The Real Deal - May 2012
Special Legislative Alert
By: M. Trent Zivkovich
The 2012 Maryland General Assembly Session ended on April 9th with the passage of a number of bills that promise to have a significant impact on real estate and land development activities in Maryland.
Not surprisingly, key development-related legislation passed during the 2012 Session was tied to requirements imposed by the EPA’s Total Maximum Daily Load requirement for the Chesapeake Bay and Maryland’s obligations to reduce the flow of pollutants to the Bay and its tributaries. Stakeholders should expect this legislative trend to continue next year and beyond. Another major highlight is the likely loss of the use of Indemnity Deeds of Trust as a means of reducing the taxes paid in the purchase and refinancing of significant properties. Lastly, there was hope going into the session that a legislative solution would be found to address new liabilities associated with lead-based paint for owners of rental properties (including banks that took possession through foreclosure). However, what remained at sine die was a bill that increased the regulatory burden on those property owners and a summer study session to evaluate ways to address the new liabilities.
The following is a summary of these and other key bills. Please feel free to contact any of the attorneys in Whiteford, Taylor & Preston’s Real Estate Development, Leasing and Land Use practice with any questions as to how they may impact you.
Growth Management, Storm and Waste Water Issues
SB 236 - SUSTAINABLE GROWTH AND AGRICULTURAL PRESERVATION ACT OF 2012
This bill was seen by many as the most significant legislation impacting land development during the 2012 session. With its foundation in legislation from the 2011 General Assembly Session and a Task Force of stakeholders that met through 2011, this bill effectively imposes greater restriction on how and where local jurisdictions approve the development of residential subdivisions. The legislation was signed by the Governor on May 2nd and goes into effect July 1, 2012.
Specifically, the bill prohibits the approval of a residential major subdivision if a local jurisdiction has established specified “growth tiers” based on current land use practices, zoning and the availability of public sewer systems unless a planning board reviews and recommends the approval under specified circumstances. Unlike in the bill’s original form, the State does not have the final authority to approve each local jurisdiction’s growth tiers, but it has the ability to request a public hearing to review them. The legislation will effectively restrict the development of major residential subdivisions served by septic systems to limited areas designated in the growth tiers. Counties that have lower overall development densities in their rural areas will be allowed greater freedom to approve major subdivisions in areas generally zoned for land, agricultural, resource protection or similar conservation uses, subject to those existing development requirements.
Properties may be grandfathered from these restrictions if:
- they submit for approval a preliminary plan application for subdivision by October 1, 2012, or
- they submit an application for a percolation test by July 1, 2012 (or submit documentation by an engineer supporting such an application for a percolation test by that date if the local jurisdiction does not accept applications at the time) and submit an application for preliminary plan approval within 18 months of approval of the percolation test.
If grandfathered, a project must obtain preliminary plan approval no later than October 1, 2016.
HB 1201 - STATE DEVELOPMENT PLAN – USE AND CONFLICTS OF LAW
This legislation was a response to the development and the December 2011 implementation of PlanMaryland, the Administration’s state-wide planning document. Many citizens, notably legislators and local officials from the State’s more rural counties, felt the Administration’s plan imposed restrictions on local governments and effectively undermined local land planning authority, a right many consider sacrosanct in Maryland. Specifically, this bill prohibits a state development plan from being used to create or establish a new cause for State denial of specified projects, permits, or approvals or to deny specified State funding. It also requires the Maryland Department of Planning and a specified county or municipal corporation to meet in good faith and seek to resolve specific conflicts. As of May 8th, the Governor has not signed this bill into law. It would go into effect June 1, 2012.
HB 987 - STORMWATER MANAGEMENT – WATERSHED PROTECTION AND RESTORATION PROGRAM
This legislation, after four years of failing to clear the General Assembly, passed its final vote in the last few minutes before midnight of sine die and was signed into law by the Governor on May 2nd. This legislation requires Anne Arundel, Baltimore, Carroll, Charles, Frederick, Harford, Howard, Montgomery and Prince George’s counties, along with Baltimore City and designated municipalities within those counties (i.e., those jurisdictions subject to EPA NPDES Phase I Municipal Separate Storm Sewer System Permits), to adopt laws or ordinances to establish a watershed protection and restoration program on or before July 1, 2013. The bill requires the program to include a storm water remediation fee and a local watershed protection and restoration fund. It also requires counties and municipalities to collect the fee and administer the fund. Importantly, the law also requires counties and municipalities to establish guidelines by which property owners can reduce those fees. One of the final amendments to the bill exempted property owned by the State or local governments from being subjected to the fee.
