Gen. 35] 35

CONDOMINIUMS

RIGHT OF RESIDENTIAL UNIT OWNERS TO TERMINATE

CONTRACTS ENTERED INTO BY DEVELOPER ON BEHALF OF

CONDOMINIUM

February 4, 2005

The Honorable Jean W. Roesser

Secretary of Aging 

You have requested our opinion concerning a proposed

continuing care retirement community (“CCRC”) project that would

be structured as a residential condominium within a master

condominium. Section 11-133 of the Real Property Article (“RP”)

of the Annotated Code of Maryland allows a council of unit owners

of a residential condominium to terminate agreements entered into

by the developer of the condominium, if the council acts during the

three-year period after unit owners gain control of the condominium.

You note that, under the proposed structure, the CCRC residents

would control only the residential condominium and that entities

related to the developer could permanently control the council of

unit owners of the master condominium and therefore key leases,

management contracts, and other contracts related to the CCRC

project. You ask whether the condominium-within-a-condominium

structure would violate RP §11-133.

In our opinion, the proposed structure, as described in your

letter, does not violate RP §11-133. However, your concern is not

without some justification, and the structure would affect the nature

and extent of disclosure required as a prerequisite to the sale of

residential units in the CCRC.

I

Background

A. Condominiums

A condominium is a “communal form of estate in property

consisting of individually owned units which are supported by

collectively held facilities and areas.” Andrews v. City of Greenbelt,

293 Md. 69, 71, 441 A.2d 1064 (1982). A condominium unit owner

thus has a hybrid property interest consisting of exclusive ownership
36 [90 Op. Att’y

Common elementsthat are reserved for the exclusive use of some 1

units, but not others, are known as “limited common elements.” RP §11-

101(c).

of a unit and tenancy in common in the common elements. Ridgely 1

Condominium Ass’n, Inc. v. Smyrnioudis, 343 Md. 357, 358-59, 681

A.2d 494 (1996). “In exchange for the benefits of owning property

in common, condominium owners agree to be bound by rules

governing the administration, maintenance, and use of the property.”

Id. at 359 (footnote omitted).

The Maryland Condominium Act establishes ground rules for

the creation, initial sale, management, and termination of

condominium regimes. See RP §11-101 et seq. The Act also

provides for a hierarchy of legal instruments and regulations to

govern a particular condominium regime, including a condominium

declaration, plat, bylaws, and rules. See RP §11-124(c)-(e)

(principles for construing various legal instruments and rules

governing condominium). A condominium is governed by a council

of unit owners comprised of all unit owners, which may delegate its

powers to a board of directors or managing agent. RP §11-109.

The Maryland Condominium Act requires registration of a

public offering statement that fully discloses certain aspects of a

residential condominium before the initial sale of a unit. RP §§11-

126, 11-127. The law also requires that a seller make specified

disclosures as a condition of the resale of a residential unit. RP §11-

135. In addition to the disclosure requirements, the Act contains

certain other protections for unit owners. For example, the Act

regulates the creation and election of a board of directors by a

council of unit owners, establishes ground rules for meetings,

including an open meetings requirement and a limitation on the use

of closed sessions, creates procedures for resolution of alleged

violations of condominium rules, and grants unit owners a right of

access to condominium records. RP §§11-109(c), 11-109.1, 11-113,

11-116(c). Also, during a specified period of time, the council of

unit owners may disavow contracts entered into on behalf of the

condominium by the developer. RP §11-133. That section is the

focus of your inquiry.

B. RP §11-133

Section 11-133 provides as follows:
Gen. 35] 37

 The provision was originally codified as RP §11-125. Later 2

amendments clarified the statutory language, created exceptions for nonresidential condominiums and contracts with government agencies or

public utilities, and recodified the statute as RP §11-133. Chapter 681,

Laws of Maryland 1980; Chapter 246, Laws of Maryland 1981; Chapter

572, Laws of Maryland 1986.

(a) Within three years following the date on

which units have been granted by the

developer to unit owners having a majority of

the votes in the council of unit owners, any

lease, and any management contract,

employment contract, or other contract to

which the council of unit owners is a party

entered into between the date the property

subject to the condominium regime was

granted to the developer and the date on which

units have been granted by the developer to

unit owners having a majority of votes in the

council of unit owners may be terminated by

a majority vote of the council of unit owners

without liability for the termination. The

termination shall become effective upon 30

days’ written notice of the termination from

the council of unit owners.

