trade practice under the Consumer Protection Act.  The trial court found that the resale certificate information, as a matter of law, had a tendency to mislead consumers in violation of the Act, and entered summary judgment in favor of the purchasers.  Rather than proceed to trial on the issue of damages, the parties stipulated to a total of $1 million in damages, and the condominium and managing agent took an appeal.

The Court of Appeals granted certiorari before the Court of  Special Appeals ruled, and held that, while the entry of summary judgment was improper, the unit owners had produced sufficient evidence that, if accepted by the trier of fact, “was sufficient to establish that [the council and management] had utterly failed to comply with the disclosure obligation imposed upon them by Section 11-135(a)(4)(x).”  The failure to meet that disclosure obligation tends to deceive the purchaser, and amounts to an unfair and deceptive trade practice under the Consumer Protection Act.

In reaching is decision on the application of the Consumer Protection Act, the Court cited and quoted from a publication of mine, Raymond Daniel Burke, Kathleen M. Elmore and Cynthia Hitt Kent, Developing and Managing Condominium and Homeowners’ Associations, National Business Institute (2007), in which I wrote:  ”Md. Com. Law Code Ann. Sec. 13-408(a) establishes a private cause of action for damages sustained as a result of an act prohibited by the Consumer Protection Act.  The Act is specifically applicable to ‘consumer realty,’ and, accordingly, representations made in connection with the sale of real property may constitute unfair and deceptive trade practices where they are misleading.”

 The complaint filed on behalf of the unit owner included a cause of action under the Maryland Consumer Protection Act, which provides for the award of attorney’s fees.  The Court accepted our argument that, because the damages that can be awarded under the Consumer Protection Act could not be awarded in arbitration, the Consumer Protection Act claim was not subject to the arbitration agreement, and can proceed in Court before a jury.

Section 11-131(c) of the Condominium Act provides “an implied warranty on an individual unit from a developer to a unit owner” that is expressly in addition to the warranties provided by Section 10-203. Indeed, the Court of Appeals has held that the Title 10 warranties and the condominium warranties under Title 11 run concurrently, and aggrieved purchasers may proceed under either or both. This additional implied warranty is limited to specifically identified components, commences with the transfer of title to that particular unit, and extends for a period of one year. The warranty makes the developer “responsible for correcting any defects in materials or workmanship in the construction of walls, ceilings, floors, and heating and air conditioning systems in the unit,” and further warrants that “the heating and air conditioning systems have been installed in accordance with acceptable industry standards.” The stated standards are “[t]hat the heating system is warranted to maintain a 70°F temperature inside” and “[t]hat the air conditioning system is warranted to maintain a 78°F temperature inside” when the outdoor temperature and winds are “at design conditions established by the Energy Conservation Standards Act … or those established by the political subdivision” in which the condominium is located. This establishes what is, essentially, a strict liability standard; i.e., if the existence of a defect is proven, the developer is responsible for damages consisting of the cost of correction.

Section 11-131(d) provides for “an implied warranty on the common elements from developer to the council of unit owners,” that is also expressly in addition to the implied warranties provided in Section 10-203. Like the warranty on the units, this common element warranty is also applicable only to specific components, consisting of “the roof, foundation, external and supporting walls, mechanical, electrical, and plumbing systems, and other structural components.” The reference to “external and supporting walls” encompasses not only the wall framing members, but cladding systems as well. The inclusion of “structural components” broadens the application of the warranty to any common element component that is part of the building’s structure and framing, as well as community amenities that have a structural capacity, such as paving, pools, sport courts, curbs, steps and sidewalks, and drainage areas. Arguably, the specification of these components as being subject to the common element warranty requires that such components be defined as part of the common elements in any condominium regime. Otherwise, the full scope of the Legislature’s intent in providing the warranty could be negated by excluding some of these components from inclusion in the common elements. Indeed, the statute presumes that these specified components will be among the common element in every condominium.

The common element warranty provides “that the developer is responsible for correcting any defect in materials or workmanship, and that the specified common elements are within acceptable industry standards in effect when the building was constructed.” Like the warranty on the unit, this is a strict liability standard that applies once a defect is demonstrated.