This fee and the programs to be established will be used to implement local stormwater system upgrades and maintenance programs required in order for the state to meet its obligations under the Bay TMDL. Preliminary discussions suggest that fees imposed will likely be in the $25 to $60 range per year per residential property; fees for commercial and industrial properties are likely to be based on the size of the properties and perhaps, the amount of impervious area on those properties. The actual fee structure used by each county, and the process to reduce those fees based on site-specific requirements and hardship concerns. will be jurisdiction-specific. Interestingly enough, while the State rejected legislative attempts to limit its ability to borrow from the Bay Restoration Fee to fund general fund spending, this bill includes a provision that prohibits local jurisdictions from raiding their own stormwater restoration funds to do the same.
HB 446 - ENVIRONMENT – BAY RESTORATION FUND – FEES
This bill, signed by the Governor on May 2nd and going into effect July 1, 2012, doubles fees paid into the Bay Restoration Fund (“BRF”). These fees are collected from users of public wastewater treatment plants, onsite sewage disposal systems, and sewage holding systems in the Chesapeake Bay watershed. The bill is intended to address a shortfall in the funding used to upgrade Maryland’s 69 largest wastewater treatment plants, to fund upgrades to failing septic systems and to pay for the planting of winter cover crops. Since its implementation in 2004, the BRF has supported upgrades to 23 major wastewater treatment plants with funding going towards ongoing construction at 20 other facilities and another 24 currently in the planning or design stages. These upgrades to wastewater treatment plants are widely credited as the primary reason that Maryland has been able to significantly reduce the amount of nitrogen and phosphorus flowing into the Bay. In recognition of the current economic realities, the Governor and legislative leaders elected not to impose the necessary fee increases projected to fully fund the BRF in later years. Even with the approved increases (and bond monies used to backfill general fund borrowing from the BRF), the BRF is projected to fall into a deficit beginning in Fiscal Year 2018.
SB 118 - VOLUNTARY AGRICULTURAL NUTRIENT AND SEDIMENT CREDIT CERTIFICATION PROGRAM
This bill authorizes the Department of Agriculture to establish requirements for the voluntary certification and registration of sediment credits on agricultural land under the Voluntary Agricultural Nutrient Credit Certification Program and altered the intent of the General Assembly to extend the program’s application to sediment. The bill was signed by the Governor on April 10th and becomes effective June 1, 2012.
Beyond its immediate impacts for farmers currently engaged in nutrient credit trading, this bill sets the stage for the potential future inclusion of credits generated by agriculture through the removal of sediment from state waters to a larger nutrient credit trading pool available to land developers, property owners and others. While still in the nascent stages of discussion and evaluation, many view the trading of nitrogen, phosphorus and sediment as a necessary requirement for Maryland to be able to afford to implement the requirements imposed by the EPA’s TMDL requirements for the Chesapeake Bay and its tributaries.
Indemnity Deeds of Trust
SB 523 – STATE AND LOCAL REVENUE AND FINANCING ACT OF 2012
For the first time since 1992, the General Assembly failed to pass what many consider to be a comprehensive budget by the close of the regular session, instead passing a fall-back budget that many have termed the ‘Doomsday Budget’. The failure of the legislature to pass the comprehensive budget that had been in negotiation up to midnight of sine die likely provided a mere respite from the coming passage of the provisions relating to Indemnity Deeds of Trust, also known as “IDOTs”, as we have known them in Maryland real estate financing transactions.
The Governor has called for a Special Session beginning on May 14th to pass a comprehensive budget. The current conventional wisdom is that renewed discussions will start where they left off. The bill included a provision that, effective July 1, 2012, would have eliminated the exemption utilized by IDOTs that secure a guarantee of repayment of a loan for $1,000,000 or more to avoid the payment of recordation taxes.
Given this situation, it is not expected that property owners will be able to use the IDOT as a means of reducing their tax burden after July 1, 2012. Property owners in the final stages of deals considering the use of IDOTs are urged to close as soon as possible and to record the financing documents as soon as possible, but particularly before July 1, 2012. Stay tuned as the final wording of this likely legislation has yet to be resolved.
