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Disclosure of Code Violations In Maryland Condo Resale Certificates May Mean Only “Charged Violations”

As condominium boards and property managers should well know, Section 11-135 of the Maryland Condominium Act imposes a duty on councils of unit owners to provide unit purchasers with a resale certificate whenever a unit is being re-sold.  One significant disclosure that must be made in a resale certificate is “[a] statement as to whether the council of unit owners has knowledge of any violation of the health or building codes with respect to the unit, the limited common elements assigned to the unit, or any other portion of the condominium.”  This, of course, gives rise to the question of what constitutes “knowledge” of a code violation for disclosure purposes.  The Maryland Court of Appeals recently addressed this issue, but only in a footnote contained in MRA Property Management, Inc. v. Armstrong,  426 Md. 83, 43 A. 3d 397 (2012).   While the issue was not actually before the Court, it, nevertheless, took the unusual step of considering the question, and concluded that the disclosure requirement involves only “charged violations;” that is, only violations as to which a formal violation notice has been issued by the code authority.  It can certainly be argued that “knowledge” of a code violation includes knowing that a deviation from a code requirement exists, such as in the form of an engineer’s report, and that such information is highly relevant to a consideration of what maintenance and repair costs may confront the unit purchaser.  However, the Court’s voluntary discussion of this issue, while only dicta, certainly indicates the direction and narrow reading of the statute the Court may take if the issue were to be placed squarely before it.

The Court in the MRA case was primarily concerned with whether a misleading resale certificate could provide the basis for a claimed violation of the Maryland Consumer Protection Act.  It held  that the statutory duties to provide the disclosure information required under Section 11-135 of the Condominium Act, “sufficiently implicated [the council and the property manager] in the entire transaction so as to impose liability under the Consumer Protection Act.”  Specifically with regard to the disclosure  code violations, the Court was clear in pointing at that the issue as not part of the basis on which judgment had been entered in the trial court, and, therefore, was not at issue on appeal.  In fact, the Court expressly noted that the claimants had abandoned the issue of known but uncharged code violations in the lower court.  Despite this, the Court went on to declare what it would rule if the issue were before, concluding that “it is knowledge of of a charged violation thereof, rather than the conduct underlying the violation, that requires disclosure under Section 11-135(a)(4)(x).  Because they were never issued a notice of any such violations, MRA and the Association could not have violated Section 11-135(a)(4)(x).”

In support of this conclusion, the Court cited its prior decision in Swinson v. Lords Landing Village Condominium, 360 Md. 462, 758 A. 2d 1008 (2000).  In that case, the buyer claimed that the condominium had improperly failed to disclose violations of the Prince George’s County Housing Code that had been issued by the County.  The Court held that, because the statute referred only to disclosure of violations of the health and building code, and not housing code violations, a resale certificate is not required to disclose housing code violations.  That case, however, did not address the issue of whether knowledge of a health or building code violation required disclosure in the absence of a violation notice having been issued, and does not directly support the conclusion reached in the MRA case footnote.

The MRA decision did expressly note that, at oral argument, counsel for the claimants “conceded that a condominium association’s omission of conditions amounting to a potential, but not charged, building code violation would not violate the Condominium Act.  The quoted language from the oral argument demonstrates that counsel at least conceded that, in the absence of a violation notice having been issued, the condominium could “technically comply” with statute by stating that there were no “known” code violations.  All of this, however, seems to miss the point.  The resale disclosure provisions are intended to provide condominium unit purchasers with meaningful information with regard to the expenses that can reasonably expect to face if they complete the purchase.  Knowledge that code violations exist, through an engineering report or otherwise, regardless of whether a citation has been issued, could be highly relevant to determining what maintenance costs the unit owners can expect in the coming years.  The clarification of this issue  may be something that will be taken up in the legislature.