(b) The provisions of this section do not

apply to: 

(1) Any contract or grant between the

council of unit owners and any governmental

agency or public utility; or 

(2) A condominium that is occupied and

used solely for nonresidential purposes.

The predecessor of RP §11-133 was added to the State

condominium law in 1974, as part of a comprehensive revision of

that law. Chapter 641, Laws of Maryland 1974. That revision was 2

the result of recommendations by the Condominium Revision

Committee of the Real Property, Planning and Zoning Section of the

Maryland State Bar Association, which submitted a formal report to

the General Assembly. The Committee report and its comments on

the revised sections were reprinted in the Annotated Code of

Maryland. See Editor’s Note to Title 11, Real Property Article (1974
38 [90 Op. Att’y

Cum. Supp.). The report indicated that the revised law provided

consumer protection through a comprehensive disclosure and

antifraud provision and that, in addition, “[a]ffirmative regulation

over a developer’s ability to control a project over a long term has

been added by [RP §11-133].” Id., p. 20. In a later comment

elaborating the statutory provision, the Committee explained:

[Section 11-133] contains entirely new

material relating to the protection of the

consumer. This section gives the

council of unit owners, by a majority

vote, the power to terminate any lease

and any management and similar

contracts which the council may have

entered into while the “developer”

controlled the council. This power to

terminate expires three years following

the date upon which the “developer”

last had a majority of the votes in the

council.

Id., p. 42. Thus, the evident purpose of this section is to permit the

purchasers of residential condominium units to free the

condominium of unfavorable long-term contracts bestowed on them

by the condominium’s developer as long as they act within a threeyear window after they obtain effective control from the developer.

II

Proposed CCRC Condominium Structure 

The proposed CCRC project would be similar in many

respects to other CCRCs. In one large building it would encompass

residences for the members of the community, community facilities

such as dining halls, recreational areas, and similar amenities, and

assisted living and skilled nursing facilities. However, the project

would have a legal structure unique for a CCRC in Maryland. The

residential units would all be part of a condominium that would be

one unit of a three-unit master condominium regime. For the sake

of clarity, we will refer to the subordinate residential condominium

as the “Sub-Condominium” and to the three-unit master

condominium as the “Master Condominium.”
Gen. 35] 39

The Maryland Condominium Act defines “unit owner” as “the 3

person, or combination of persons, who hold legal title to a unit.” RP §11-

101(r). The unit owners of the Sub-Condominium, as the “combination

of persons” holding legal title to the Residential Unit of the Master

Condominium, would together have the rights of the “unit owner” of the

Residential Unit. The council of unit owners of the Sub-Condominium,

which would be a legal entity designated by statute as its governing body

(RP §11-109(a)), would not itself hold legal title to the Residential Unit

of the Master Condominium, although the unit owners could choose to

have it act on their behalf with respect to the Master Condominium. The

residential unit owners would thus have the right to inspect the Master

Condominium’s records and, in certain circumstances, to require an audit

(continued...)

A. The Sub-Condominium

The Sub-Condominium would include approximately 240

residential units that would be offered for sale to prospective CCRC

residents. The Sub-Condominium would be governed by a council

of unit owners consisting of the owners of the 240 residential units.

However, the responsibilities of the Sub-Condominium council of

unit owners would be limited. The Sub-Condominium would not

control the community facilities or the health care facilities. Nor

would it control the exterior walls or roof of the building. The only

common elements of the Sub-Condominium would be the interior

hallways of the residential areas. 

The residential unit owners would be obligated under both a

continuing care agreement and the condominium documents to pay

mandatory condominium assessments for those services provided

through the Sub-Condominium – e.g., maintaining the carpet in the

hallways – and those provided through the Master Condominium –

e.g., meals, recreation, and access to health care.

B. The Master Condominium

The Master Condominium would include three units: a

Residential Unit, a Health Care Unit, and an Amenities Unit. The

three Master Condominium unit owners would jointly own and

control the exterior of the building, as well as the structural and

utility components. It is anticipated that the Master Condominium

council of unit owners would delegate responsibilities to a threemember board of directors. 

