Understanding Condominiums and a Unit Owner’s Legal Rights

I. Introduction

            The number of new condominium communities and homeowners associations is expected to increase by more than 3,000 in 2024, according to projections by the Foundation for Community Association Research, an affiliate organization of Community Associations Institute. The Foundation estimates the number of U.S. community associations will grow from 365,000 to as many as 370,000.

As individual homeowners age, they often downsize by selling their homes and purchasing a condominium for the following benefits of condominium ownership: (i) low maintenance; (ii)  access to amenities and facilities; (iii) security features; (iv) community living; (v) location and accessibility; (vi) cost efficiency; (vii) investment potential; and (viii) a regulated environment.  Often the last of these benefits, a “regulated environment,” is the least understood by condominium unit owners, and sometimes even by the condominium association’s board of directors and the association’s property manager.

In order to understand condominiums and the legal rights of a condominium unit owner, it is first necessary to understand the relationship of a condominium association, its board of directors, and its property manager. Through the following discussion and a set of Questions and Answers, this article explains the governance of a condominium association (a “CA”), the CA’s operative documents, and the functions and duties of the CA’s council of unit owners, board of directors, and the CA’s property manager. A discussion of the condominium unit owner’s legal rights follows thereafter.

II. Condominium Governance

External and Internal Rules

1. External Rules

In most states, including Maryland, a CA is subject to a comprehensive state law condominium act (the “State Condo Act”), which governs the CA’s formation, operation (including the means of internal governance), and dissolution.  Additionally, certain federal laws (e.g., fair housing laws) also apply to a CA.  Clearly, the State Condo Act is the principal source of external rules that must be followed.

2. Internal Rules

To form a CA, it must file a comprehensive “Declaration,” accompanied by a set of “Bylaws,” both of which are recorded among the land records of the city or county where the CA is located.  A CA may also impose what are frequently referred to as “House Rules,” mostly governing in more detail then the CA’s Bylaws the CA’s day-to-day operations matters.  In terms of the hierarchy of condominium governance, first is the State Condo Act, followed by the CA’s Declaration, then Bylaws, and finally any House Rules.  Accordingly, the Declaration, Bylaws, and House Rules must not conflict with the State Condo Act.  Moreover, the Bylaws must not conflict with the Declaration, and the House Rules must not conflict with either the Declaration or the Bylaws. When a condominium unit is purchased, the buyer will have been given copies of the CA’s current Declaration, Bylaws and House Rules.

III.  Condominium Documents

1. Declaration

The CA’s Declaration, as its name implies, “declares” the formation and existence of the condominium association. It also legally defines: (i) common elements, both “General” (e.g., lobbies; stairs; elevators; amenities for use by all; landscaping, etc.) and “Limited” (e.g., patios and balconies attached to their particular unit), and (ii) the units. Articles that define the CA typically make up much of the Declaration. For example, the Declaration names the percentage interest that each unit owner has in the entire condominium development, including its General and Limited common areas, which determines voting rights and condo fee assessment percentages. The Declaration also defines common area rights; how the CA handles maintenance; and how the CA’s board will use condominium fee assessments.  Think of the Declaration as the governing legal document which, together with the condominium bylaws, acts as the “Constitution” for the CA.

2. Bylaws

CA Bylaws detail the functional operations of the CA. The Bylaws define such things as: (i) the association members that comprise the CA’s council of unit owners (the “Council”); (ii) how and when the Council elects its board of directors (the “Board”); (iii) when meetings will occur; (iv) who can vote; (v) the legal requirements for a quorum; (vi) the role of the Board; and (vii) the operating fund and the reserve maintenance fund.

