The Real Deal - November 2011
Lead Paint: The Court Throws the Rental Market into Turmoil
By: Thomas J. Whiteford & Christopher C. Jeffries
On October 24, 2011, Maryland’s highest court, the Court of Appeals, issued its decision in Jackson v. Dackman Co., and found that the immunity provisions of The Reduction of Lead Risk in Housing Act (the “Act”) are unconstitutional. Previously, the Act provided property owners with immunity from lead based paint claims if they complied with its provisions and/or if a qualified offer was made. However, for reasons discussed in more detail below, the Court held that the immunity provisions of the Act are unconstitutional because the statutory remedy provided by the Act is unreasonable.
This is an extremely important opinion because it means that property owners throughout Maryland who comply with the Act no longer enjoy immunity from personal injury claims for injuries due to alleged exposure to lead based paint.
Background of the Act:
The Act’s specific purpose was “to reduce the incidence of childhood lead poisoning, while maintaining the stock of available affordable rental housing.” Property owners who complied with the Act were granted immunity or limited liability if a lead paint lawsuit was filed by or on behalf of a “person at risk”, i.e. “a child [defined as an individual under the age of 6] or a pregnant woman who resides or regularly spends at least 24 hours per week in an affected property [a property constructed before 1950 that contains at least one rental unit].”
To comply with the Act the owner of an “affected property” had to: register the property; renew the registration each year; comply with risk reduction standards requiring the completion of certain partial abatement work in the “affected property” pursuant to a schedule; and provide tenants at the “affected property” with a notice of tenant’s rights and a lead poisoning information packet on a regularly scheduled basis.
If the owner of an “affected property” complied with the requirements above, and the owner received notice of a “person at risk” with an elevated lead level above 15ug/dl, then a qualified offer could be made. A qualified offer is an offer of money by the property owner, their agent or the owner’s insurer to pay some of the expenses that may be incurred on behalf of an affected “person at risk”, including costs for temporary relocation and incidentals. The Act benefitted landlords by capping the total amount payable pursuant to a qualified offer at $17,000.
Prior to the Court’s new decision, if a qualified offer was accepted, it acted as a release of all potential liability of the offering party or parties, along with their insureds or principal. If a qualified offer was rejected, then the owner “[was] not liable for alleged injury or loss caused by ingestion of lead by a person at risk at the property.” However, even where a person at risk has a lead level below the level sufficient to trigger a qualified offer, an owner in compliance with the Act was still immune from suit even though no qualified offer would be necessary.
The Court’s Opinion:
The Court of Appeals held that the immunity provisions of the Act are unconstitutional. In other words, the Court held that a property owner is not entitled to immunity from liability under any circumstances even if the owner was in compliance with the requirements of the Act, and regardless of whether a qualified offer was made.
The Court held that the Act’s immunity provisions violate Article 19 of Maryland’s Declaration of Rights, which provides:
That every man, for any injury done to him in his person or property, ought to have remedy by the course of the Law of the land, and ought to have justice and right, freely without sale, fully without any denial, and speedily without delay, according to the Law of the land.
Article 19 has been interpreted to protect the right to a remedy for personal injury or injury to one’s property and to protect the right of access to the courts. Pursuant to Article 19, the issue, as framed by the Court, is whether the statutory remedy provided in the Act is reasonable.
The Court held that the remedy is “inadequate and unreasonable.” Under the facts of Jackson, the plaintiff’s lead levels were below the threshold necessitating a qualified offer and, therefore, even without a qualified offer, the defendants would have been immune. According to the Court, this lack of remedy was unreasonable. However, the Court went further and held that even if a qualified offer were to be made, the remedy would still be unreasonable because the maximum amount payable pursuant to the Act is only $17,000.
The Court’s opinion means that the Act’s immunity provisions are no longer applicable. In other words, even if a qualified offer is made, an owner of an affected property is not immune from suit. A question remains as to how this decision will impact prior cases where a person at risk or someone acting on their behalf accepted a qualified offer.
Further, it is important to note that the Court severed the immunity provisions from the rest of the Act, which means that all the other provisions of the Act remain in effect: property owners are still required to register an affected property; renew that registration each year; comply with risk reduction standards including partial abatement work in the “affected property” pursuant to a schedule; and provide tenants at the “affected property” with a notice of tenant’s rights along with a lead poisoning information packet on a regularly scheduled basis. Additionally, in any lead paint suit where the property owner is found not to be in compliance with the Act, there will still be a rebuttable presumption of negligence against that property owner. While all of these other provisions in the Act remain in place, the Court did not offer any instruction as to their effect in future cases.
We are continuing to analyze this opinion and its potential effects upon our clients. Meanwhile, please contact us with any questions and/or concerns.
Maryland Ground Rent Lease Safeguards Begin to Come Undone
By: Edward U. Lee III
In 2007, Maryland enacted a series of laws intended to protect residential ground tenants from the loss of their homes as a result of failing to pay ground rent and, further, to facilitate the extinguishment and redemption of residential ground rent leases. An impetus for the legislation was provided by a series of articles appearing in the Baltimore Sun in 2006 highlighting extreme ground rent lawsuits and seemingly inequitable ejectments of residents by ground rent owners. On October 25, 2011, the Court of Appeals in Muskin v. State Department of Assessments and Taxation, struck down part of one of those laws with respect to the extinguishment of ground rent leases not registered with the Maryland State Department of Assessments and Taxation (“SDAT”) by September 30, 2010.