The common element warranty “commences with the first transfer of title to a unit owner.” As to any common element “not completed at the first transfer of title,” the warranty commences “with the completion of that element or with its availability for use by all unit owners, whichever occurs later.” The warranty generally extends for a period of three years from the date of commencement. However, this provision gave rise to problems in enforcing the warranty in circumstances where a majority of the units, and, therefore, a majority of the condominium’s board of directors, remain in the control of the developer for an extended period of time. As a result, during 2010 session, the General Assembly amended the statute to provide that the common element warranty run for a period of 3 years, or “2 years from the date on which the unit owners, other than the developer and its affiliates, first elect a controlling majority of the members of the board of directors for the council of unit owners, whichever occurs later.”

Significantly, a suit for enforcement of the common element warranty may only be brought by the council of unit owners, and is not actionable by an individual or group of individual unit owners. Nevertheless, if the council of unit owners is controlled by the developer, and the time for filing a claim may expire, it is arguable that unit owners may be entitled to preserve the claim by acting on behalf of themselves and all unit owners.

Both the warranty on the units and the common element warranty are subject to a prerequisite notice requirement that is not applicable to the implied warranties under Section 10-203. In order to be enforced, the Condominium Act warranties require that notice of any defect must be given to the developer “within the warranty period.” Suit for enforcement must be brought within one year of the end of the warranty period. Accordingly, as to the warranty on the unit, this creates a maximum period of two years from the date of possession for bringing a claim. As to the common element warranty, the maximum period is four years in the event that the three-year warranty is applicable, or, if the two-year warranty is applicable, a maximum period of two years from the date that the independent unit owner board of directors is elected.

It is important to note that the Section 10-203 implied warranties, as they apply to condominiums, and the Section 11-131 implied warranties have separate and distinct periods of limitations. In Antigua Condominium Ass’n. v. Melba Investors Atlantic, Inc., the Court of Appeals held that the Title 10 warranties applied to newly constructed condominiums independent of Title 11, and therefore, limitations for condominium claims under Section 10-203 are governed by the two year period of limitations established in Section 10-204.

Unlike the Title 10 warranties, the Title 11 condominium warranties “may not be excluded or modified” by any action or written document. This recognizes that a condominium purchaser is buying an interest in the common elements of a building, or perhaps a number of buildings, and is not have the same ability as a purchaser of an individual home to inspect the entire premises. Therefore, the condominium warranties apply regardless of any agreement to exclude them or modify the content. However, the Title 11 condominium warranties are expressly limited so as not to apply “to any defects caused through the abuse or failure to perform maintenance by a unit owner or the council of unit owners,” and are also inapplicable to non-residential condominium regimes.

Under current law, a purchaser of a new condominium unit has an absolute right to rescind their sales contract within 15 days after receiving the documents and information required to be provided to all new condominium purchasers.  The purchaser is not required to state any reasons for the rescission.  Section 11-126(b) contains the long list of materials that must be furnished to a new condominium purchaser, which are normally part of the Public Offering Statement for the condominium.  Under Section 11-126(d), the material provided cannot be amended “without the approval of the purchaser if the amendment would affect materially the rights of purchaser.  There is are exceptions for amendments required by a governmental authority or public utility, or “if the amendment is made as result of actions beyond the control of the vendor or in the ordinary course of affairs of the council of unit owners.”   In the event of an amendment, the purchaser has a right to rescind the contract with 5 days of receipt of the amendment.

Under the new law, purchaser maintain their right to rescind after receiving the required documents, and may still do so without stating a reason.  However, a purchaser seeking to rescind after an amendment of the documents must state reasons in writing showing that (1) that they have approval right; that is, that the amendment is not within one of the exceptions that do not require purchaser approval; and (2) that “the amendment affects materially and adversely the rights of the purchaser.

The original bill proposed a priority for six months of assessments in accordance with the recommendation of the 2006 Maryland Task Force on Common Ownership Communities, but that provision was amended to four months.  An amendment also added the $1,200 cap.

The new law also amends Section 11B-117 of the Homeowners Association Act to provide the same four month priority for unpaid assessments due to homeowner associations.  The same limits applicable to condominium assessments apply; that is, assessments are capped at $1,200; only the principal amount of regular assessments receives a priority; the homeowners association must provide requested written information to the lender; and the priority is applicable to only mortgages and deeds of trust recorded after October 1, 2011.

The Senate bill, which is sponsored by Senators Mathias and Manno, has been referred to the Judical Proceedings Committee, and the House bill, which is sponsored by Delegates Conway, Arora, Bobo, Braveboy, Cullison, Frush, Kramer and Nieman, has been referred to the Environmental Matters Committee.