3. House Rules

House Rules are meant to expand on and/or be more detailed than Bylaws and serve to create a more harmonious living environment for the residents of the condominium.  House Rules are different from Bylaws in that they can be implemented and changed by the Board of Directors without the need for unit owner approval – which means that they can be changed more easily.  The Maryland Condo Act requires that if the Board wishes to amend House Rules or enact new ones, it must first submit to all unit owners the proposed amendments and/or additions to the House Rules for receipt of unit owner comments.  House Rules address day-to-day operations of the CA, covering such topics as leasing rights, pets, smoking, architectural guidelines for unit alterations and/or improvements, and procedures for invoking fines for violations of the Declaration, Bylaws, or House Rules.

IV. Condominium Parties

1. The Council

            Each owner of the CA’s units is a Member of the Council of Unit Owners, entitling that Member a singular vote on any issues coming before the Council requiring a vote. Under most State Condo Acts, including Maryland,  the affairs of the CA are governed by the Council which, even if unincorporated, is constituted a legal entity for all purposes. This means that all of the legal and financial responsibilities of the CA are vested in the Council.  Recognizing that the size of many CA Councils would be problematic to address effectively such responsibilities, most State Condo Acts, including Maryland, provide that the bylaws of a CA may authorize or provide for the delegation of any power of the Council to a board of directors, officers, managing agent, or other person for the purpose of carrying out the responsibilities of the Council.

2. The Board of Directors

The legal and financial responsibilities of the Board play a critical role in the successful management of the CA. By effectively preparing and monitoring budgets, meeting insurance requirements, and ensuring compliance with laws and regulations, the Board can maintain the financial stability of the CA and protect its assets and interests. Understanding and fulfilling these responsibilities is essential for a well-functioning CA.

The members of the Board are elected by the Members of the Council to manage the CA, and negotiate contracts for maintenance, landscaping, and other aspects of day-to-day operations. In larger CA’s, the Board works with a property management company to implement the Board’s decisions in managing the CA.  The Board is also responsible for setting the budget, collecting assessments, and ensuring that the CA is in compliance with all applicable laws. The Board also oversee the maintenance of General and Limited common areas, as well as the CA’s amenities (e.g, a pool; tennis court; clubhouse; and all landscaping).

3. The Property Manager

The CA’s Board hires the property management company, which in turn assigns an individual property  manager to serve the needs of the CA. Both the property management company and the assigned individual property manager together constitute the “Property Manager.” The CA assigns to the Property Manager tasks and duties, specifying the responsibilities in the form of a detailed job description, which often becomes part of a written contract between the CA and its Property Manager. The CA’s Board needs to hire a condominium property manager carefully because it is a job the entire CA owners and residents will depend upon for a well-run community. The Property Manager must have the essential skills required to manage a CA.

A CA’s Property Manager’s job description can include many duties, such as operations and real estate property management; condominium association administration; financial management; specific project management; organizing resources for general maintenance; customer service for individual unit owner requests; marketing; communications between the CA and its unit owners; and community conflict resolution.

Because the Property Manager’s duties and functions are such an integral part of a well-managed and operated condominium community, the relationship of the Property Manager and the CA, including unit owners and residents, is often misunderstood.  The following Q’s and A’s clarify this relationship:

Q: Is the Property Manager part of the CA’s Board?

A: No. The Property Manager is a third-party consultant service that is hired by a CA to help support the operations of the condominium association. The Property Manager is an outside business with expertise in condominium association property management that carries out the instructions of the CA’s Board.  As a part of its duties, the Property Manager attends all CA Board meetings, usually held monthly, to give the Board financial information and other operations reports.

Q: Is the Property Manager just another vendor for the CA?

A: Though the Property Manager has been hired by the CA to perform a supporting role, the Property Manager/CA Board relationship is different than a standard vendor arrangement.  Traditional vendors generally work under a scope of work agreement, agreeing to perform specific services during a discreet time period. CA Property Managers do more than work for a CA; they act as an agent on behalf of the CA. This means that Property Managers have a fiduciary duty to act in good faith and in the best interest of the CA. The goal of every Property Manager is to help make the community the best possible place to live, and in doing so, protect property values for the long haul. The duties assigned to the Property Manager are not secret. They are always outlined in every CA’s governing documents (i.e., the Declaration, Bylaws, and House Rules).

