Silverman & Schild
Community Association LawLetter
NEW MARYLAND AND VIRGINIA LAWS IMPACT COMMUNITY ASSOCIATIONS (Summer 1998)
Maryland and Virginia enacted several new laws this year which affect community association governance.
Maryland -- Home Businesses, Political Signs and Owner Communications
In Maryland, laws concerning association restrictions on home businesses and display of political signs were adopted. Additionally, owners were granted certain guarantees to meet and communicate concerning association matters.
Under the new law concerning home-based businesses, a general covenant restriction on business or commercial activity may not be applied to a "no impact" home-based business unless such business activity is expressly prohibited. A "no impact" home-based business
- is consistent with the residential character of the dwelling unit and subordinate to the use of the dwelling for residential purposes
- requires no external modifications that detract from the residential appearance of the dwelling unit
- uses no equipment or process that creates noise, vibration, glare, fumes, odors, or electrical or electronic interference detectable by neighbors or that causes an increase in the common expenses that can be solely and directly attributable to the home-based business; and
- does not involve the use, storage or disposal of hazardous materials.
Associations may still amend their governing documents to expressly prohibit no impact home-based businesses by a simple majority of the total eligible voters.
Restrictions on display of certain political signs have also been superceded by Maryland statute. Under the new law, an association covenant or rule may not prohibit or restrict signs on behalf of candidates for public office or relating to ballot questions.
While ensuring the right of residents to display political signs on their own property during election periods, the sign law allows associations to continue to regulate political signs in the common areas.
Maryland community associations are also required by a new law to allow owners to
- meet in common areas where the Board of Directors meets
- allow owners time at Board meetings to address matters pertaining to the association; and
- allow distribution of written materials regarding the operation of the association.
These owner rights are subject to reasonable regulation by the Board of Directors.
The home-based business law takes effect July 1, 1998. The political sign and owner rights laws apply beginning October 1, 1998.
A proposed law to establish a six month priority for community association assessment liens was defeated by the Maryland Senate.
Virginia -- Common Areas, Document Amendments and Occupancy Limits
The Virginia General Assembly enacted several laws this year to facilitate the operation of Virginia condominiums and property owner associations.
The Virginia Condominium Act and Property Owners Association Act were amended to allow the Board of Directors to convey common areas which the government seeks to acquire by eminent domain.
A new law also makes it easier to obtain lender approval of amendments to association governing documents. Lender approval is presumed after 60 days notice. And, where the association documents are silent on the need for lender consent, the newly enacted law provides that no lender consent is required if the amendment does not specifically affect lender rights.
The Virginia Condominium Act was also amended to eliminate the provisions that a condominium could not impose limitations on the number of person who may occupy a unit more restrictive than the local zoning ordinance. Under the revised law, any occupancy limitations still must be reasonable.
Legislation was also passed to conform the resale certificate requirements of the Virginia Condominium Act and the Virginia Property Owners Act.
These new Virginia laws are effective July 1, 1998.
CONDOMINIUM LIEN FORECLOSURE MAY BE INVALID IF SALES PRICE IS TOO LOW (Summer, 1998)
The Maryland Court of Special Appeals recently ruled that the foreclosure of a condominium assessment lien may be overturned if the sales price is so low as to "shock the conscience of the court."
In Brooks v. Greenbriar Condominium, a condominium unit owner challenged a foreclosure of a lien where Prince George’s County condominium association purchased the unit at foreclosure. The unit was purchased for $2,500 subject to a first deed of trust of approximately $17,000. The alleged market value of the unit was $66,000.
Applying standards previously adopted by the Court of Appeals involving lender foreclosure of mortgages, the Court of Special Appeals ruled that in determining whether the foreclosure sales price is too low the trial court should compare the sale price (which is the price received at the sale plus any deficiency waived by the condominium) with the fair market value of the property (which is the appraised value of the condominium unit less the mortgage balance). If the difference between the sales price and the fair market value shocks the conscience of the court, the sale may be set aside.
The court also ruled that the validity of the condominium lien could not be challenged following the foreclosure sale because a unit owner has a statutory right to file suit to challenge a condominium lien before it is recorded. The court concluded that there was no denial of due process by denying a further opportunity to contest the lien after foreclosure.
MARYLAND APPEALS COURT EXPANDS CONDOMINIUM WARRANTY RIGHTS (Summer 1998)
The Maryland Court of Special Appeals has ruled that a condominium association may enforce implied warranties established by the general real property laws as well as the implied warranties established by the Maryland Condominium Act.
The court also ruled that a condominium association may assert common law claims for negligent construction on behalf of individual unit owners.
In The Milton Company v. Bentley Place Condominium, the appeals court upheld a jury verdict which held the builder of a Montgomery County condominium responsible for certain defects in the common elements and individual units.
The jury found the builder liable based upon negligence; breach of implied warranty; breach of contract; breach of express warranty; negligent misrepresentation and violation of the Maryland Consumer Protection Act.
Implied Warranty on Common Elements
The appeals court concluded that the trial court had correctly instructed the jury that a condominium is subject to both an implied warranty by the "developer" of a condominium under the Maryland Condominium Act and an implied warranty by the "vendor" of a condominium under the general real property warranty laws.
The Condominium Act implied warranty regarding condominium common elements is directly enforceable by the condominium association against the developer. The developer is the entity which files the declaration creating the condominium. The general implied warranty is enforceable against the vendor which is the entity which erects or creates an improvement on real estate. This general implied warranty regarding the common elements runs to the purchaser of individual units but is enforceable by the condominium association.
Condominium Warranty Rights
The Court of Special Appeals ruled that although the Condominium Act establishes the basis for the condominium association to enforce the general implied warranty, the provisions of the Condominium Act requiring notice to developers of the alleged defects did not apply to enforcement of the general implied warranties.
Negligent Construction Claims
The appeals court also agreed with the trial court that the condominium association may bring suit in its name as a representative of individual unit owners who have common law negligence claims in connection with common element defects. The court extended builder liability based upon negligence where there is an "intimate nexus" between the parties such as privity of contract or its equivalent, even though there is only economic loss and no risk of personal injury.
Representative Defects and Owner Surveys
The court also ruled that damages are allowable for repairing units even where there is no direct evidence of defective conditions for each unit. Although only 7 of 240 unit owners testified as to defects in their units, the court found that there was sufficient evidence to show that certain defects affected nearly all units.
Recovery of damages for unit defects also was allowed where the unit was no longer owned by the original purchaser. The court ruled that claims for unit defects are allowed by subsequent purchasers under the Maryland Consumer Protection Act and based on negligent construction and design.
Lastly, the court concluded that the trial court properly allowed owner surveys to be presented as evidence of defects in individual units. Because the surveys were the type of information reasonably relied on by construction experts in rendering opinions concerning construction of residential condominiums, the surveys were admissible for purposes of explaining the basis of expert testimony.
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