Lead-based Paint & Associated Liability
HB 644 – ENVIRONMENT-- REDUCING THE INCIDENCE OF LEAD POISONING
HB 472 - WORKGROUP ON LEAD LIABILITY PROTECTION FOR RENTAL PROPERTY
This bill, signed by the Governor on May 2nd, revises the existing Reduction of Lead Risk in Housing law (the “Act”) in a number of key ways including: (1) after January 1, 2015, broadening the definition of “Affected property” to include properties built before 1978; (2) increasing the annual fee for an affected property to $30 from $15; 3) broadening the definition of “abatement” to include renovation, repair and painting of a lead-containing substance in a residential, public or commercial building built before 1978; 4) providing a rebuttable presumption that an owner’s conduct was reasonable where that owner is otherwise in compliance with the Act; and 5) providing the potential to recover expenses in certain circumstances where an action is pursued or defended without a good faith basis. This bill will take effect on June 1, 2012.
Initial estimates suggest that 330,000 units built between 1951 and 1978 will fall in the definition of “Affected property” for the purpose of the Act beginning in 2015. This deadline will cause many of the owners of these properties to conduct additional testing between now and 2015 and to then pay the necessary annual registration fees to maintain compliance with the Act’s testing and registration requirements. Frustrating many property owners, while this bill increased the number of properties that fall under its coverage, it failed to provide any kind of resolution to the October 2011 Maryland Court of Appeals opinion in Jackson v. Dackman Co. which found the immunity provisions of the Act unconstitutional. Heading into the 2012 General Assembly Session, stakeholders were cautiously optimistic that some resolution to the issue could be found. Unfortunately, that was not to be.
A second bill, House Bill 472, was passed with the intent of more closely studying this liability issue to determine if there is a possibility of establishing a state-managed insurance fund, similar to the Maryland Automobile Insurance Fund, to provide some level of coverage to property owners that comply with the Act’s requirements. This bill was also signed by the Governor on May 2nd. Specifically, the bill requires the Maryland Insurance Commissioner to convene a working group, charged with evaluating and making recommendations concerning lead paint liability protection for owners of rental property constructed before 1978. The Insurance Commissioner will report the working group’s findings to the Governor and the General Assembly on or before December 1, 2012, with the intent that legislation resulting from the study can be introduced in the 2013 General Assembly Session.
HB 158 - PROPERTY TAX – HIGH PERFORMANCE BUILDING TAX CREDIT – NATIONAL GREEN BUILDING STANDARDS
Signed by the Governor on May 2nd, this bill alters the definition of “high performance building” for purposes of the high performance building tax credit to include a building that achieves at least a silver rating according to the International Code Council’s 700 National Green Building Standards. This bill provides options for building owners and developers to complete facilities to a recognized standard other than the U.S. Green Building Council’s LEED standards. It becomes effective as of June 1, 2012, and is applicable to all taxable years beginning after June 30, 2012.
HB 366 - PUBLIC SAFETY – BUILDING PERFORMANCE STANDARDS – FIRE AND LIFE SAFETY
This bill, also signed by the Governor on May 2nd, prohibits a local jurisdiction from adopting local amendments to the Maryland Building Performance Standards if the local amendments weaken fire and life safety provisions contained in the Standards. It goes into effect as of October 1, 2012.
SB 208 - ENVIRONMENT – RECYCLING – APARTMENT BUILDINGS AND CONDOMINIUMS
The bill: 1) requires owners or managers of apartment buildings or condominiums that contain 10 or more units to provide residents with the opportunity for recycling on or before October 1, 2013; 2) requires specified owners or managers, beginning on March 1, 2014, to report annually on recycling activities to the county in which the property is located; 3) requires that the recycling required under the Act be done in accordance with county recycling plans; and 4) specifies a civil penalty of $50 per day for a violation of the Act. The bill was signed by the Governor on May 2nd and goes into effect as of October 1, 2012.
HB 126 - MARYLAND CONDOMINIUM ACT – RIGHT OF ENTRY TO INVESTIGATE DAMAGE AND MAKE REPAIRS
This bill, signed by the Governor on April 10th, repeals a restriction on the right of a council of unit owners or its designee to enter a unit to investigate damage and authorizes the council of unit owners to do so after making a reasonable effort to give notice to the owner of a unit to be entered except under specified circumstances. It becomes effective as of October 1, 2012.