Proposed Bill Relating To the Period of Developer Control Passes the House But Does Not Reach the Floor In the Senate

A bill that proposed significant changes to the Maryland Condominium Act, as well as the Maryland Homeowner Association Act, concerning the period during which the developer is in control of the council of unit owners or the homeowner association, was passed in the House of Delegates by a vote of 101 – 31.  However, it was never brought to a vote in the Senate.   As it relates to condominiums, the bill 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 House approved similar changes to the Maryland Homeowner Association Act.  In the Senate, the bill was referred to the Judicial Proceedings Committee, which is as far as it went during the 2021 legislative session.

House Bill 352 Proposes New Requirements During the Period that the Condominium Is Under the Control of the Developer

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.

Maryland Court of Appeals Recognizes a Cause of Action for Breach of Fiduciary Duty

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.

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.

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.