By way of background, ground rents, generally found in Maryland only in Baltimore City and Anne Arundel County, are characterized by the separation of ownership of the real estate by a ground landlord from ownership and occupancy of the improvements on the land by the ground tenant. The ground tenant is permitted to use and occupy the land pursuant to a long term ground rent lease in exchange for which ground rent is paid to the ground landlord annually or semi-annually. The typical ground rent lease has a term of 99 years, renewable forever. The amount of the ground rent is relatively nominal with most ground rents totaling less than $50 annually. Ground rents may be redeemable, i.e. subject to buy-out and redemption by the ground tenant pursuant to a formula, or irredeemable, in which case the ground tenant does not have the right to buy out the ground rent lease. Identifying the ground landlord for a property and confirming that all ground rent has been paid can be challenging, and the penalty for failing to pay ground rent when due, at least prior to 2007, could be severe, resulting in the ejectment of the ground tenant from the property. By some estimates, there are more than 100,000 ground rent leases in Baltimore City and Anne Arundel County.
The changes passed by the General Assembly in 2007 substantially revised the legal framework for ground rent leases and included the following modifications:
a. All ground rent leases to be registered by September 30, 2010, failing which the ground lease could be extinguished by SDAT and fee title to the real estate transferred to the ground tenant ;
b. Elimination of ejectment of the ground tenant as an available remedy for failure to pay ground rent;
c. Imposition of 60 day notice and cure period;
d. As to previously irredeemable ground rent leases, notice of intent to preserve irredeemability to be filed, failing which, such ground leases to become redeemable; and
e. Creation of three (3) year limitations period.
In Muskin, the petitioner, trustee of a trust owning numerous ground rent leases, filed a constitutional challenge as to the requirement for all ground rent leases to be registered by September 30, 2010, failing which the ground lease could be extinguished and fee title to the real estate transferred in the ground tenant. The applicable provisions of the law may be found in §8-703 (registration) and §8-708 (extinguishment and transfer) of the Maryland Real Property Code. The Court of Appeals held the extinguishment and transfer provisions of the statute to be unconstitutional on the grounds that vested property rights were abrogated without due process or just compensation and, further, that the statute impermissibly transferred property without just compensation. In response to this decision, SDAT has posted the following statement on its website acknowledging the ruling and confirming that any ground leases previously extinguished under the statute, are and remain valid.
The Maryland Court of Appeals has ruled that the extinguishment of ground rents for failure to register them with the State is unconstitutional. All ground rents that would have been extinguished for failure to register them are as valid as they were before the registration deadline. Any Certificate of Extinguishment issued by this Department is void and has no effect.
Notably, the Court left in place the registration requirement under §8-703. However, pending further action by the General Assembly, currently no penalty exists for failure to register. Moreover, the Court provided guidance as to how the statute might be revised to satisfy constitutional requirements. In its initial incarnation, the penalty for failure to register was found to be excessive. Alternative approaches noted by the court as likely to pass constitutional muster for failure to register would include interim consequences short of extinguishment, such as prohibiting the collection of rents or denying access to the courts for enforcement absent lease registration. Such an approach would still permit the General Assembly to achieve its initially stated goal of protecting ground rent tenants while simultaneously preserving the underlying ground rent lease.
Next to be seen -- whether the General Assembly will act in response to this decision. Also still to be resolved is a separate class action lawsuit certified last year in Anne Arundel County claiming that the legislative reforms made the ground rent leases worthless, amounting to an unconstitutional seizure of private property for public use without compensation. In addition to seeking payment from the state, the lawsuit argues that the laws are unconstitutional.
Baltimore City Releases “TransForm 2.0”
By: Jennifer R. Busse
Finally, the much awaited revised draft of the Baltimore City Zoning Code has been released under the name “TransForm 2.0”. The effort to rewrite the Zoning Code was instigated by the Department of Planning in 2008. The first version of the draft was released in June of 2010 and the first draft of the zoning maps was released in November of last year.
By now, most of us have heard that the City’s Department of Planning is proposing a major overhaul to the Zoning Code. The current version was written in 1971, and all seem to acknowledge that the existing Code is overly complex and outdated.
By its nature, the existing Code encourages development styles that are now disfavored and arguably detrimental. For example, the existing regulations encourage the separation of uses whereas today it seems you constantly hear buzz acronyms such as “PUDs” and “TODs”.
Of course another big topic of late is the greening of development and a focus on sustainability. You may be aware that Baltimore City adopted its Sustainability Master Plan back in 2008. The elements of that plan have been incorporated into this new draft of the Zoning Code.
TransForm 2.0 focuses on four main goals with the first being to simplify the zoning, development and code administration processes. Second, and maybe one of the most exciting changes, the new Code will list broad generic category of uses for the various districts. In contrast, the existing Code follows the exclusionary zoning format – meaning if a use isn’t listed it isn’t permitted. Third, TransForm 2.0 stresses the desire to reuse existing buildings and create walkable communities. Last, the new draft focuses on improving design via new design standards and guidelines -- stressing better site design and greener landscaping.
Comments on Version 2.0 are being accepted until at least December 1st of this year. A series of informational meetings has already begun, and of course formal public hearings will occur once the new Zoning Code is introduced as legislation before the City Council.
If you’re interested in filing a formal comment or want to understand how it would impact your projects if adopted, please give us a call.