Condo Resale Disclosures May Violate Maryland Consumer Protection Act

by Tom Schild

It has been a rough month for Maryland condos.  First, the Maryland Court of Appeals expanded the potential liability for the presence of pit bulls on condo common areas (See May 11 blog post–Beware of Pit Bull).    A few days later, the same court ruled that condos and their management companies may violate the Maryland Consumer Protection Act by issuing a “misleading” resale document in connection with the sale of a condo unit.

The Maryland Court of Appeals–the highest state appellate court–issued its initial opinion in MRA Property Management, Inc. v. Armstrong in October 2011 but withdrew that ruling in December 2011 in response to objections by the unit owners, condominium and management company who were the parties to the litigaiton.  The court issued its new and revised ruling on April 30, 2012.

Unit owners who received the condominium operating budget as part of the resale disclosure package claimed the approved budget was misleading because there was no indication that additional repairs would be required and a special assessment to fund the repairs would be imposed on unit owners  The condominium and management company contended that they had complied with the resale disclosure requirements of the Maryland Condominium Act by providing the operating budget and that the Maryland Consumer Protection Act does not apply to the issuance of condo resale disclosure information.

The appeals court concluded that the Consumer Protection Act does apply to the issuance of resale disclosure certificates and other information even though neither the condominium nor management company is the seller of the condo unit.  The court reasoned that the statutory duty under the Condo Act to provide materials  to prospective buyers injects the condominium and management company into the sales transaction as “central participants” because the sales contract would be unenforceable if they failed to provide the resale disclosure information.  According to the court, the required disclosures “may have been integral to the transactions”.

Therefore, the Consumer Protection Act establishes an independent basis of potential liability by the condo and its manager if the disclosures are “misleading or had the capacity, tendency, or effect of misleading or deceiving”.  The Maryland Condominium Act requires disclosures, while the Consumer Protection Act  mandates that those disclosures not be deceptive.

The appeals court did not rule on whether the operating budgets provided by the condominium and its management company were deceptive in violation of the Consumer Protection Act.  Instead, the court found that they were not necessarily deceptive and sent the matter back to the trial court to determine if they were deceptive or not.  The Court of Appeals left open the possibility that the mere disclosure of the operating budget might be deceptive if additional known information was not also disclosed to prevent the budgets from being misleading.

Additionally, the appellate court did not address whether the condominium has an obligation under the Condominium Act to disclose building conditions that may have been code violations but were never charged as such by a  government agency.  Although the court had addressed that issue in its earlier withdrawn decision, the court’s revised decision concluded that issue was not properly before the court.

 

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