Maryland Condo Law Blog
An online resource for condominium and homeowner associations and their members, and for developers, builders, contractors, architects, engineers and others in the building industry.
Award of Attorney’s Fees Under the Consumer Protection Act May Not Be Subject To An Arbitration Agreement
I obtained a noteworthy ruling this morning in the Circuit Court for Montgomery County while representing a condominium unit owner in a construction defect suit. The sales agreement provided for arbitration of claims, and contained a provision that precludes the arbitration panel from awarding attorney’s fees. Under Md. Cts. & Jud. Proc Code Ann. Sec. 3-221, an arbitration award cannot include attorney’s fees unless provided for in the arbitration agreement.
The complaint filed on behalf of the unit owner included a cause of action under the Maryland Consumer Protection Act, which provides for the award of attorney’s fees. The Court accepted our argument that, because the damages that can be awarded under the Consumer Protection Act could not be awarded in arbitration, the Consumer Protection Act claim was not subject to the arbitration agreement, and can proceed in Court before a jury.
Maryland Appellate Court Rules That Individual Unit Owners Have a Right of Action Against the Council of Unit Owners For Failing To File a Timely Suit Against the Developer For Defects In The Common Elements
Anyone who follows this blog knows that I have often warned condominium councils about the consequences of failing to take timely legal action to protect the unit owners when there is evidence of construction defects in the common elements. The most significant consequence, of course, is that, if a contribution to repair costs is not obtained from the developer and/or its insurer, the unit owners will have to bear the full cost of repair. Now, in an appeal in which I represented a group of individual unit owners at the Avalon Court Six Condominium in Pikesville, the Court of Special Appeals has held that individual unit owners have a right of action for negligence against the council of unit owners, acting through the board of directors, in failing to address defects in the common elements by bringing a timely claim against the developer. read more…
Maryland Condominum and Homeowner Association Mediation and Arbitration Services
I am pleased to report that my services as a mediator and arbitrator may now be arranged through Virtual Courthouse. You can visit the site at www.virualcourthouse.com. I have many years of experience in alternative dispute resolution proceedings in matters relating to condominiums, homeowner associations, multi-family housing projects, and individual homes. These have included cases involving contruction defects, building repairs, budgets, assessments, and association administrative issues. Employing the services of a capable neutral party is a cost effective means of settling issues outside of litigation.
Disputes As To Homeowners Association Elections May Be Submitted To the Attorney General’s Office
The Maryland General Assembly enacted new legislation aimed at helping to resolve disputes concerning the election of officers and board members of a homeowners association. Senate Bill 532 amends Section 11B-115 of the Maryland Homeowners Association Act to give the Consumer Protection Division of the Attorney General’s Office authority to resolve election disputs. A lot owner who believes that the governing body of an HOA has failed to comply with the election procedures under the association’s governing documents can submit their dispute to the Division for resolution if any one of five specific matters are at issue: (1) Notice about the date, time, and place for the election; (2) the manner in which a call for nominations for the board was made; (3) the format of the election ballot; (4) the format, provision, and use of proxies during the election process; or (5) the manner in which a quorum is determined for election purposes. The new law take effect on October 1, 2011.
Title 11 Condominium Warranties May Not Be Excluded Or Modified
Unlike the Title 10 warranties that are applicable to the sales of all new homes in Maryland, including condominiums, the Title 11 condominium warranties “may not be excluded or modified” by any action or written document. In other words, the purchaser cannot be required to agree to eliminate these statutory warranties, or change the terms of the warranties as required by the statute. Any such agreement, written or otherwise, is invalid. This recognizes that a condominium purchaser is buying an interest in the common elements of a building, or perhaps a number of buildings, and is not have the same ability as a purchaser of an individual home to inspect the entire premises. It includes both the warranty on components of the common elements that is given by the developer to the council of unit owners, and the warranty on components of the individual units that is given by the developer to each individual unit owner purchaser. Therefore, the condominium warranties apply regardless of any agreement to exclude them or modify the content. However, the Title 11 condominium warranties are expressly limited so as not to apply “to any defects caused through the abuse or failure to perform maintenance by a unit owner or the council of unit owners,” and are also inapplicable to non-residential condominium regimes.
