September 22, 2010
In This Issue:
- Maryland General Assembly Adopts Seven New Bills Related to Community Associations
- HOA Budget and Amendment Procedure
- Common Element and Common Area Warranty Period
- Management Registration in Prince George's County
- Fidelity Bond
- Fidelity Insurance Exemption
- Notification of Insurance Cancellation
- Revisions to the Common Ownership Community Section of the Montgomery County Code
- Change in WSSC Billing Methods
- Welcome New Collections Team Manager
Continuing the trend of increased interest by the Maryland General Assembly in the operations of community associations, the legislative session saw the introduction of 18 bills specifically related to community associations. Due to a number of factors, only seven of these community association specific bills became law, all of which take effect October 1, 2010.
Following a nationwide “green” movement, community associations in Maryland are prohibited from adopting new or enforcing existing prohibitions of clotheslines on a “single-family property.” Although “single family property” can exist in a condominium, homeowners association, or cooperative, the new law does not apply to property that contains more than 4 dwelling units. Property that contains more than 4 dwelling units includes garden-style, mid-rise and high-rise condominiums or cooperatives. The Board of Directors may, however, adopt reasonable rules and regulations regarding the dimension, placement or appearance of the clotheslines for the purpose of protecting aesthetic values or for fire safety. Such rules presumably could restrict the location and style of the clothesline.
Budget Adoption: Unlike condominium associations, previously homeowners associations were not required to send proposed annual budgets to their members prior to adoption by their Boards of Directors. Now, the budget adoption process for homeowners associations mirrors that of condominiums, with a few differences. A Maryland homeowners association must submit to the owners a proposed annual budget at least 30 days before its adoption by the Board. The budget and the notice of the Board meeting at which the budget will be adopted may be forwarded by e-mail, posted in the newsletter or posted on the association’s website.
Budget Amendment: Any expenditure that would be in excess of 15% of the HOA’s current budget must be approved as an amended budget at a special meeting of the Board of Directors. This procedure only applies to intra-budget year increases. Exceptions are made for health and safety of the lot owners or significant risk of dangers to the development.
In the current economic climate, the sale of new units has slowed dramatically, often taking developers several years to sell new units. As a result, developers are retaining control of the Board of Directors through the expiration of the warranty period on the common elements/areas: three years from the sale of the first unit for condominiums and one year from the sale of the first lot in homeowners associations. This could lead to a community being unable to bring a common area/element warranty defect claim against the developer once the owners assume control. Now, the warranty period for common elements/areas for all new communities that are built after October 1, 2010 may not begin to run until the owners elect a controlling number of the board of directors. The warranty period for common elements extends for three years from the sale of the first unit (old language) or two years from the date that the unit owners elect a unit owner-controlled majority, whichever is later. The warranty period for common areas (in HOAs) extend for two years from the sale of the first lot, or two years from the date that unit owners elect an owner-controlled majority, whichever is later. This change will allow an owner-controlled board the opportunity to pursue warranty claims against the developer.
Beginning January 1, 2011, all community management companies (entities) that provide management services in Prince George’s County must register annually with the Community Association Managers Registry by January 31st of each year and pay an annual fee of $100. Failure to do so can result in a misdemeanor and a fine of $100. The registration form that the County ultimately adopted will require:
- Contact information of the company;
- Name and contact information of the designated contact person of the company;
- Name, times and contact information of the offices of the company;
- The length of time the company has been in existence and the length of time it has provided management services in Prince George’s County; and
- A list of all community associations for which it provided management services during the preceding year in Prince George’s County.
Before the widespread availability of fidelity insurance, community associations protected their funds by purchasing a fidelity bond. Many older governing documents still require that Board of Directors obtain a fidelity bond. Effective October 1, 2010, a community association can satisfy its statutory fidelity insurance requirements by obtaining a fidelity bond, thereby resolving the possible need for duplicative coverage. In summary, a board of directors is required to obtain fidelity insurance in the lesser amount of three months of gross annual receipts and the total amount held in investment accounts or $3 million.
A community association is not required to obtain fidelity insurance if it has four or fewer units and its three months’ annual gross receipts are less than $2,500.
This new law alters the time when an insurance carrier must provide notification of cancellation of property and casualty insurance that must be maintained by the council of unit owners of a condominium: 45 days for general cancellation or 10 days for non-payment of premium.
Completing a multi-year review process, the Montgomery County Council adopted the first series of significant revisions to Section 10B of the Montgomery County Code since its adoption two decades ago. The revisions, which took effect June 1, 2010, include altering the composition of the members of the Commission on Common Ownership Communities (“CCOC”), an expansion of the jurisdiction of the CCOC to hear additional types of disputes, and the establishment of an annual member notification requirement for community associations within Montgomery County.
Compositional Changes to CCOC : The CCOC is comprised of 15 members appointed by the County Executive. Under the new revisions, eight of the 15 members must be residents of associations; the other seven must be community association/real estate professionals. Formerly, only six members had to be residents and nine were professionals.
Jurisdictional Expansion: The CCOC now has authority to hear disputes about boards of directors requiring owners to take action or not to take action involving a common area/element, such as issues with parking space or dog waste disposal. Additionally, an owner or resident may bring a dispute involving the failure of the board of directors to: 1) maintain or repair a common area/element if the failure results in significant personal injury or property damage, or 2) exercise its good faith concerning the enforcement of the Association’s governing documents.
Annual Notification: The Association must distribute information annually to the owners informing them of the services offered by the CCOC. The cost of this notice is to be borne by the Association and may be e-mailed or placed in the Association’s newsletter. The CCOC is drafting a one page notice form for Associations to utilize.
Effective December 31, 2010, the Washington Suburban Sanitary Commission will assess water usage for all mixed-use condominium properties in Maryland at the commercial rate, unless the commercial units' water usage is individually metered.
This new assessment applies even if there are only a few commercial units within a residential condominium, and applies to all condominiums regardless of age. The commercial water usage rate can be twice that of the residential rate. It is recommended that mixed-use condominiums contact their plumbers to determine the costs of installing individual meters for the commercial units.
For more information about any of the legislative updates, please contact Jeremy Tucker, who serves as the chair of the CAI Washington Metro's Maryland Legislative Committee and is a delegate on CAI's Maryland Legislative Action Committee at firstname.lastname@example.org, or via phone at 301-657-0157.
The community asssociations group welcomes Cheryl A. Kavanagh as our new Collections Team Manager. Cheryl comes to us with more than 20 years of collections and management experience.
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The information in this newsletter is not intended to constitute legal advice and should not be acted upon without consulting an attorney.
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