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Bill Would Exempt Condominiums from Certain ILSFDA Requirements
H.R.2612 - Public Buildings Savings and Reform Act of 2013 Underscores DMV Rent Caps
Expansion of Declarant Control Period and Warranty Review Committee
Statute Amended To Permit Late Fees
Disclosures Regarding Solar Panel Restrictions
Smoking is not Nuisance Per Se Schuman v. Greenbelt Homes, Inc., 212 Md. App. 451 (2013)
Right of First Refusal for Sale of Multifamily Housing Projects
Spotlight on Density Incentives in CR Zones
Tax Policy Reform and the 2014 General Assembly

 

NATIONAL

Bill Would Exempt Condominiums from Certain ILSFDA Requirements

On September 26, 2013, the U.S. House of Representatives passed H.R. 2600, which would exempt the sale and lease of condominium units from certain requirements of the Interstate Land Sales Full Disclosure Act (ILSFDA). The bill awaits further action in the Senate, where is it being reviewed by the Banking, Housing, and Urban Affairs Committee. 

ILSFDA is a consumer protection statute originally adopted to prohibit fraud arising out of the sale of land without access or utilities or that was unbuildable. ILSFDA regulates the sale of "lots" by imposing registration requirements as well as anti-fraud provisions. Unless a property qualifies for an exemption, ILSFDA generally requires that the property be registered with the Consumer Financial Protection Bureau (CFPB), which took over oversight of ILSFDA from HUD. ILSFDA also includes anti-fraud provisions that impose various requirements and prohibitions with regard to advertising and sales.

ILSFDA includes full exemptions and partial exemptions. If H.R. 2600 becomes law, condominium sales will be entitled to a partial exemption. Under this partial exemption, condominium developers will no longer be required to register their projects under ILSFDA, provide property reports to purchasers, or, most importantly, face demands and claims for automatic contract rescission for failure to perfectly comply with the ILSFDA registration requirements. 

The exemption represents a major victory for condominium unit developers in light of pro-consumer judicial interpretations of ILSFDA in recent years that called into question whether it was possible for a condominium to be built and sold in complete conformance with ILSFDA. Condominium unit sales will continue to be regulated by state and local registration and disclosure laws. Because some state registration laws exempt projects that are subject to ILSFDA, the new exemption may actually impose new requirements on developers depending on the state or states involved. 

ILSFDA and its registration requirements will continue to apply to the sale of subdivided lots. The CFPB is expected to issue new ILSFDA regulations within the next year that may significantly affect the sale of traditional subdivided lots. 

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 H.R.2612 - Public Buildings Savings and Reform Act of 2013 Underscores DMV Rent Caps

Following a May 2012 directive from the White House Office of Management and Budget, federal agencies are now prohibited from increasing their space while concurrently reducing the amount of space under lease. As a cost-saving measure, lawmakers are forcing agencies to trim their space as all real estate leases come to the House and Senate for approval.

To further reinforce the cost-cutting measures, new legislation that sets leasing rate caps is making its way through the House. HR 2612 has been proposed by Rep. Lou Barletta (R-Pennsylvania). The current lease caps are disparate for the D.C.-Maryland-Virginia region, providing D.C. landlords the optimum rate of $50 per square foot, followed by $39 per square foot in Virginia, and creating a nearly untenable rate of $35 per square foot in Maryland. This creates an uneven playing field across the region. All indications from GSA confirm an additional push for even lower square foot utilization while increasing the occupancy rate. For additional information, contact David Winstead at 202.661.7632.

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VIRGINIA

Expansion of Declarant Control Period and Warranty Review Committee

Pursuant to amendments to Sections 55-79.74 and 55-79.79 of the Virginia Condominium Act, the declarant control period may be extended for up to 15 years from the earlier of settlement of the first unit or after conveyance of 75 percent of undivided percentage interests. For an extension to be valid, two-thirds of the unit owners other than the declarant must approve the extension at a special meeting that is held before the initial declarant control period expires. As part of the extension, a warranty review committee must be elected consisting of at least three persons unaffiliated with the declarant who act on behalf of the association to assert and settle common element warranty claims. The new law also requires the declarant to deliver certain materials to the warranty review committee within 45 days of its formation, including plans and specifications, insurance policies, and any unexpired warranties.

