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. (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.

Maryland General Assembly Considers Two Bills That Would Expand a Condominium’s Priority Lien

Senate Bill 374 and House Bill 250, pending in the Maryland General Assembly, would expand the portion of a condominium’s lien that has a priority over a first mortgage or first deed of trust.  Under the current provisions of Section 11-110 of the Maryland Condominium Act,  a portion of a condominium’s lien for delinquent assessments has a priority consisting of four months of assessments limited to a maximum of $1,200.  Additionally, it is limited to regular assessments only, and my not include (1) interest; (2) costs of collection; (3) late charges; (4) fines; (5) attorney’s fees; (6) special assessments; or (7) “any other costs or sums due under the declaration or bylaws of the condominium or as provided under any contract, law or court order.”  The proposed law would expand the priority to six months of assessments, eliminate the maximum limitation, and allow inclusion of the list of seven items that are now expressly precluded.

Maryland House of Delegates Passes Bill To Raise Condo Unit Owner Responsibility for Insurance Deductible

By a vote of 139 – 0, the Maryland House of Delegates has passed legislation that would make condominium unit owners responsible for a larger amount of the insurance deductible when the condominium’s policy pays for damage from an issue that originates in the owner’s unit.  Under Section 11-114, a condominium must maintain property insurance on the entire property, including the common elements and the units, except for improvements and betterments installed in the units by the owners. Where damage originates from a component of a unit, the liability of the unit owner is limited to the insurance deductible under the condominium’s policy up to a maximum of $5,000.  HB 249 would double the unit owner responsibility to $10,000.  The bill also adds clarifying language with regard to damage that is a common expense.  The current law provides that any damage originating from the common elements is a common expense.  HB 249 provides that this also would include damage originating from “an event outside of the condominium units and the common elements.”  The bill now moves onto the Senate Judiciary Committee.