By Deborah Goonan, Independent American Communities
Highlights of important bills (2019 session) affecting the rights of owners of property in homeowners and condominium associations in Maryland.
Strengthening the right of condominium council of unit owners to sue developer
Cross-filed bills would void certain language inserted in Declarations and Bylaws by developers, which have the effect of preventing lawsuits against the developer for breach of implied warranties. The bill applies to condominium associations only.
In Maryland, the “council of unit owners” means all owners in the association. However, the council may delegate its powers to a condo board of directors.
The legislation would to prevent real estate developers from including onerous requirements in governing documents, that make it difficult or impossible for a council of unit owners, or the condo board working on their behalf, to file a construction defect lawsuit against the developer.
For example, by way of governing documents — written by and for a developer — a developer may require a majority share of unit owners to vote in favor of proceeding with a warranty claim lawsuit.
Last year, case law in Massachusetts recognized the unfairness of membership voting requirements as a prerequisite for suing a developer.
MA Supreme Court acknowledged that, when the developer still owns many unsold units, it is often mathematically impossible for unit owners to obtain the required vote to go ahead with construction defect claims.
Another example: some developers add a disclaimer in governing documents denying all liability for warranty claims.
HB68 and SB379 would make such one-sided developer provisions unenforceable. However, the developer would still be permitted to require Mediation or Arbitration to settle construction defect or warranty claims.
Proposed amendments common to both bills, emphasized in bold capital letters:
The council of unit owners may be either incorporated as a nonstock corporation or unincorporated and it is subject to those provisions of Title 5, Subtitle 2 of the Corporations and Associations Article which are not inconsistent with this title. The council of unit owners has, subject to any provision of this title, and except as provided in [item] ITEMS (4), (19), AND (22) of this subsection, the declaration, and bylaws, the following powers:
(4) To sue and be sued, complain and defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more unit owners on matters affecting the condominium, NOTWITHSTANDING ANY PROVISION IN THE DECLARATION, BYLAWS, OR OTHER INSTRUMENT MADE BY A DEVELOPER IN ACCORDANCE WITH THIS TITLE, WITH THE EXCEPTION THAT THE BYLAWS MAY PROVIDE FOR MEDIATION OR ARBITRATION OF CLAIMS AGAINST THE DEVELOPER THAT A COUNCIL OF UNIT OWNERS MAY ASSERT UNDER THIS SUBSECTION;
(19) To enforce the implied warranties made to the council of unit owners by the developer under § 11–131 of this title, NOTWITHSTANDING ANY PROVISION IN THE DECLARATION, BYLAWS, OR OTHER INSTRUMENT MADE BY A DEVELOPER IN ACCORDANCE WITH THIS TITLE, WITH THE EXCEPTION THAT THE BYLAWS MAY PROVIDE FOR MEDIATION OR ARBITRATION OF IMPLIED WARRANTY CLAIMS MADE TO A COUNCIL OF UNIT OWNERS UNDER § 11–131 OF THIS TITLE;
Neither bill has made any progress since the first reading and hearing in February.
Track and read MD HB68, Delegate Marvin E. Holmes, Jr. (D) District 23B, Prince George’s County
Track and read MD SB379 Senator Delores G. Kelley (D), District 10, Baltimore County
Bills In the Maryland General Assembly Would Preclude Limits On the Power of Condo Councils To Engage In Litigation and Enforce Warranties
Clarifying that only unit owners “in good standing” may vote to amend condo bylaws and HOA governing documents
Maryland has one of the lowest statutory voting thresholds for amending governing documents of a homeowners’ association (HOA) — only 60%, or even lower if authorized by the HOA’s governing documents. (which include the Declaration, bylaws, deeds, or recorded covenants and restrictions)
For condo associations, a bylaw amendment requires a vote representing at least 60% of condo unit owners, or lower as specified in condo bylaws.
The intent of this amendment is to clarify that the “in good standing” requirement always applies, regardless of the minimum voting threshold needed for amendments.
Maryland law differs from other states
Note that, in some states, the law does not require that owners in HOAs or condo associations vote on bylaw amendments. In other words, the board of directors has the power to amend the association’s bylaws without approval of its members.
How “in good standing” requirement limits rights of owners
On the surface, it may seem reasonable to only count votes of members who are current on their assessment payments. But this provision can be problematic in situations where a minority of lot or unit owners controls the board, and imposes costly special assessments for inflated contracts or controversial nonessential improvements.
Relatively low amendment thresholds, combined with an “in good standing” provision forces dissenting owners to pay special assessments (if they are able) under protest, so they may retain their right to vote on important amendments to bylaws or other governing documents.
The end result: less accountability of condo and HOA boards and less power of owners to control spending.
This example illustrates exactly why U.S. laws do not require American voters to be current on their tax liabilities to retain their rights to vote in elections for government officials.
See relevant amendments:
Notes: EXPLANATION: CAPITALS INDICATE MATTER ADDED TO EXISTING LAW. [Brackets] indicate matter deleted from existing law.
Bold CAPS indicates amendments to bill.
Strike outindicates matter stricken from the bill by amendment or deleted from the law by amendment.
FOR the purpose of
alteringclarifying the circumstances under which unit owners may vote to amend the bylaws of a condominium; alteringclarifying the circumstances under which lot owners may vote to amend certain governing documents of a homeowners association; and generally relating to the amendment of the governing documents of condominiums and homeowners associations.
…(for condominium associations)
In this paragraph, “in good standing” means not being more than 90 days in arrears in the payment of any assessment or charge due to the condominium.
(ii) Notwithstanding the provisions of the bylaws, the council of unit
owners may amend the bylaws by the affirmative vote of [unit owners in good standing having] at least 60% of [the votes in the council] UNIT OWNERS IN GOOD STANDING, or by a lower percentage OF UNIT OWNERS IN GOOD STANDING if required in the bylaws.
…(for homeowners associations)
(3) “In good standing” means not being more than 90 days in arrears in the
payment of any assessment or charge due to the homeowners association.
(b) This section does not apply to a homeowners association that issues bonds or other long–term debt secured in whole or in part by annual charges assessed in accordance with a declaration, or to a village community association affiliated with the homeowners
(c) Notwithstanding the provisions of a governing document, a homeowners
association may amend the governing document by the affirmative vote of [lot owners in good standing having] at least 60% of [the votes in the development] LOT OWNERS IN GOOD STANDING, or by a lower percentage OF LOT OWNERS IN GOOD STANDING if required in the governing document.
The bill has passed the House unanimously on Feb 28.
Track and read MD HB207 Delegate Bonnie Cullison (D) District 19, Montgomery County
Maryland House of Delegates Considers Bill Regarding Percentage Required For Amending Bylaws