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Statute Amended To Permit Late Fees

Section 55-79.83 of the Virginia Condominium Act was amended in the 2013 legislative session to permit condominium associations to impose late fees of up to 5 percent for assessments that are not paid within 60 days of the due date, unless the governing documents provide otherwise. In addition, Section 55-513.1 was added as a new section to the Property Owners' Association Act, permitting property owners' associations to impose such late fees as well. Previously, Virginia associations could not collect any fees that were not expressly provided in the declarations. However, with these new laws in place, condominium associations and property owners' associations can adopt collections policies to enable them to collect late fees..

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Disclosures Regarding Solar Panel Restrictions

Section 55-79.97 of the Virginia Condominium Act and Sections 55-509.5 and 55-509.10 of the Property Owners' Association Act were amended to require that the disclosure package of the association set forth any restriction on the right of an owner to install or use a solar panel or other solar energy collection device on the owner's property.

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MARYLAND

Smoking Is Not Nuisance Per Se
Schuman v. Greenbelt Homes, Inc., 212 Md. App. 451 (2013)

Maryland courts have weighed in on an issue of growing importance in residential communities: smoking. In its recent ruling, the Court of Special Appeals of Maryland upheld the ruling of the Circuit Court for Prince George's County, holding that secondhand smoke does not constitute a nuisance per se, and that under the circumstances of this case, the secondhand smoke did not constitute a nuisance that would be in violation of common law or the rules of the cooperative.

As a member and resident of a townhouse in the Greenbelt Homes housing cooperative, David Schuman sued the cooperative and his neighbors, Darko and Svetlana Popovic, who reside in the immediately adjacent townhouse, claiming, among other things, that the cigarette smoking of the Popovics constituted a nuisance in violation of common law and in violation of the rules of the cooperative (which did not ban smoking, but prohibited nuisance activity). Prior to the filing of this lawsuit, the cooperative sealed cracks between the townhouses and engaged an industrial hygienist in an attempt to address and resolve Mr. Schuman's complaints. As the litigation progressed, Mrs. Popovic passed away and Mr. Popovic agreed to refrain from smoking in the townhouse. Mr. Schuman continued to assert that Mr. Popovic's smoking on his outdoor patio constituted a nuisance.

The court found that secondhand smoke is not a nuisance per se, because in certain situations it does not result in injury. The court also found that Mr. Schuman failed to offer evidence of any significant injury resulting from the Popovics' smoking, and, therefore, there was no nuisance in this case. However, the court noted the importance of secondhand smoke as a health issue and indicated that under a different set of facts, it may have reached another conclusion, even going so far as to provide that the opinion "does not pretend to be the final word on liability for secondhand smoke in multi-unit residential housing."

Increasingly, condominiums are grappling with what to do when one unit owner complains about the smoking of a neighbor. Smoking within a residential unit is legal conduct and, for most condominiums, permitted by the governing documents. Nonetheless, the transmission of smoke odors between units can be unpleasant and potentially could result in property damage or negative health implications. Although the court found that there was no nuisance in this case, it pointed out the steps taken by the cooperative association to address the complaints, including sealing cracks and determining that the existing rules permit smoking. In light of this recent Maryland decision, it is important for associations to be aware of any smoking provisions in their governing documents and to address any related complaints within the scope of their authority.

