Real Estate Legislative Update

Eighty-one (81) bills related to real property laws in the State of Maryland were introduced in the General Assembly during the 2018 Legislative Session. A large portion of our real estate practice relates to homeowners associations and condominium associations. There are six (6) bills of interest related to this practice.

The following laws became effective on October 1, 2018:

Unenforceability of Certain Contract, Declaration or Bylaw provisions for Condominiums (House Bill (“HB”) 77 / Senate Bill (“SB”) 258): This law is only applicable to residential condominiums, and to the rights of a unit owner (“Owner”) or council of unit owners (“Council”) to bring a claim against a developer or vendor alleging their failure to comply with applicable building codes, the plans and specifications as approved by the local jurisdiction, manufacturer’s installation instructions, or warranty provisions under Md. Code, Real Prop. § 10-203 or § 11-131 (“Applicable Claims”). This law does not apply to a condominium unit that is occupied and used solely for nonresidential purposes, or a settlement agreement between a developer or vendor on one hand, and the Council or an Owner on the other. Any provisions of a declaration, by-laws, and/or contract for the initial sale of a condominium that (1) shorten the statute of limitations applicable to any Applicable Claims, (2) waive the application of the discovery rule or other accrual date applicable to Applicable Claims, (3) require an Owner or the Council to assert Applicable Claims subject to arbitration within a period of time that is shorter than the statute of limitations applicable to the Applicable Claims, or (4) operate to prevent an Owner or the Council from filing a lawsuit, initiating arbitration proceedings for Applicable Claims subject to arbitration, or otherwise asserting Applicable Claims within the statute of limitations, are unenforceable as a matter of law. Developers and vendors should be aware of this new law and ensure that any of the aforementioned provisions are left out of the declaration, bylaws, and initial contracts of sale.

Additional Community Amenity Advertising/Disclosure Requirements in Prince George’s County (HB 239): In Prince George’s County, a home builder must provide certain disclosures to purchasers related to community amenities offered in community developments located within the County. This law added additional requirements related to advertising and providing prospective purchasers with information related to the proposed community amenities. The advertising requirements relate to the sale of residential real property in any community development in the County. The new law requires that a builder (1) make a copy of any recreational facilities agreement recorded with the County Planning Department (“Recreation Agreement”) available to prospective purchasers in the sales or management office of the community development; and (2) display, in the sales or management office of the community development in a conspicuous location, (a) the amenities listed in the Recreation Agreement, (b) a detailed site plan and the building permit number of each amenity listed in the Recreation Agreement, and (c) the anticipated completion dates for each amenity listed in the Recreation Agreement. Builders should ensure the sales and management office staff for the community development are aware of the additional requirements imposed by this law and prepare to adjust its advertising and operations accordingly. This bill has not yet been signed by the Governor.

Suspension of Use of Condominium Common Elements (HB 575): In response to Elvaton Towne Condominium Regime II, Inc. v. Rose, et ux., 453 Md. 684 (2017), the General Assembly passed HB 575, which provides authorization for declaration provisions that permit the suspension of the use of parking or recreational facility common elements under certain circumstances. A declaration may provide for the suspension of the use of parking or recreational facility common elements by an Owner that is more than sixty (60) days in arrears in the payment of any assessment due to the condominium. To the extent a declaration, either in its initially recorded form or by amendment, provides for such a suspension, the declaration must state the following: A suspension of the use of common elements may not be implemented until the Council (1) mails to the Owner a demand letter specifying a time period of at least ten (10) days within which the Owner may pay the delinquent assessment or request a hearing to contest the proposed suspension; and (2) if an Owner requests a hearing to contest the proposed suspension, the condominium must provide the notice and hold the hearing in accordance with Section 11-113(b)(2) and (3) of the Condominium Act. An amendment to a declaration that adds or repeals a suspension of privileges provision authorized under this new law, only requires the affirmative vote of 60% (as opposed to 80%) of the total eligible voters of the condominium under the voting procedures contained in the declaration or the bylaws. Builders and developers should be aware of this new law when considering and evaluating draft declarations for new condominiums. Additionally, board members should consider whether suspension of privileges would be beneficial to the condominium association, especially since the percentage of votes to amend the declaration for this purpose is less than the 80% normally required. Suspension of privileges may potentially be an effective tool for condominium boards in collecting or attempting to collect past due assessments.

