Maryland Condo Law Blog

An online resource for condominium and homeowner associations and their members, and for developers, builders, contractors, architects, engineers and others in the building industry.

Amendment To The Condominium Act Establishes 60-Day Period For Holders of Mortgages And Deeds Of Trust To Object To Amendments

An amendment to Section 11-103 of the Maryland Condominium Act, adopted by the General Assembly during 2020 legislative session, clarifies the procedures for obtaining the consent of the holders of mortgages and deeds of trust to amendments to the condominium’s declaration, where such consent it required under a condominium’s governing documents.  It is intended to address circumstances in which holders of mortgages or deeds of trust do not respond to notices of proposed amendments.  The new law provides that the condominium provide holders of mortgages and deeds of trust with a copy of the proposed amendment, and, if the holder fails to object in writing within 60 days after receiving the notice, they are deemed to have consented to the amendment.  This provision is not applicable where the proposed amendment would (1) alter the priority of the lien of the mortgage or deed of trust; (2) materially impair or affect the unit as collateral; or (3) materially impair or affect the right of the holder to exercise rights under the mortgage or deed of trust.  In those instances, express consent must still be obtained.  A similar amendment was enacted to Section 11B-116 of the Maryland Homeowner Association Act.  These new provisions take effect on October 31, 2020.

Condominium Act Amendment Requires Adopted Annual Budgets To Be Distributed To Unit Owners

An amendment to Section 11-109.2 of the Maryland Condominium Act passed during the 2020 session of the Maryland General Assembly requires that the budget adopted at an annual meeting be distributed to each unit owner no more than 30 days after the meeting at which the budget was adopted.  The distribution may be made “by electronic transmission, by posting on the condominium association’s home page, or by inclusion in the homeowner association’s newsletter.”  An amendment to the same effect was enacted as to Section 11B-112.2 of the Maryland Homeowners Association Act.  The new law takes effect on October 31, 2020.

Unit Owner Insurance Deductible Responsibility Increased to $10,000

Legislation enacted during the 2020 session of the Maryland General Assembly increases the amount for which an individual unit owner is responsible where the cause of damage to any portion of the condominium originates in their unit.  Under Section 11-114 of the Maryland Condominium Act, condominium master policies must cover property damage to all of the condominium structure, including both the common elements and units as originally constructed and finished by the developer, with the unit owners providing individual insurance for their improvements and personal contents.  If damage originates in an individual unit, the owner is responsible for the insurance deductible under the condominium’s master policy, up to a maximum cap, which has been set a $5,000.  The new law increases that cap to $10,000, and will take effect on October 1, 2020.  The statute  will now provide:  “If the cause of any damage to or destruction of any portion of the condominium originates from a unit, the owner of the unit where the cause of the damage or destruction originated is responsible for the council of unit owners’ property insurance deductible not to exceed $10,000.”  Any remaining deductible amount remains a common expense.

Condominiums Should Be Seeking Coronavirus Advice

As multi-family housing communities, condominium’s need to be particularly mindful regarding the impact the Covid-19 pandemic.  I have received a number of requests for guidelines, and condominiums are correct to reach out for advice from their attorneys and property managers.  There should be clear communications issued to the community concerning complying with social distancing requirements within the premises.  This includes such matters as restrictions on the use of facilities, issues relating to visitors and deliveries, and contact with employees, contractors and vendors who may be on the property.  Notifications need to be provided as to how scheduled meetings will be conducted, as well as instructions with regard to contacts with board members and management.  A specific plan needs to be in place for dealing with owners who request deferral or other accommodations with regard to the payment of assessments.  And special instructions need to be established for the dissemination of information about the presence in the community of someone who has tested positive for Coronavirus, or is in self-quarantine as a result of experiencing symptoms or having had contact with an infected person.  It is extremely important to seek professional guidance at this time as to what policies need to be in place and the content of communications with unit owner members.

Proposed Legislation Clarifies That The Percentage Needed For Approval Of Bylaw Amendments Is Based On Owners “In Good Standing”

A bill pending in the Maryland General Assembly would make clear that all percentages for approval of amendments to bylaws be determined based on the number of owners “in good standing.”  Owners “in good standing” are those not more than 90 days delinquent as to the payments of assessments and other charges.   House Bill 556 would clarify Section 11-104(e)(6)(ii) of the Maryland Condominium Act, which provides that amendments to the bylaws require the approval of  at least 60% of the unit owners “in good standing.”  That provision also recognizes that approval of bylaw amendments may be based on “a lower percentage if required by the bylaws.”  It was unclear, however, in instances where  the bylaws permit a lower percentage, whether the percentage required is also be based on owners “in good standing;” or whether that limitation only applies when the approval of 60% or more is required.  The proposed legislation would make clear that, if there is a lower percentage required under the bylaws, the percentage of approval is also be based on the number of owners “in good standing.”  The bill would also amend Section 11B-116(c) of the Homeowner Association Act to clarify this same issue.

Proposed Legislation Would Require Unit Owner Participation On a Condo’s Board of Directors During the Period of Developer Control

House Bill 1053, now pending in the Maryland General Assembly, would make significant changes affecting the operation of a condominium during the period of developer control.  The proposed law would require the developer, within 30 days after 25% of the units are sold, to appoint at least one board member who is a unit owner and unaffiliated with the developer.  If there is no board at that time, the developer would be required to create one.  Additionally, the developer would be required to keep separate books and records for the condominium apart from the developer’s own business records.

Once the unit owners take control, the bill would require the developer to provide notice of any bond provided by the developer to a government agency, and to provide advance notice of the developer’s intention to request that it be released from a bond.

