Maryland condominium associations and the property management companies that service Maryland condos may be subject to liability under the Maryland Consumer Protection Act, even when they are not engaged in the sale of condo units, according to a recent decision by the Maryland Court of Appeals.  In MRA Property Management, Inc. v. Armstrong, the high court held that such parties could be liable under the Maryland Consumer Protection Act for disclosures they were required to make to condo buyers under Maryland Condominium Act, such as the estimated operating budget, if those disclosures were misleading or deceptive. 

Maryland condominium associations and the property management companies that service Maryland condos may be subject to liability under the Maryland Consumer Protection Act, even when they are not engaged in the sale of condo units, according to a recent decision by the Maryland Court of Appeals.  In MRA Property Management, Inc. v. Armstrong, the high court held that such parties could be liable under the Maryland Consumer Protection Act for disclosures they were required to make to condo buyers under Maryland Condominium Act, such as the estimated operating budget, if those disclosures were misleading or deceptive. 

In that case, twenty-five individuals who had purchased condo units within Tomes Landings Condominiums sued their condo association (the “Association”) and its management company (“MRA”), alleging that the defendants knew that the building would need extensive repairs due to water damage stemming from construction defects, but failed to include the costs of those repairs in the operating budgets that they provided at the time the plaintiffs purchased their units.  Not long after the plaintiffs purchased their units, the Association and MRA advised them that they would need to pay an additional assessment to cover the costs of the repairs. 

In their complaint, the condo owners asserted that the Maryland Consumer Protection Act required the Association and MRA to disclose the damage and include the repair costs in the operating budget they provided at the time the owners purchased their units.  The Circuit Court for Cecil County agreed, granting summary judgment to the condo owners on their consumer protection statue claims and awarding them one million dollars in damages.

On appeal, the Association and MRA argued that (1) they could not be liable under the consumer protection statute because they did not sell the condo units to the owners; (2) their disclosures to the owners were governed by a separate statute – the Maryland Condominium Act – and they had complied with that statute; and (3) they did not know at the time of sale the extent of the damage or that it would be passed on to the future owners through an assessment. 

The Court of Appeals upheld the lower court’s ruling that the Maryland Consumer Protection Act could apply to the Association and MRA even though they had not sold the condominium units to the plaintiffs and merely provided the information regarding the operating budget in accordance with the Maryland Condominium Act.  Specifically, the court held that the statutory obligation to provide materials to prospective buyers sufficiently “inject[ed] MRA and the Association into the sales transaction as central participants” to subject to them to the requirements of the consumer protection statute.  Under the Maryland Condominium Act, if the Association and MRA had not provided those materials, the sale would not have been enforceable.  The court further held that it did not matter that the defendants did not stand to profit from the transaction because the focus of the Maryland Consumer Protection Act is whether the defendants engaged in deceptive sales practices, and the concept of profit is not involved. 

Nonetheless, the Court of Appeals reversed the lower court’s award of summary judgment and remanded for further proceedings because it was not apparent from the record whether the defendants knew at the time they provided the disclosures to the plaintiffs that the repairs would be necessary or that they would be assessed on the plaintiffs.

Maryland condominium associations and property management companies should be aware of this decision and the broad reach of the consumer protection statute, which goes beyond the conduct of direct sellers.