Energy Efficiency Disclosure Requirements (HB 1481 / SB 648): This law is applicable to developments that contain eleven (11) or more new homes to be built by the same builder. It requires that, prior to the execution of any contract for the initial sale of a new home, a purchaser is to be provided with written information about any energy-efficient options that are available for installation in the home before construction of the home is completed, and is to be advised that tax credits may be available related to the available energy-efficient options. Any contract for the initial sale of a new home must contain an acknowledgement that the aforementioned energy-efficient option information was provided to the purchaser. Builders should advise their sales and management representatives of this new law and make preparations for implementing these new requirements. This bill has not yet been signed by the Governor.

Restrictive Covenants based on Race, Religious Belief, or National Origin (SB 621): This law provides that, on or before September 30, 2019, the governing body of a homeowners association shall delete any recorded covenant or restriction that restricts ownership on the basis of race, religious belief, or national origin (“Unenforceable Covenant”), from common areas deeds or other declarations of property in the development, and may do so without the approval of lot owners. Commencing on October 1, 2019, if a governing body of a homeowners association receives a written request from a lot owner to delete an Unenforceable Covenant from a common areas deed or other declaration of property, the governing body must delete the Unenforceable Covenant within one hundred eighty (180) days of receiving such written notice. Any amendment to the common areas deed or other declaration deleting an Unenforceable Covenant shall not be subject to a surcharge or fee imposed by the clerk of the circuit court for recording such an amendment.

The following law became effective July 1, 2018:

Number of Declarant Votes in Homeowners Associations (HB 669): A plain reading of this new law takes away a declarant’s weighted voting until all lots in a community are subdivided and recorded (i.e., when all the plats (including phasing plats) for a subdivision have been recorded and the lots have been annexed as part of the homeowners association). During this period of time, a declarant, when voting on association matters, shall only have the number of votes equal to the number of lots that have been subdivide and recorded and that have not been sold to members of the public. After all lots in the development are subdivided and recorded, the declarant can have weighted voting. This law appears to only impact communities that are developed in phases. A developer needs to be mindful of this law when forming its development plan and drafting the association’s documents.

2017 Real Estate Legislative Update

The following became effective on October 1, 2017:

Notices or Foreclosure Sales to Associations with Recorded Line (House Bill “HB” 26 / Senate Bill (“SB”) 247): This law provides that, where any condominium or homeowners association has a recorded lien against a particular property pursuant to the Maryland Contract Lien Act, a person or entity authorized to make a sale of the property in an action to foreclose a mortgage or deed of trust must give at least thirty (30) days’ written notice to the condominium or homeowners association of the proposed sale. Such notice must be sent to the address shown on the association’s recorded statement of lien. In the event the proposed sale is postponed or cancelled, the trustee must, within fourteen (14) days following the postponement or cancellation, send written notice of the same to the association.

Resale Disclosure Package Inspection Fees for Homeowners Associations: As a result of this bill, homeowners associations may now charge an inspection fee not to exceed $50.00, for an inspection of a lot owner’s lot for the purposes of preparing a resale disclosure package, only if the inspection is required by the governing documents of the homeowners association. The bill from the prior legislative session already provided for inspection fees pertaining to condominium associations.

Amending Governing Documents (HB 789): The General Assembly modified the requirements for amending provisions of the governing documents for homeowners associations and condominium associations. Condominium bylaws and any governing documents of a homeowners association, may be amended by the affirmative vote of unit owners in good standing (meaning those owners that are not 90 days or more in arrears in the payment of any assessment or charge due to the condominium or homeowners association) having at least 60% of the votes in the council or of the lot owners, as the case may be, unless a lower percentage is required in the respective governing document.