Warranties Under The Maryland Condominium Act
Section 11-131 of the Maryland Condominium Act provides significant warranty protections for the purchasers for new condominium units. Section 11-131 (a) codified the ruling in Starfish, and established that new home warranties under Section 10-203 “apply to all sales by developers” of condominiums, and that “a newly constructed private dwelling unit means a newly constructed or newly converted condominium unit and its appurtenant undivided fee simple interest in the common areas.” Specific warranties are applicable to certain specified components of both individual units and the common elements, and they are the obligation of the condominium’s developer.
Section 11-131(c) of the Condominium Act provides “an implied warranty on an individual unit from a developer to a unit owner” that is expressly in addition to the warranties provided by Section 10-203. Indeed, the Court of Appeals has held that the Title 10 warranties and the condominium warranties under Title 11 run concurrently, and aggrieved purchasers may proceed under either or both. This additional implied warranty is limited to specifically identified components, commences with the transfer of title to that particular unit, and extends for a period of one year. The warranty makes the developer “responsible for correcting any defects in materials or workmanship in the construction of walls, ceilings, floors, and heating and air conditioning systems in the unit,” and further warrants that “the heating and air conditioning systems have been installed in accordance with acceptable industry standards.” The stated standards are “[t]hat the heating system is warranted to maintain a 70°F temperature inside” and “[t]hat the air conditioning system is warranted to maintain a 78°F temperature inside” when the outdoor temperature and winds are “at design conditions established by the Energy Conservation Standards Act … or those established by the political subdivision” in which the condominium is located. This establishes what is, essentially, a strict liability standard; i.e., if the existence of a defect is proven, the developer is responsible for damages consisting of the cost of correction.
Section 11-131(d) provides for “an implied warranty on the common elements from developer to the council of unit owners,” that is also expressly in addition to the implied warranties provided in Section 10-203. Like the warranty on the units, this common element warranty is also applicable only to specific components, consisting of “the roof, foundation, external and supporting walls, mechanical, electrical, and plumbing systems, and other structural components.” The reference to “external and supporting walls” encompasses not only the wall framing members, but cladding systems as well. The inclusion of “structural components” broadens the application of the warranty to any common element component that is part of the building’s structure and framing, as well as community amenities that have a structural capacity, such as paving, pools, sport courts, curbs, steps and sidewalks, and drainage areas. read more…
Legislature Limits Condominium Purchaser’s Rescission Rights For Amended Condominium Documents
The recent session of the Maryland General Assembly passed House Bill 887, which limits the right of recission belonging to purchasers of a new condominium units. The measure, which takes effect October 1, 2011, amends Section 11-126(e) of the Maryland Condominium Act. That statute gives new condominium purchasers the right to rescind their contracts after receiving certain condominium documents, or if the documents are amended after execution of the sales contract. The new law requires purchasers who receive amended condominium documents to demonstrate that they have a right to approve the amendment, and that the amendment “materially and adversely” affects their rights. The purchaser’s reasons must be stated in writing.
Under current law, a purchaser of a new condominium unit has an absolute right to rescind their sales contract within 15 days after receiving the documents and information required to be provided to all new condominium purchasers. The purchaser is not required to state any reasons for the rescission. Section 11-126(b) contains the long list of materials that must be furnished to a new condominium purchaser, which are normally part of the Public Offering Statement for the condominium. Under Section 11-126(d), the material provided cannot be amended “without the approval of the purchaser if the amendment would affect materially the rights of purchaser. There is are exceptions for amendments required by a governmental authority or public utility, or “if the amendment is made as result of actions beyond the control of the vendor or in the ordinary course of affairs of the council of unit owners.” In the event of an amendment, the purchaser has a right to rescind the contract with 5 days of receipt of the amendment.
Under the new law, purchaser maintain their right to rescind after receiving the required documents, and may still do so without stating a reason. However, a purchaser seeking to rescind after an amendment of the documents must state reasons in writing showing that (1) that they have approval right; that is, that the amendment is not within one of the exceptions that do not require purchaser approval; and (2) that “the amendment affects materially and adversely the rights of the purchaser.
