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A new law passed by the Maryland General Assembly (House Bill 789, Chapter 480) and signed by Governor Hogan, changes the definition of Maryland homeowners in community associations who were entitled to vote on amendment of documents. The new requirement for voting is that the owners of both condominium and homeowners associations must be “in good standing,” which means not more than 90 days in arrears in the payment of any “assessment or charge” due to the association. The change in the law also reduces the percentage of votes necessary for the amendment to at least 60% of those owners who are in good standing and vote in favor of the amendment. This new law will affect many Maryland homeowners and it is important for both condominium and homeowner associations and their governing bodies to understand and to comply with this law until further clarification is issued.
For condominium associations, the new law applies to amendment of bylaws except for amendments requiring unit owners to maintain condominium unit owners insurance on their units. In that case, the voting percentage is 51% of the votes. If the bylaws provide for amendment by a smaller percentage, then the votes assigned in the bylaws would govern.
For homeowners associations, the same percentages would apply, however, they would apply to all of the “governing documents” including the declaration, the bylaws, any deed and agreement, and any recorded covenants and restrictions. Under new law, the provisions regarding amendment of older documents of the homeowners association and the frequency of amendment have been deleted.
The legislative changes broaden the scope of the issue of the meaning of “assessment or charge,” which is undefined as to both homeowners associations and condominiums. The Council of Unit Owners in the Condominium Act can infer that such charges could be: for the use or rental or operation of the common elements; to impose a late payment fee for failure to pay assessments when due; or for utility services which are assessed and collected on the basis of usage. However, since the Condominium Act does not specifically define what a “charge” consists of, these sample definitions are not legal fact.
The same issue related to “charges” is present in the Homeowners Association Act. A provision in the Homeowners Association Act provides for a charge to be imposed on someone desiring to review or copy the books and records of the association or who requests delivery of information to them from the association. There is a provision for a late payment charge. There is also a specific provision for annual charges with respect to the Columbia Association where such charge would provide unfair treatment of property owners by the Association and potentially create unexpected windfall for the Association. The same ambiguity exists in the liability for homeowners association assessments and charges on lots. The issue of “charges” in the Maryland Contract Lien Act solely references charges for late payments.
Therefore, the Board of Directors and those representing condominiums and HOAs are left with no clear definition of what constitutes a charge, which can prevent a correct determination of whether the Lot or Unit Owner is in fact delinquent by more than 90 days, if any of the so-called charges remain unpaid.
The second unresolved issue raised by the rule is the determination of when the 90-day arrearage is calculated with respect to the date of the vote. Qualifying to be in good standing generates the ability to vote on the amendment. Sample unresolved scenarios arise: Does the timing of the arrearage terminate on the date that the vote is actually exercised, or on the date that the votes are counted, or the date on which the 60% is reached? What if the owner gives his voting proxy to another person before the owner falls more than 90 days delinquent and the proxy is not exercised until after that delinquency occurs?
Another bill explaining the 60 percent voting calculation of owners in good standing will likely be introduced during the next session, however, condominium and homeowner associations are advised to discuss with their legal advisor how this change may affect the amendment of governing documents, critical to the operation of community associations.
Michael H. Mannes is a Partner in the Real Estate Department of Niles, Barton & Wilmer, LLP. His practice includes all phases of real estate with a concentration in the development and creation of condominium and planned unit developments, in addition to representation of condominiums, homeowners' associations and cooperatives in the areas of dispute resolution, construction and governance issues.see all Community Association Law articles »
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