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.

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.”

Proposed House Bill Would Clarify Procedures for Mortgage Holder Approval of Amendments

Legislation being introduced in the 2020 session of the Maryland General Assembly would require holders a mortgage or deed of trust on a condominium unit to provide a written objection in writing to a proposed amendment to the declaration within 60 days of receiving notice, or be deemed to have consented to the amendment.  HB 25 pending in the House of Delegates is intended to address an uncertainty arising from provisions in condominium declarations requiring that mortgagees and holders of deeds of trust approve amendments.  A question has often arisen as to what happens if a mortgage holder receives notice of a proposed amendment, but does not respond.  HB 25 would amend Section 11-103(c) of the Maryland Condominium Act, and establish a 60-day period for holders of mortgages or deeds of trust to respond after receipt of the proposed amendment, or be deemed to have consented.  However, the proposed change does carve out three specific exceptions to the 60-day rule for any amendment that would (1) alter the priority of the lien; (2) materially impair or affect the unit as collateral; or (3) materially impair or affect the right of the holder of the mortgage or deed of trust to exercise any rights under the mortgage, deed of trust, or applicable law.  Amendments falling into those categories would still require actual approval by the mortgagee or deed of trust holder.  It is also noteworthy that the proposed legislation is limited to proposed amendments of the declaration, and does not address provisions requiring that holders of mortgages or deeds of trust approve amendments to the by-laws.

New Maryland Law Affects Developer Voting Rights in an HOA

Governor Hogan has signed into law legislation adopted by the General Assembly during 2019 session that deals with the voting rights of developers in homeowner associations where not all lots have been sold.  Senate Bill 305, which was passed unanimously by both Houses and signed by the Governor on April 30, 2019, amends Section 11B-111.7 of the Maryland Homeowners Association Act, and addresses the votes to which a developer is entitled with respect to whether lots have been subdivided and recorded.  Of course, any lot that has been sold must have first been subdivided and recorded.  The issue has been the developer’s votes on unsold lots that have not been subdivided and recorded.  Under current law, which will be changed when the new law takes effect on October 1, 2019, until all of the lots have been subdivided and recorded, a developer is entitled to the number of votes equal to the number of unsold lots that have been subdivided and recorded but remain unsold.  There is no vote for lots that have not yet been subdivided and recorded.  The new law provides that, once all of the lots have been subdivided and recorded, the developer is entitled to one vote per lot that remains unsold.  But, until all of the lots have been subdivided and recorded, the developer’s votes are to be as provided in the governing documents; i.e., the governing documents  control until every lot has been subdivided and recorded.  So developers will have control of determining the number of votes to which they are entitled by addressing the issue when the governing documents are prepared.  Arguably, however, if the governing documents are silent on the issue, the developer gets no votes on unsold lots until each and every lot is subdivided and recorded.

ABOUT

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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