The Maryland General Assembly is considering legislation on condominiums and homeowners associations, much of which would significantly impact developer costs and flexibility. Nonresidential and mixed-use condominiums would also be affected by many of these changes.
Longer Warranty Periods; Mandatory Common Element Descriptions (House Bill 620)
This bill would amend the Condominium Act and Homeowners Association Act, effective October 1, 2010, to extend the developer's warranty period for condominium common elements and HOA common areas.
Common element warranties for condominiums would be extended until the later of three years after the first unit transfer or two years from the date the developer transfers control of the condominium association. Currently, common element warranties generally extend for three years after the first unit closing, regardless of when the developer transitions control of the condominium association.
Similarly, HB-620 would extend the developer warranty period on HOA common areas until the later of two years after the first home in the HOA is transferred or two years from the date the developer transfers control of the HOA. Currently, common area warranties generally extend for one year after the first home closing, regardless of when the developer transitions control of the HOA.
HB-620 would also amend the Condominium Act to require that improvements be included as common elements in condominiums created on or after October 1, 2010, "to the extent that the improvements are shared by or serve more than one unit or serve any portion of the common elements." These improvements include roofs; foundations; external and supporting walls; mechanical, electrical, and plumbing systems; and other structural elements. The legislation apparently aims to ensure that these components fall within the longer common element warranty period. However, an unintended consequence may be to inhibit a developer's flexibility, especially in creating mixed-use, multi-tier and nonresidential condominiums.
The House Environmental Matters Committee is expected to take up HB-620 in the coming weeks.
Residential Condominium Conversions (House Bill 1081)
This bill would amend the Condominium Act to give a tenant who signs a lease for a residential unit after the landlord/owner has filed a notice of condominium conversion the same rights of purchase, extended lease term, and moving expenses as those enjoyed by tenants when the notice is first filed. Currently, conversion rights apply only to existing tenants at the time a condominium conversion notice is filed, not to subsequent tenants.
The bill would also limit registration of a Public Offering Statement (POS) for a conversion condominium to five years. If a developer did not "complete" conversion within five years (what constitutes completion is unclear), the POS would automatically terminate and the developer would be required to resubmit a POS and reapply to the Secretary of State to register the condominium.
The upshot: The already onerous conversion process would be made even more difficult in Maryland.
If enacted, this law would take effect on June 1, 2010. A hearing on HB-1081 was scheduled with the House Environmental Matters Committee on March 4 at 1:00 p.m.
Reserves and Reserve Studies Requirements (House Bill 28)
HB-28 would amend the Condo and HOA Acts to require an independent reserve study for common elements and common areas every five years for condominiums with more than 100 units and HOAs with more than 100 homes.
Reserve studies would be required to:
- State the qualifications of the person preparing the study
- Be available for any unit owner or homeowner to inspect and copy
- Be reviewed by the association's governing body in preparing the annual budget
- Be summarized and submitted with the annual proposed budget to unit owners and homeowners
Although reserve studies and reserve planning have become standard practice for common interest communities, the lack of flexibility in the proposed legislation would eliminate business discretion and could be detrimental and costly to communities. If enacted, this law would take effect on October 1, 2010.
Condominium and HOA Lien Priority: The Residential Association Sustainability Act of 2010 (House Bill 842)
The Residential Association Sustainability Act would amend the Condominium and HOA Acts to give priority protection for delinquent association assessments in the event of foreclosure. If a lender foreclosed on a unit or a home in an HOA, up to six months of delinquent condominium or HOA assessments and related charges would have to be paid to the association before the lender received any funds. This legislation has been introduced in Maryland several times over many years, but has not yet passed, despite the existence of similar priority lien statutes in other states. If enacted, the law would take effect on October 1, 2010. A hearing on HB-842 was scheduled with the House Environmental Matters Committee on March 4 at 1:00 p.m.