The Residential Unit would consist of the 240-unit SubCondominium. The Amenities Unit would include the dining hall 3
40 [90 Op. Att’y

 (...continued) 3

of the Master Condominium’s books. RP §11-116. In addition, in most

instances, the consent of residential unit owners would be required to

amend the condominium declaration. RP §11-103.

and other facilities such as a library and crafts room and would

provide hospitality services to the CCRC residents, who would pay

a mandatory fee regardless of whether they used those services. The

Health Care Unit would include assisted living and comprehensive

nursing care facilities to which the CCRC residents would be

assured priority access. However, a CCRC resident would only pay

for assisted living or comprehensive care services if the resident

elected to use those services. The resident would enter into a

separate agreement for those services with the Health Care Unit at

the time the resident began to receive the services. 

The developer plans to sell the Health Care Unit and the

Amenities Unit to a single entity (or two entities controlled by a

single entity), although it might sell those units to separate entities

not under common control. In any event, it is contemplated that the

entities that own the non-residential units will be organized as

limited liability companies (“LLCs”). The developer or an affiliate

plans to have a minority interest in, and to be the manager of, the

LLCs. 

The Master Condominium council of unit owners would be

responsible for providing continuing care to the residents in

accordance with Annotated Code of Maryland, Article 70B, §§7

through 23. The Master Condominium council of unit owners would

provide this care in large part through its legal relationships with the

three Master Condominium units and their owners. That council

would contract from time to time with the owner or owners of the

Amenities Unit and the Health Care Unit to provide: (1) the services

the council promised the residents, and (2) the guaranteed priority

access to the Health Care Unit. The owners of the residential units

would not control the Master Condominium council of unit owners

and, accordingly, would have little power over contracts devised at

the Master Condominium level. 

III

Analysis

You have asked whether the contemplated condominiumwithin-a-condominium structure would violate RP §11-133 “by
Gen. 35] 41

 If the developer continued to control the other two units of the 4

Master Condominium, the authority to terminate contracts under RP §11-

133 would not yet be effective. RP §11-133 can only be invoked after the

(continued...)

allowing the developer to permanently control the leases,

management, and other contracts” of the Master Condominium. 

An initial question is whether RP §11-133 would apply to one

or both of the condominium regimes described above. By its terms,

the statute does not apply to a condominium that is “occupied and

used solely for nonresidential purposes.” RP §11-133(b)(2).

Because the proposed Sub-Condominium would consist of

residential units and the proposed Master Condominium would have

one unit devoted to residential purposes, neither condominium

would be used “solely” for nonresidential purposes. Thus, the

exception would not pertain at either the Master Condominium or

the Sub-Condominium level. Therefore, RP §11-133 would apply

to both condominiums.

The process for applying RP §11-133 at the SubCondominium level is straightforward. Once a majority of the

residential units have been transferred by the developer, the council

of unit owners for the Sub-Condominium may exercise its right to

terminate contracts for a period of three years. However, under the

proposed structure the most significant contracts, from a CCRC

resident’s perspective, will be those entered into at the Master

Condominium level. Although the Master Condominium council of

unit owners will be able to exercise the termination right under RP

§11-133 once the developer has passed control of two of the units to

individuals or entities not controlled by the developer, the residential

unit owners will not control the Master Condominium council. With

only one-third of the votes on the Master Condominium council of

unit owners, the residential unit owners may not be able to elect even

one member of the board of directors.

It should be noted that the proposed CCRC structure does not

contemplate that the developer will permanently control the leases,

management and other contracts of the Master Condominium.

Under the proposed structure, as we understand it, the developer will

own a minority interest in the Amenities Unit and the Health Care

Unit. The authority to terminate contracts at the Master

Condominium level under RP §11-133 will not become effective

until the developer has transferred control of at least two of the units

of the Master Condominium.4
42 [90 Op. Att’y

 (...continued) 4

developer cedes control of the council of unit owners – an event for which

the statute sets no deadline. 

 Because the Master Condominium council of unit owners is 5

governed by Maryland corporation law, it would be subject to restrictions

on approval of “interested director transactions.” See RP§11-109(d)

(council “is subject to those provisions of Title 5, Subtitle 2 of the

Corporations and Associations Article...”); Annotated Code of Maryland,

Corporations and Associations Article (“CA”), §5-201 (Maryland General

Corporation Law generally applies to nonstock corporations); CA §2-419

(conditions for approval of interested director transactions).

