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.

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.

Required Disclosure of Defects In Home Sales Applies Only To Single Family Residential Property Improved By Less Than Five Units

Compliance with Section 10-702 of the Maryland Real Property Code has been a source of some considerable discussion.  It requires that a home seller provide the buyer with a either a “disclosure statement,” by which information is provided relating to the seller’s knowledge of defects, or a “disclaimer statement,” which applies to “as is” sales, but still requires disclosure of “latent defects.”  It should be noted, however, that neither statement is required in connection with the sale of a unit in a property containing five or more units, because the statute expressly applies “only to single family residential property improved by four or fewer units.”  In the sale of a condominium unit, disclosure requirements are governed by Section 11-135 of the Maryland Condominium Act, which requires certain disclosures by both the council of unit owners and the selling unit owner.

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.

Unit Owner Insurance Deductible Responsibility Increased to $10,000

Legislation enacted during the 2020 session of the Maryland General Assembly increases the amount for which an individual unit owner is responsible where the cause of damage to any portion of the condominium originates in their unit.  Under Section 11-114 of the Maryland Condominium Act, 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 an individual unit, the owner is responsible for the insurance deductible under the condominium’s master policy, up to a maximum cap, which has been set a $5,000.  The new law increases that cap to $10,000, and will take effect on October 1, 2020.  The statute  will now provide:  “If the cause of any damage to or destruction of any portion of the condominium originates from a unit, the owner of the unit where the cause of the damage or destruction originated is responsible for the council of unit owners’ property insurance deductible not to exceed $10,000.”  Any remaining deductible amount remains a common expense.

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.