Maryland General Assembly Passes Bill Requiring Reserve Studies

The Maryland General Assembly has passed new legislation requiring all condominiums, homeowner associations, and housing cooperatives to undertake regular reserve studies of common area components.  Under House Bill 107, the reserve study requirement, which was previously applicable to only Prince George’s and Montgomery Counties, is applicable statewide.  A community that has had a reserve study conducted on or after October 1, 2018 must have that reserve study updated within five years from the date to that study, and every five years thereafter.  A community that has not had a reserve study on or after October 1, 2018, must undertake one no later than October 1, 2023, and that study must also be updated every five years thereafter.  The bill has been sent to the Governor for signature into law.

Proposed Legislation Would Permit Changes In Percentage Interests Without Consent of All Unit Owners and Mortgagees

House Bill 358, now pending in the Maryland General Assembly, would allow alterations in the percentage interests assigned to each unit in the common elements by a vote of less than 100% of the unit owners.  Under current law, amendments to a condominium declaration generally require the approval of 80% of the unit owners.  However, there are four specific changes that cannot be made without the consent of all unit owners and mortgagees:  (1)  the boundaries of any unit: (2) the undivided percentage interest in the common elements of any unit; (3) the liability for common expenses or rights to common profits of any unit; or (4) the number of votes in the council of unit owners of any unit.  The proposed bill would remove the undivided percentage interest of any unit in the common element from this restriction.  Instead, a change in percentage interests could be undertaken by a vote of 60% of the unit owners, and without any mortgagee consents.

Currently, the only amendment permitted with only 60% approval is one that adds or repeals .provisions for the suspension of the use of parking or recreational facility common elements by a unit owner that is more than 60 days in arrears in assessment payments.

House Bill Would Make Changes In Condominium Governance, Particularly During The Period of Developer Control

House Bill 140, now pending in the Maryland General Assembly, would make several amendments to the Maryland Condominium Act relating to governance during the period of developer control and, in all condominiums, would expand unit owner participation in meetings of the board of directors.  In proposed new provisions to Section 11-109(c)(8) of the Maryland Condominium Act, the Bill would require a developer in control of a condominium to appoint a unit owner to the board of directors.  Where a developer controlled condominium has a board of directors and 25% of the units have been sold, the developer would be required to appoint at least one unit owner, not affiliated with the developer, to the board.  Where there is no board of directors, once 25% of the units are sold, the developer would be required to establish a board of directors, including at least one unit owner, not affiliated with the developer.

The Bill would also require and additional open agenda board meeting per year that provides an opportunity for unit owner comment.  Section 11-109(c) presently requires that condominium boards hold at least one such meeting each year.  House Bill 140 would amend this provision to require a board of directors to hold two such open agenda meetings per year.   This requirement would also apply to board meetings during the period when the developer is still in control of the condominium.

Additionally, the Bill would add a new provision to Section 11-116 requiring that, during the period of developer control, the condominium’s books and records be maintained “separate and apart from the developer or of any other person.”

The Bill proposes to add similar provisions to the Maryland Homeowner Association Act.  Please watch this blog for further developments on this legislative proposal.

Florida Condo Collapse Is a Lesson For Everyone

The tragic collapse of the Champlain Towers Condominium in Surfside Florida, and the horrific consequences to residents and their families, will, no doubt, continue to be the subject of multiple news reports and long-term investigations.  And it will be some time before we learn the true cause of the disaster, and how it might have been prevented.  But the fundamental issue — deteriorated building conditions — is something about which all condominium unit owners and property managers need to be especially conscientious.  Previously, I have written about the high importance of regular building evaluations by competent consultants.  As a practical matter, these studies are necessary in order for an association to have information needed to develop accurate budgets for maintenance and reserves.  Of equal importance to conducting a building survey, however, is properly allocating funds to address any conditions that the report identifies.  The fact that the Maryland Condominium Act requires that condominiums adopt annual budgets that specifically include reserves and capital items indicates that the association must have a detailed understanding of its buildings if the specified budget items are to present a meaningful picture of building maintenance issues.  The fact that the Condominium Act, and most condominium governing documents, makes the council of unit owners responsible for maintenance, repair and replacement of the common elements creates potential liability where due diligence as to building conditions is not properly undertaken.  Most often, the consequences of failing to adhere to good maintenance practices are financial — resulting in expensive repair projects and burdensome special assessments.  But as Champlain Towers demonstrates, some building conditions can lead to far more dreadful results.

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.

Maryland General Assembly Considers Two Bills That Expand the Condominium Common Element Implied Warranty

House Bill 069 and Senate Bill 379, now pending in the Maryland General Assembly, would apply the condominium implied warranty from a developer to all common elements, and not just those enumerated in the statute, along with any component that the council of unit owners is required to maintain, repair or replace, regardless of whether it is defined as a common element in the governing documents.  Under the current provisions of Section 11-131(d) of the Maryland Condominium Act, there is an implied warranty from a condominium developer to a council of unit owners, which applies to “the roof, foundation, external and supporting walls, mechanical, electrical, and plumbing systems, and other structural elements.”  The proposed law would establish that the implied warranty applies “to all common elements, including” those listed in the current law.  Additionally, the bills propose that the implied warranty is applicable “to any portion of the condominium that the council of unit owners is required to maintain, repair, or replace under the [governing documents] regardless of whether the portion of the condominium is designated as a unit or a common element.” (more…)