This structure could work to the disadvantage of CCRC

residents who become unit owners of the Sub-Condominium. For

example, in theory, a developer of such a structure might enter into

contracts on behalf of the Master Condominium that the residents

perceive as unfavorable. If the residents later sought to terminate

those agreements, the owners of the Amenities Unit and the Health

Care Unit, in which the developer would have an interest, could

thwart that effort. Moreover, even if the developer terminated its

relationship with the project entirely, the owners of the Amenities

Unit and Health Care Unit could jointly control the Master

Condominium council of unit owners, which would negotiate

contracts for the services provided by those units to residents. In

other words, the controlling members of the Master Condominium

council of unit owners could be negotiating with related entities over

the prices that the continuing care residents would pay for their

services. There is some risk that charges and mandatory fees under

these contracts could exceed the fair market value of the services and

thereby erode the equity of the residents in their units.5

This raises the question whether the condominium-within-acondominium model undermines the consumer protection purpose

of RP §11-133 – i.e., to limit a developer’s ability to control, through

long term contracts, the operation of a residential condominium

project after a majority of the units have been transferred to others.

While this concern is understandable, it could arise in any

mixed-use condominium where the residential units have been

allocated a minority of the votes on the council of unit owners. Of

course, the issue might not be as much of a concern in a typical

mixed-use condominium where residents are not obligated to pay

mandatory service fees to another unit, regardless of whether they

use the services available in that unit. Nevertheless, the Maryland
Gen. 35] 43

 We do not mean to suggest that a developer could circumvent RP

6

§11-133 by artificially designating common elements of a property as

separate units or allocating voting rights among unitsin a manner that did

not have some reasonable basis. As we understand it, the proposed Health

Care Unit and Amenities Unit will each occupy considerable space in the

building and will function as substantial businesses offering health care

and other significant services. 

Condominium Act does not appear to preclude such an arrangement.

Rather, the Act appears to rely on market forces to prevent abuses by

requiring full and effective disclosure. 

6

Under the Act, the Secretary of State reviews a proposed

public offering statement for compliance with the Act’s disclosure

requirements, as a condition of registration of the condominium

regime and, ultimately, the sale of its units. RP §11-127. The Act

requires that the vendor of a residential condominium unit provide

extensive disclosure about the condominium, including, among other

things, its governing documents, its components, its financial status

and policies, and its plans for future expansion. Pertinent to the

issue you have raised, the statute requires that the public offering

statement for the condominium include any proposed management

contracts and other contracts affecting the use of, maintenance of,

and access to the condominium to which the unit owners or council

of unit owners will be a party, as well as a statement concerning the

right of the council of unit owners under RP §11-133 to terminate

such contracts. RP §11-126(b)(4). In addition, the public offering

statement must also describe provisions of the governing documents

that affect the duration of developer control or the commencement

of unit owner participation. RP §11-126(b)(14). In providing such

information, as well as the other information required by the statute,

the vendor must not make any untrue statement of material fact or

omit a material fact that is necessary to avoid misleading prospective

purchasers. RP §11-126(f).

Given those requirements, the vendor of a residential

condominium-within-a-condominium would have to provide a

detailed and comprehensible discussion of the impact of that

structure on unit owners of the residential condominium. For

example, a statement concerning the right of the council of unit

owners to terminate contracts under RP §11-133, without a clear

discussion of the impact of the Master Condominium structure on

that right, would be misleading. Similarly, a suggestion that a

CCRC structured as a condominium would permit a resident to

benefit from any increase in the unit’s value would be misleading
44 [90 Op. Att’y

without some explanation of how the Master Condominium structure

could affect and perhaps diminish that equity. 

Of course, the contemplated development would also be

subject to the statutes governing continuing care, which have their

own disclosure standards. See Article 70B, §§7 through 23. Similar

or additional disclosures could be required by the Department of

Aging in the disclosure statement furnished to prospective CCRC

residents. Id., §11C(c)(22) (disclosure statement must include

“material information concerning the facility or the provider as the

Department requires...”). 

IV

Conclusion

In our opinion, the proposed Master Condominium structure

would not violate RP §11-133. However, the vendor must provide

enhanced disclosure concerning the impact of that structure on the

powers of the council of unit owners of the Residential Unit and on

the equity interest of the residential unit owners. The General

Assembly may wish to consider the desirability of amending the

Condominium Act to increase the protection of residential unit

owners in a condominium project comprised of a mixture of

residential and nonresidential units.

J. Joseph Curran, Jr.

Attorney General

Jeffrey H. Myers

Assistant Attorney General

George Hughes

Assistant Attorney General

Robert N. McDonald

Chief Counsel

 Opinions and Advice