Q: Why do unit owners receive notices from the Property Manager?

A: Technically, most of the notices a unit owner receives are from their CA Board — the Property Manager is simply the messenger. The Property Manager does not make decisions on behalf of the CA or the Board. The Property Manager can only facilitate the directives of the CA’s board. Part of that operational support includes managing communications with unit owners, so the contact information on communications may point back to the Property Manager.

Q: What are some of the operational duties that the Property Manager performs?

A: The Property Manager acts as the “boots on the ground” for the day-to-day operation of the CA, which in Maryland is usually a non-profit, non-stock Maryland corporation. As part of the service contract, most CA Property Managers provide the following important types of support:

• Board Meetings: The Property Manager facilitates and documents Board meetings, including assisting preparation and/or distribution of meeting agendas, noticing the meeting, distributing the information packet to Board members prior to the meeting, attending the meeting itself, taking minutes, providing advice at the meetings, disseminating minutes post-meeting, following up on action items, and acting as inspectors of election for the annual meeting, where requested.
• Vendor Management: As an agent of the CA, the Property Manager not only solicits competing bids from vendors for maintenance and upgrades, they also act as the primary point of contact for vendors. This often involves supervising a wide range of vendors, including landscaping upkeep, and security and/or surveillance services.
• Community Walk-Throughs: The Property Manager devotes time and attention to ensuring that the community looks as good as possible and all residents are doing their part to uphold the rules and regulations established by the CA. This also includes noting any safety issues in common areas and subsequently bringing them to the Board’s attention.
• Risk Reduction: As experts in condominium association operations, the Property Manager helps the Board mitigate risk by ensuring that the CA’s exposure to liability is as low as possible. This includes specifics like making sure that the CA’s insurance coverage is adequate and in force.
• Business Guidance: Most reputable Property Managers have decades of experience providing advice to condominium associations. Smart condominium Boards use this expertise to their advantage by soliciting input from the Property Manager before making their final decisions about issues that affect the CA.

Q: What are some of the Property Manager’s accounting duties?

A: As fiduciaries for the CA, the Property Manager has a legal obligation to act in the best interest of the condominium association. Some of the Property Manager’s duties are defined by state law; others are important financial duties that the CA’s Board simply does not have time to manage.

• Dues Collection: Property Managers are usually tasked with collecting condominium dues on behalf of the CA. These monies are usually deposited electronically directly into the CA’s bank account and are never paid directly to the CA’s Property Manager.
• Accounts Payable: The Property Manager handles cutting checks to vendors and utilities. These transactions are always open and transparent and easily visible to the CA Board at any time.
• Monthly Fiscal Statements: Property Managers compile and organize monthly financial statements for the CA Board, so all Board members have a clear understanding of where the CA’s finances stand, including reserves and outstanding A/R and A/P.
• Collections Support: Some Property Managers provide collection services including outstanding balance tracking, late notices, carrying out the delinquency policy set forth in the CA’s governing documents, delivering pre-lien notices, and sometimes appearing in small claims court on behalf of the CA.
• Escrow Services: When properties change hands, the Property Manager provides a set of governing documents to the new owner and determines if there are any outstanding back dues or liens on the property.

Most Property Managers do triple duty: they service the CA Board in their administrative and accounting needs, they are available as a resource for the unit owners, and they act as an agent on behalf of the CA itself. This comprehensive scope of duties means that a Property Manager should know the CA’s community better than most of the unit owners—and even the members of the Board itself.

