House Bill 98, making changes to condominium insurance requirements, was passed during this year’s legislative session and signed into law by Governor Moore. It amends Section 11-=114 of the Condominium Act concerning the mandatory insurance that is required to be maintained by the Council of Unit Owners. These changes, which will take effect on October 1, 2023, differentiate between “attached” and “detached” units for insurance purposes. The new law changes subsection (a)(1), which presently provides that the Council is required to maintain “[p]roperty insurance on the common elements and units, exclusive of improvements and betterments installed in units by unit owners other than the developer, insuring against those risks of direct physical loss commonly insured against, in amounts determined by the council of unit owners but not less than any amounts specified in the declaration or bylaws.” The amended provision establishes that the Council is only required to maintain insurance on “attached” units. Where units are detached, the Council is only required to maintain insurance on the common elements and not any portion of the units. Similarly, subsection (d), which provides that insurance proceeds are first to be disbursed to repair the common elements and then the units, is amended to provide that the distribution of insurance proceeds for units is only to be made in the case of “attached” units. A new subsection (e)(2) is also added, which expressly requires that “and owner of a residential detached unit shall carry homeowners coverage on the entirety of the unit.”
As previously reported, during the 2022 legislative session, the Maryland General Assembly passed new legislation requiring all condominiums, homeowner associations, and housing cooperatives to undertake regular reserve studies of common area components. The Governor did not sign the bill, but it became law under Art. II, Sec. 17(c) of the Maryland Constitution, which provides that a bill send to the Governor becomes law if the Governor does not veto the bill with 30 days of its presentment. Under the new law, which takes effect on October 1, 2022, 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 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.
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 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.
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.