Relating to Real Estate

Since the collapse of the Champlain Towers South Condominium in Surfside, Florida during 2021, adequate funding for building reserves has become a much-discussed topic. Under Section 11-109.4 of the Maryland Condominium Act, condominiums have been required to have reserve studies performed at least every five years. However, the law has only required that the reserve study be available for inspection by the unit owners; that the reserve study be “reviewed” by the board or other governing body in connection with preparation of the annual budget, and that a summary of the reserve study be provided to the unit owners with the proposed budget. However, legislation passed by both chambers of the Maryland General Assembly during the 2025 session (HB 0292 and SB 0063) amends the annual budget provisions of Section 11-109.2 to require that the budget include funding in accordance with the reserve study and mandates that condominiums “develop a funding plan to determine how to fund” the amounts recommended in the reserve study. 

Under this legislation, a condominium’s annual budget under Section 11-109.2 must include:

• The establishment of reserves in accordance with an adopted funding plan;
• The funds recommended in the most recent reserve study be funded as part of the budget; and
• The deposit of those funds in the reserve account on or before the last day of each fiscal year.

Under proposed new Section 11-109.4(f)(3), the funding plan, which must be developed in consultation with the author of the reserve study, is required to “prioritize adequate amounts for repair and replacement of common elements of the condominium that are necessary for:

• The health, safety, and well-being of the occupants;
• Ensuring structural integrity, such as roofing replacements and maintaining structural systems;
• Essential functioning, such as plumbing, sewer, heating and cooling, and electrical infrastructure;
• Any other essential or critical purpose, as determined by the governing body."

The new legislation makes provision for financial hardship that makes full funding of reserve amounts not possible. It provides that, by a two-thirds vote of the unit owners, it may be determined that “the condominium and the unit owners are experiencing a financial hardship that limits the ability to fund reserves that are required.” In that event, the condominium “may reasonably deviate from the reserve funding requirement,” and the “funding level under that requirement shall be at least the funding amount necessary for the purposes specified under Section 11-109.4(f)(3),” the requirements of which are described above.  

Moreover, deviation from the reserve study budget requirements may only be implemented for one fiscal year, unless it is extended for an additional fiscal year by another two-thirds vote of the unit owners. The board or other governing body is also required to make “good faith efforts” to resolve the financial hardship and resume funding reserves as required by the reserve study, and must “maintain detailed documentation of the good faith efforts,” such documentation to be made available for inspection a part of the condominium’s books and records.

The new legislation contains similar provisions that are applicable to homeowner associations and cooperatives. It is presently awaiting the Governor’s signature.

Raymond D. Burke
410-576-4003  • rburke@gfrlaw.com