V.  Condominium Unit Owner’s Legal Rights

            As with any other organization, CA’s are vulnerable to legal action. More often than not, a condominium unit owner challenges some action taken by the CA. Here are the most common CA lawsuits relating to the legal rights of condominium unit owners:

1. Architectural Request Denials. A possible CA lawsuit may arise regarding architectural requests. Generally, a condominium unit owner desiring to make architectural changes as a part of the renovation or improvements to their unit have to apply to the CA Board for approval. The changes may be denied if they do not conform with the CA’s applicable architectural standards. A dissatisfied condominium unit owner who receives such a denial may take legal action to challenge the Board’s decision. The first step would likely be a formal appeal of the board’s initial determination. If that does not resolve the issue to the unit owner’s satisfaction, the unit owner can sue the board for not following the CA’s own rules and regulations.
2. Board Action Disagreement. CA Boards make all sorts of decisions, but not everyone may agree with them. Suing HOA Board members out of disagreement may not be uncommon, but may also be unwise. Many unit owners deal with their dislike of the Board’s findings in this manner. They feel that suing the CA will stop the dispute. More often than not, however, such polarizing decisions involve expenditures that unit owners may have to pay, unless there is a valid factual and legal basis for disputing the Board’s initial decision.
3. Discrimination. Discrimination suits are prevalent in the United States, and CA’s are no exception. A disabled person or disabled unit owner may sue the CA under the Fair Housing Actor the Americans With Disabilities Act, which usually happens when the CA fails to make reasonable accommodations for the person.
4. Failure to Comply with a Request for Inspection of Records. Condominium unit owners sometimes request to see or inspect certain CA records, but the CA cannot grant the requests. Some unit owners take legal action to force the Board to comply when that happens. As with other lawsuits on this list, condominium unit owners are only sometimes right. In some cases, unit owners will request to inspect sensitive or confidential records, such as a list of delinquent homeowners. In such a scenario, the board’s decision to deny the request is reasonable.  Under the Maryland Condo Act, a condominium unit owner has a right to examine and copy the “books and records” of a CA. Examples of records that a unit owner might request include:

• financial records, such as budgets, financial statements, audits, tax returns.
• meeting minutes of the board of directors and its committees.
• correspondence of the CA regarding a specific topic or incident.
• contracts of the CA, such insurance policies and community management agreements.
• governing documents, such as the CA’s declaration, bylaws, rules, and regulations.
• other records related to the operation and management of the condominium.

6. Failure to Maintain Common Elements. A CA is responsible for all general and limited common area maintenance and repairs, except as otherwise provided in the CA’s declaration, bylaws and/or house rules. Failing to fulfill this responsibility can be grounds for legal action. Condominium owners may complain and even sue the CA when the CA fails to maintain or repair a common element or area. The same applies even if a natural disaster causes damage. Insurance may cover some of the expenses, but it is up to the CA to have contingency funds precisely for such an event.
7. Personal Injury. People have also sued a CA for personal injury, otherwise known as a slip-and-fall lawsuit. Suing a CA for negligence is one of the more common lawsuits a CA can encounter. Such suits are usually based on a negligence theory that the CA was negligent in its maintenance and caused the person to injure themselves. For example, if the CA failed to repair damages to a flight of stairs and someone trips over it, the CA could be liable for that person’s injury.
8. Pet Disputes. When discussing CA lawsuits, pets don’t usually come to mind. Surprisingly, however, unit owners have sued their CA over pet disputes. This generally happens when a unit owner disagrees with an CA’s rules concerning pets. They sue sometimes to change the rules, or to force the CA to allow them to be an exception, or they claim the pet is an “emotional support” animal.
9. Violations of CA Rules. When a condominium unit owner violates the community’s rules under the CA’s declaration, bylaws, and/or house rules, the CA may assess a fine against the unit owner as provided under the CA’s documents or as provided the State Condo Acct. While some homeowners settle the fine, others may challenge the violation. As with other disputes, settlement of fines for rules violation begin with a hearing before the CA’s Board conducted similar to a court proceeding. If a settlement satisfactory to the unit owner is not reached, the unit owner may file suit in civil court against the CA.

Written by Martin B. Ellis, Esquire. The information contained herein is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information contained in this blog should be construed as legal advice from Shumaker Williams P.C. or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. This blog is current as of the date of original publication.