The 2006 Maryland Task Force on Common Ownership Communities recommended that delinquent assessements receive a priority lien for six months of assessments, late fees, attorney fees, and cost of collection.  During the 2010 session of the General Assembly, the House passed a bill providing for a four month assessment priority.  That bill also required that each unit owner post a two-month security deposit, so that the association would have the benefit of a six month cushion.  The security deposit requirement was criticized by some as placing an undue burden on homeowners.  The bill evenually died in the Senate.

 In 1999, the Dhawans contracted for the construction of a new townhome in the King Farm community along the I-270 corridor in Montgomery County, which they had built to their requirements, including a finished basement level. They moved into the completed home in April 2000.   In August 2006, the Dhawans noticed a musty odor from behind a cabinet in the finished basement level of their home.   After removing the cabinet system they discovered that a section of wall had been severely damaged by water intrusion.   Subsequent investigations revealed water damage in other areas of the basement, and further demonstrated that the moisture intrusion had resulted in extensive microbial growth and mold contamination.   It was ultimately discovered that one of the exterior walls had been improperly constructed with the use of untreated wood framing below grade, and that interior grade drywall had been used as exterior sheathing. Additionally, it was learned that the patio slab outside of the basement entrance had been improperly installed below the level of the floor slab.

Evidence as to code violations and deviations from industry standards was presented on the Dhawans’ behalf through a structural engineer, who also provided a repair specification.   Evidence of microbial contamination was presented through an environmental engineer, who established a protocol for the mold remediation component of the repair.   A contractor provided pricing for both the structural repairs and environmental remediation.   After a four day jury trial before The Honorable Ronald B. Rubin in the Circuit Court for Montgomery County in Rockville, a six member jury found for the Dhawans on all three counts, and awarded compensatory damages of $104,429.59, and, under the CPA, $121,143.39 in legal fees, for a total jury award of $225,572.98. In addition to the legal fees, the award included compensation for (1) loss of use of a portion of the home; (2) the cost of temporary repairs already undertaken; (3) the cost of interim mold remediation; (4) the cost of a permanent repair; (5) the cost of a final mold remediation and validation; and (5) the costs of the structural and environmental engineering investigations. The last item was based on a finding that the Dhawans were entitled to recover, as consequential damages, their expert expenses relating to the engineering investigation, the identification of the defects, and development of repair specifications and remediation protocol.

 As to the CPA, the jury found that Churchill had knowledge of code violations, deviations from industry standards, and deviations from the project drawings prior to the sale of the home, and that the failure to disclose those facts constituted unfair and deceptive trade practices within the meaning of the Act.   The jury was also charged with finding when the CPA claim had accrued for limitations purposes.   The CPA claim was not part of the original claim, but was added by amendment after additional defects were discovered. In particular, while a contractor was determining how much exterior siding needed to be removed for purposes of establishing the cost of repair, it was revealed that the improper interior grade drywall was used as an exterior sheathing for the entire height of one wall of the house, and was not limited to only the basement level.   The Defendant was compelled to acknowledge that it would have been aware of those conditions during construction, but moved for summary judgment as to the CPA claim on the ground that the Plaintiffs should have investigated and discovered the additional defects after the original defects appeared. The jury found that the CPA had not accrued as to those conditions until they were discovered by the Dhawans’ contractor.

 The CPA provides that reasonable attorney’s fees may be awarded for a private cause of action under the Act.   The jury awarded all legal fees that had been billed for the case.  It further advised that it wished to award legal fees for services that had not yet been billed, including the time involved in the trial.   As a result, it was determined my firm could submit to the Court additional invoices, following the trial, for services rendered since the last invoice presented to the jury.   Judge Rubin considered these supplemental invoices, and at a hearing on December 16, 2010, entered an order awarding additional legal fees in the amount of $182,176.02, for a total legal fee award of $303,319.41, bringing the total judgment award to $407,749.00.

 The case was originally filed in 2007, but was the subject of an appeal after the Circuit Court granted the Defendant’s motion to stay the case in favor of arbitration under a warranty policy that had been issued in connection with the sale of the house, despite the fact that the warranty company had already determined that there was no coverage under the policy for the claimed defects.  I have written about lack of coverage under such warranty policies in previous posts.   The Court of Special Appeals ruled that the warranty policy offered no coverage for and was inapplicable to the defects alleged by the Dhawans, held that the parties were not required to arbitrate under the policy, and remanded the case to the Circuit Court.   The motion and appeal process consumed more than two years of the litigation process, resulting in considerable legal fees.