The bill would also require, in all circumstances, that a condominium governing body meet at least two times per year.

The bill calls for similar requirements to be be applicable to homeowner associations.

Proposed Legislation Would Require a Developer In Control of a Condominium To Hold At Least One Council Meeting Per Year

A bill filed in the Maryland General Assembly would require condominium developers to hold at least one meeting of the council of unit owners per year, and receive unit owner comment on the operation of the association.  House Bill 218 would amend Section 11-109 of the Maryland Condominium Act, which presently requires that a condominium’s “governing body shall convene at least one meeting each year at which the agenda is open to any matter relating to the condominium.”  The proposed legislation is intended to address those circumstances in which the developer maintains control the council as a result of still owning a majority of the units.  It would provide that the mandated open agenda meeting is to be called by “the governing body or the developer,” and would require that, at the meeting, “the unit owners have an opportunity to provide comment.”

Proposed Legislation Would Increase a Unit Owner’s Responsibility For The Condominium’s Insurance Deductible From $5,000 To $10,000

Legislation now pending in the Maryland General Assembly would double unit owner responsibility for the condominium’s insurance deductible when damage to components of the condominium originates from a unit.  Under current law as established in Section 11-114 of the Maryland Condominium Act, the council of unit owners is required to maintain insurance “[f]or property and casualty losses to the common elements and units, exclusive of improvements and betterments installed in the units by the unit owners other than the developer.”  An individual owner in whose unit the damage originates is responsible for the condominium’s insurance deductible up to a maximum of $5,000. Otherwise, the deductible remains a common expense.  The result is that condominium master policies must cover property damage to all of the condominium structure, including both the common elements and units as originally constructed and finished by the developer, with the unit owners providing individual insurance for their improvements and personal contents.  If damage originates in the unit, the owner is responsible for the insurance deductible up to a maximum of $5,000.  Under House Bill 108 and Senate Bill 175, the $5,000 limit on unit owner responsibility would be raised to $10,000.

PROPOSED BILL WOULD REQUIRE RESERVE STUDIES EVERY 5 YEARS AND ANNUAL FUNDING OF RESERVE AMOUNTS

Proposed legislation introduced in the current session of the Maryland General Assembly would require condominiums with 50 or more units, as well as homeowner associations with 50 or more homes and cooperative housing corporations with 50 or more units, to conduct regular reserve studies, and to fund reserves in an amount equal to at 80% of that established in the reserve studies.    House Bill 58 and Senate Bill 386 would add new Section 11-109.4 to the Maryland Condominium Act requiring reserves studies addressing “major repairs and replacement” of the common elements.  The reserve study must (1) identify the components that the council of unit owners is responsible for maintaining; (2) state the estimated useful life of each; (3) state the estimated cost of repair or replacement of each; and (4) state the estimated annual reserve amount necessary to accomplish the repair or replacement.  For condominiums created prior to October 1, 2020, if a reserve study was conducted on or after October 1, 2016, the condominium would be required to conduct a reserve study within 5 years of the date of the last reserve study, and every 5 years thereafter.  If the condominium has not conducted a reserve study on or after October 1, 2016, they would be required to obtain a reserve study on or before October 1, 2021, and then every 5 years thereafter.  Future condominiums created on or after October 1, 2020 would be required to conduct a reserve study within 90 days of the turnover from the developer and every 5 years thereafter.  The proposed legislation would require that persons providing reserve studies have prepared at least 30 reserve studies in the last three years, and have a bachelor’s degree in construction management, architecture or engineering, or equivalent experience or education, or be licensed by the State in architecture or engineering.  The bills would also amend Section 11-109.2 (b) to provide that the annual budget provide reserve funding at least equal to 80 percent of the recommended amount contained in the most recent reserve study.  Developers in control of a council of unit owners would also be required to comply with the reserve study mandate, and, at turnover of the community, would be required to provide funds at least equal to 100% of the recommended reserve amount.  Section 11-110 would also be amended to give the board of directors authority to increase assessments to fund the required reserves regardless of any restrictions in the governing documents. read more…

Proposed Bill Would Prohibit Limitations On Disclosures Of Agreements To Unit Owners

Legislation now pending in the Maryland  House of Delegates would prohibit condominium boards from withholding legal agreements from unit owners, and would prevent developers from including provisions in the governing documents, sales contracts, or  settlement documents that bar disclosure to unit owners of settlement terms.  House Bill 30 would add new Subsection (c) to Section 11-109.1 of the Maryland Condominium Act, which addresses the requirements for closed door meetings of the board of directors, providing that “[n]othing in this section may be interpreted to, authorize the board to withhold or agree to withhold from the unit owners information about any legal agreement to which the board is a party.”  Additionally, the proposed law would amend Section 11-134.1 to provide that any provision in (1) the declaration, (2) the bylaws, (3) a contract for an initial sale from the developer, or(4) an agreement to settle a disputed claim, is unenforceable if it “[p]rohibits the disclosure to the unit owners of any term of an agreement to settle a disputed claim.”

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The Maryland Condo Law Blog is written by Raymond D. Burke, a shareholder in Baker Donelson's Construction Group. One of the region's top construction and real estate development lawyers, Ray has more than 25 years of experience in matters relating to condominium and other multi-use development matters.

Baker Donelson's Construction Group offers comprehensive legal services to condominium, homeowner and community associations throughout the mid-Atlantic. We provide legal advice and dispute resolution services to boards of directors of condominium and community associations regarding the management of their communities. We also help resolve disputes arising from defective construction of condominiums and other multi-family residential communities.

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