Legislature Passes Measure Authorizing Condominiums to Require Unit Owner Insurance
The Maryland General Assembly passed House Bill 679, which permits condominiums to adopt a requirement that unit owners maintain insurance on their units. The bill was signed into law by the Governor on April 12, 2011, and takes effect October 1, 2011. The law adds new Section 11-114.2 to the Maryland Condominium Act to provide that condominium bylaws may include a provision requiring that all unit owners maintain insurance on their units, and that unit owners provide evidence of such insurance to the council of unit owners on an annual basis. The measure further amends Section 11-104 to specifically authorize a condominium’s council of unit owners to amend the community’s bylaws to require unit owner insurance. Significantly, the law provides that such amendments require the affirmative vote of only 51% of the unit owner votes. This is an express exception to the requirement contained in Section 11-104(e)(2), which mandates that amendments to a condominium’s delclaration or bylaws have the support of at least two-thirds of the unit owner votes, and permits the governing documents to provide for a higher, but not lower, percentage. The new law permits an amendment to require unit owner insurance by a simple majority.
Maryland General Assembly Passes Limited Relief For Unpaid Assessments In Foreclosure Actions
Pursuant to legislation passed in the closing hours of this year’s session of the Maryland General Assembly, four (4) months of unpaid assessments due to condominiums and homeowner associations, up to a maximum of $1,200, will now receive priority over mortgages, but only those recorded after October 1, 2011. As reported in my post of March 18, legislation was pending in the General Assembly that would afford some limited relief to condominiums in the case of unpaid assessments for units that become lender-owned as a result of foreclosure. House Bill 1246 passed both houses on Monday, April 11, 2011, and once signed by the Governor, will take effect on October 1, 2011. The new law amends Section 11-110 of the Condominium Act to provide that four (4) months of unpaid assessments shall receive a priority over a first mortgage or deed of trust in a foreclosure action. However, there are significant limitations attached to the provision. Only the principal amount of regular assessments are given a priority. It does not extend to interest, costs of collection, late charges, fines, attorney’s fees, special assessments, or other charges that are normally considered part of the delinquency under the Contract Lien Act. Additionally, the Legislature imposed a $1,200 cap on assessments receiving a priority. Moreover, the priority only applies against mortgages and deeds of trust recorded after October 1, 2011. Lenders holding liens are also entitled to request written information from the condominium concerning the unpaid assessments, and, if the information is not provided, the priority is voided. read more…
FHA Issues Waiver On Leasing Restrictions
Condominiums have previously been disqualified from FHA financing as a result of leasing restrictions contained in the community’s governing documents. FHA regulations have provided that a mortgatge is not eligible for FHA insurance if the mortgaged property is subject to legal restrictions on conveyance, which includes a restrtiction on leasing found in many condominium declarations or by-laws. 24 CFR 203.41(a)(3). The intent is to promote housing opportunities without undue restrictions. Condominium governing documents often permit leasing of units, but prohibit short term leases of less than six months. Such provisions, which are intended to protect marketability and stability, have run afoul of the FHA requirement that there be no legal restriction on conveyance.
Recognizing that restrictions on leasing are common in condominium communities, and are intended to promote stable property values, on March 18, 2011, the FHA issued a waiver. The waiver, which runs for a period of one year, removes “lease” from the definition of conveyance contained in the regulation. Accordingly, mortgages on condominiums with lease restrictions will qualify for FHA financing until March 18, 2012. The following requirements are applicable:
All leases must be in writing and subject to the declaration and by-laws of the condominium project.
The condominium association may request and receive a copy of the sublease or rental agreement.
The condominium association may not require that a prospective tenant be approved by the condominium association and/or its agent(s), including, but not limited to, meeting creditworthy standards.
The condominium association may request the name(s) of all tenants, including the tenant’s family members who will occupy the unit.
Unit owners are prohibited from leasing their units for an initial period of less than 30 days.
The condominium association may establish a maximum allowable lease term, e.g., six months, twelve months, etc.
The condominium association may establish a maximum number of rental units within the project; however, the percentage of rental units may not exceed the current FHA condominium project owner-occupancy requirement. (The FHA requires that at least 50% of units be owner-occupied).
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The Maryland Condo Law Blog is written by Raymond Daniel Burke. One of the region's top construction and real estate development lawyers, Ray has more than 35 years of experience in matters relating to condominium and other multi-use development matters.