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PRINCE GEORGE'S COUNTY

Right of First Refusal for Sale of Multifamily Housing Projects

Prince George's County has enacted legislation that grants a right of first refusal to the Department of Housing and Community Development (DHCD) prior to the sale of a multifamily rental facility. The bill was signed by the County Executive on August 6, 2013, and became effective on September 23, 2013. However, by its terms, key provisions of the new law (namely, DHCD's right of first refusal) apply only to properties located in areas of the County that are specifically designated by the County Council, with the concurrence of the County Executive. No such areas have been designated at this time. This means that DHCD does not have the authority to exercise a right of first refusal with regard to any multifamily rental facilities in Prince George's County at this time. However, the provision of the law yet to be implemented that restricts its application to designated geographic areas does not limit the notice requirements of the law. Section 13-1112 of the new law requires that within five days after an owner enters a contract to sell rental housing, the owner must provide written notice of the sale to each tenant of the multifamily rental facility by hand or certified mail, return receipt requested, post such notice in public areas of the multifamily rental facility, and provide notice to the Director of DHCD by certified mail, return receipt requested. 

Regulations implementing this new law are expected to be adopted by January 2014. Although Montgomery County has had right of first refusal provisions in place for many years, such provisions are new to Prince George's County, and they vary significantly from those of Montgomery County. Developers intending to buy or sell multifamily rental facilities in Prince George's County should be aware of this new law and monitor further developments with regard to regulations and geographic designations.

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MONTGOMERY COUNTY

Spotlight on Density Incentives in CR Zones

With the zoning rewrite work sessions as a backdrop, Councilmembers George Leventhal and Marc Elrich have resurrected their dissatisfaction with the "incentive density point" distribution under CR Zone. The following incentive areas have come under fire: points allotted to transit proximity, through block connections, and Moderately Priced Dwelling Units (MPDUs) beyond the statutory mandate. Concurrent with the Planning, Housing, and Economic Development (PHED) work sessions is a demand by affordable-housing advocates to increase the 12.5 percent MPDU mandate to 15 percent in the CR zones. PHED Chair Nancy Floreen has directed Council staff to prepare for a December work session on the density point distribution following the zoning rewrite and map public hearings.  

In anticipation of the work session, and recognizing that Montgomery County is the only jurisdiction that exacts affordable housing (without incentive density), planning department staff are seeking input from developers on which incentives effectively offset the cost of providing bonus MPDUs above the 12.5 percent mandate. Initial discussions on how best to create bonus MPDUs have addressed the following issues: excluding all MPDU floor areas from FAR calculations when more than 15 percent of the units are MPDUs (currently only the floor area of the bonus MPDUs is not counted); eliminating the building lot termination requirement in CR projects within three miles of Level 1 transit while providing 30 points for those projects providing 15 percent of units as MPDUs; allowing developments that provide more than 15 percent of units as MPDUs to provide public benefits from only two categories; and increasing the number of points when more than 15 percent is provided (currently every 1 percent above 15 percent yields two points).

Discussions with planning staff present an opportunity to recast the discussion on which public benefits cannot be efficiently provided by the public sector and how, with the correct incentives, other benefits could be provided by the private sector.

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Tax Policy Reform and the 2014 General Assembly

Delegate Kathleen Dumais (District 15, Montgomery County) will be reintroducing legislation in January 2014 that proposes the creation of a Commission on Tax Policy, Reform, and Fairness as a first step in a top-to-bottom assessment of Maryland's tax structure. The impetus behind the legislation is the growing realization in Annapolis that Maryland is perceived as non-business friendly and that the personal income tax at a combined 9 percent makes it unattractive to many companies seeking to relocate to this area.

An additional impetus is the recognition that the economy has evolved from a manufacturing economy to a service economy, and that tax policy has not evolved to address the change. The core discussion will involve the merits of combined reporting versus separate filing, as well as a reassessment of taxing mechanisms for services and professional businesses. The Commission will consist of 16 members, appointed by the Governor, the Speaker of the House, and the President of the Senate. Three years ago the General Assembly passed the computer tax as a tax on services; the General Assembly then repealed the tax within a year. Tax policy reform is taking on significant importance and is expected to have a high profile in the 2014 General Assembly. Delegate Dumais is eager to receive input from tax policy experts before she introduces her legislation and to better understand the criteria businesses use when evaluating a new location and/or expansion.

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