Notice Required for Sale of Common Elements and Common Areas (SB 809 / HB 1369): The governing body for the condominium or the homeowners association, or the developer, as the case may be, is required to give notice before the sale of any common elements located on the property that is owned by the condominium or homeowners association. The required notice must be given no less than thirty (30) days before the sale, and (1) must be in writing to each unit owner or lot owner; or, (2) accomplished by posting a sign about the sale on the property to be sold and advertising the same on the website of the condominium or homeowners association.

In addition to the legislation above, the Court of Appeals, in Elvaton Towne Condominium Regime II, Inc. v. Rose, 453 Md. 684, 162 A.3d 1027 (2017) held that a Maryland condominium association may only restrict access to common areas and amenities as a means to enforce payment of condominium fees, if this enforcement mechanism is expressly provided for in the condominium’s declaration (rather than by a rule enacted by the condominium board or by a provision of the bylaws). The General Assembly addressed this holding by passing a bill in the 2018 legislative session.

2016 Real Estate Legislative Update

Real estate laws in Maryland are consistently changing. Whether you work for a management company, are on the Board of your homeowners or condominium association, work for a national home builder or own and develop real property in the State of Maryland, it is important that you stay informed about changes in the law and how any changes can affect your business.

The following laws became effective on October 1, 2016:

Resale Disclosures for Condominium and Homeowners Associations (House Bill (“HB”) 1192 / Senate Bill (“SB”) 816):

Resale Certificates for Condominiums: Condominium association resale disclosures must include the condominium’s actual reserve study report or a summary of the report, and a statement of the status and amount of reserves held by the condominium. If the condominium does not have a reserve fund, the resale disclosure must provide this information. In addition, a condominium must disclose a health or building code violation with respect to the common elements if they have “actual knowledge” of the same (which is a narrower disclosure than that which was previously required under the law). Further, a condominium may charge to the owner requesting a resale disclosure, the cost the council of unit owners incurred in preparing the disclosures, not to exceed $250.00, as well as a reasonable inspection fee not to exceed $100.00 and specified rush fees for preparing and delivering the resale certificate within shorter periods of time than the twenty (20) day requirement. The Department of Housing and Community Development (“DHCD”) is charged with adjusting the aforementioned fees every two years.

Resale Certificates for Homeowners Associations: The resale disclosures for homeowners associations must be provided within twenty (20) days of the written request and receipt of fees. The homeowners association must provide all of the disclosures outlined in Section 11B-106(b) of the Homeowners Association Act. A homeowners association may charge to the owner requesting a resale disclosure the same fees referenced above, except that the homeowners association may not charge an inspection fee (see the 2017 legislative update for the addition of inspection fees). DHCD will increase these fees every two years.

Notice of Tax Sales and Application of Assessments to Tax Sale Purchasers (HB 970 / SB 591): A plaintiff in an action to foreclose the right of redemption for a property in a homeowners or condominium association that sold at tax sale must send written notice of the foreclosure proceedings to the applicable homeowners or condominium association. If the court grants judgment foreclosing the right of redemption to the plaintiff, the plaintiff immediately becomes liable from the date of the judgment, and not the date of conveyance evidenced by a deed, for the payment of assessments or fees charged by the homeowners or condominium association and may be sued in an action to collect said assessments and fees charged by the association due and payable from the date of the judgment.

Requirements of Contracts of Sale relating to Deferred Water and Sewer Facilities Charges HB 989 / SB 815: The bill clarified certain requirements as they pertain to initial contracts of sale. In pertinent part, if the local water and sewer authority has not established a schedule of charges for the water and sewer project that benefits residential real property or if the local jurisdiction has adopted a plan to benefit residential real property in the future, the contract for the initial sale of the residential real property must disclosure that fact. Additionally, this bill provides for notice requirements (including a form notice), and provisions for violating the notice requirements, for contracts for the resale of residential real property that is served by public water or wastewater facilities for which deferred water and sewer charges have been established.

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