A bill proposed in the Maryland House of Delegates would make significant changes to the Maryland Condominium Act that relate to the period during which the developer is in control of the council of unit owners. House Bill 352 would require that the developer hold at least two meeting per year, rather than the current one annual meeting, and that the unit owners have an opportunity to comment on condominium matters during those meetings. Additionally the bill would require that, if the condominium has a board of directors, within 30 days after 25% of the units have been titled to unit owners, the developer must appoint a board member who is a unit owner and not otherwise affiliated with the developer; and that, if there is no board at that time, a board must then be established The bill would further require the developer to disclose any governmental bonds affecting the project, and provide notice in advance of requesting release of any such bonds. Also, it would be required that the maintenance of the condominium’s books and records begin on the date that the council of unit owners is established, and that the condominium’s books and records be kept separate and apart from those of the developer. The bill proposes similar changes to the Maryland Homeowner Association Act.
In a newly issued opinion, the Court of Appeals of Maryland has clarified existing law and expressly recognized an independent cause of action for breach of fiduciary duty. In William H. Plank, II, et al. v. James P. Cherneski, et al., Misc. No. 3, September Term, 2019. the Court observed that whether Maryland recognizes an independent cause of action for breach of fiduciary duty is a question that “Courts and commentators have been asking … for 23 years since this Court articulated its holding in Kann v. Kann, 344 Md. 689 (1997).” In Kahn, the Court declared that there was “no universal omnibus tort for the redress of breach of fiduciary duty,” but noted that “[t]his does not mean that there is no claim or cause of action available for breach of fiduciary duty.” 344 Md. at 713. In its new decision, the “Court recognizes an independent cause of action for breach of fiduciary duty. To establish a breach of fiduciary duty, a plaintiff must demonstrate: (1) the existence of a fiduciary relationship; (2) breach of the duty owed by the fiduciary to the beneficiary; and (3) harm to the beneficiary. The recognition of an independent cause of action for breach of fiduciary duty is pertinent to the operations of condominium and homeowner associations, and, in particular, may impact the potential liability of developers during the period of time when they are in control of an association’s board.
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.
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.
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 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…)