E-Alert Case Updates

Condo Associations Must Disclose “Potential” Health and Building Code Violations

MRA Property Management, Inc., et al. v. Armstrong, et al.
No. 93 (Court of Appeals of Maryland, October 25, 2011)
by Colleen K. O’Brien, Associate
Semmes, Bowen & Semmes (www.semmes.com)

Here, the Court held that the Maryland Consumer Protection Act (“MCPA”), codified at MD. CODE ANN., COMM. LAW §13-101 et seq., applied to the sale of a condominium unit, and that pursuant to the MCPA, condominium associations and property managers have the duty to disclose knowledge of violations of health and building code in resale certificates, even if no actual charges exist.

The record below revealed that, at the trial court level, a one million dollar summary judgment was entered against a condominium association and property management company, on the ground that they violated the MCPA when they provided “misleading” resale certificates to purchasers of condominium units.

The Appellees purchased condominium units on resale between 2000 and 2004. The condominium association was required to prepare resale certificates for the purchasers in connection with the sales transactions. The certificates were required to state whether there was “knowledge of any violation of the health or building codes.” See Maryland Condominium Act, codified at MD. CODE ANN., REAL PROPERTY § 11-101, et seq. Here, the resale certificates stated that there were no known violations. The issue was that, in spite of this statement, as early as 1997, there was evidence of moisture problems in the units. However, no building or health code violations were ever issued. After the purchases, the condominium association noted a special assessment of $3,921,838 needed to correct building issues related to the moisture problems.

The purchasers alleged that the condominium association knew of serious construction defects and deficiencies in the units, and that the failure to disclose these deficiencies in the resale certificates was a violation of the MCPA. They alleged the condominium association was subject to the MCPA, because although it was not the seller of consumer realty, its misrepresentations “infected” the sales, such that the practice should fall under the MCPA. The condominium association argued that its disclosure was limited to the requirements of the Maryland Condominium Act.

The Court held that Appellants’ duty to disclose their “knowledge of any violation of the health or building code” was not limited to charged violations. This holding requires condominium associations, moving forward, to disclose potential violations, even though not explicitly required by the Maryland Condominium Act disclosure obligations.

Judge Battaglia authored a dissenting opinion, which Judge Harrell joined. The dissenters would have held that the MCPA did not apply to the condominium association and that the disclosure requirements under the Maryland Condominium Act were sufficient. Further, the dissenters criticized the majority opinion for failing to provide guidance to condominium associations regarding when the disclosure of a potential, not charged, housing or building code violation is necessary for the resale certificate to comply with the MCPA. The dissenters would have preferred a bright line standard, such as that of known charged housing or building code violations from the Maryland Condominium Act.