THE FLAWS AND POTENTIAL CONFLICTS IN CB33-2020 RENTAL PROTECTION AND STABILITY ACT

Testimony of Joel Hurewitz
May 18, 2020

CB33-2020 is well-intended, but poorly drafted legislation. Short-term protection in the pandemic emergency is appropriate. However, long-term application to an emergency that might last many months or even years is very problematic. In addition, it is not clear why the protections afforded many tenants in the CARES Act are not sufficient. As Peter Engel stated in his letter on CB33-2020: “property owners are subject to numerous local, state, and federal restrictions on the operation of housing. Some of these restrictions come from the sources used to buy or develop the property. Other new requirements are in the CARES Act. CB 33-2020 should be amended to ensure that such existing requirements take precedence in the event of conflicts. “ The conflicts alluded to by Engel also appear to include the Howard County Charter and even the Maryland Constitution.

Ambiguous Drafting Could be Interpreted to Apply to Short-Term and Event Rental Agreements

The clause on Page 2, Line 25 states that the section applies to “rented commercial space of all kinds.” Furthermore, Page 3, Line 7 prohibits the termination of a “lease or rental agreement.” Taken together these clauses could be interpreted to apply not only to hotels and storage facilities, but to event and meeting rentals at hotels or village and neighborhood centers, churches, volunteer fire departments, Recreation and Parks facilities, restaurants, bowling alleys, miniature golf or pools and would prohibit their termination during an emergency. This is particularly paradoxical because it is in fact the health emergency and the social distancing rules which are requiring the cancellation of events including those at Recreation and Parks facilities including many weddings at Belmont. An amendment is needed to make it clear that the bill does not apply to short-term rentals or to “rental agreements” for event or meeting spaces.

The Howard County Charter Prohibits Emergency Legislation from Creating a Vested Right or Interest

Section 209(d) of the Howard County Charter provides in part that emergency bills “shall not include any measure creating or abolishing any office; changing the compensation, term, or duty of any officer; granting any franchise or special privilege; or creating any vested right or interest.” (emphasis added). There appear to be scenarios where a vested right or interest is created in the tenant who is either on a month-to-month lease or for a lease which expires during the emergency.

Surprisingly, there do not appear to be court cases in Maryland interpreting similar emergency legislation clauses in other county charters, State law, or the Maryland Constitution. (There are even few cases interpreting provisions in other states. See Matthews v. Bailey, Governor, 131 S.W.2d 425 (Ark. 1939) https://casetext.com/case/matthews-v-bailey-governor-1). However, the Maryland Court of Appeals has stated that

“The definition of “vested rights” is more tricky. A most natural definition of the term “vested” is “accrued” or, as dictionaries put it, “completed and consummated.” But in that sense, any claim or interest which has come into being and been perfected as “a right” would have to be said to be vested…. … Justice Holmes once remarked with reference to the problem of retroactivity that “perhaps the reasoning of the cases has not always been as sound as the instinct which directed the decisions,” and suggested that the criteria which really governed decisions are “the prevailing views of justice.” The problem is to comprehend what real considerations influence judgment in application of “the prevailing views of injustice.” ….

… It is impossible to discover the precise meaning of the term through which all of the decisions can be consistently explained. Most of the numerous attempts at definition are essentially circuitous in nature, as in the pronouncement that “a vested right, as that term is used in relation to constitutional guarantees, implies an interest which it is proper for the state to recognize and protect, and of which the individual may not be deprived arbitrarily without injustice.” Thus “vested right” means simply a right which under particular circumstances will be protected from legislative interference. Another definition notes that a vested right is an immediate right of present enjoyment or a present fixed right of future enjoyment. 2 id. §§ 41.05, 41.06, at 369-70, 379 (footnotes omitted). See Washington Nat’l Arena Ltd. Partnership v. Treasurer, 287 Md. 38, 46 n. 4, 410 A.2d 1060, 1065 n. 4 (“[I]t has long been recognized that the term `vested right’ is conclusory—a right is vested when it has been so far perfected that it cannot be taken away by statute.”) (quoting Hochman, The Supreme Court and the Constitutionality of Retroactive Legislation, 73 Harv. L.Rev. 692, 696 (1960)), cert. denied, 449 U.S. 834, 101 S.Ct. 106, 66 L.Ed.2d 40 (1980).

Langston v. Riffe, 754 A. 2d 389, 2000. CB33-2020 appears to create a fixed lease term for the duration of the emergency plus an additional three months. Thus, a tenant with a month-to-month or expired lease would by operation of law be given what amounts to an option to renew and would be entitled to a fixed lease or a vested right to occupy the premises. As the Courts have stated, this “is an immediate right of present enjoyment or a present fixed right of future enjoyment.”

The difficulty in interpreting whether there is a vested right for the tenant is complicated because the landlord also has a vested right to repossess the property. The Court of Appeals has stated that “Maryland’s Declaration of Rights and Constitution prohibit the retrospective reach of statutes that would have the effect of abrogating vested rights” Muskin v. Assessments, 30 A. 3d 962, (2011) (citing Dua v. Comcast Cable of Md. Inc., 370 Md. 604, 630 n. 9, 805 A.2d 1061, 1076 n. 9 (2002)).

The Muskin Court continued

Our holding in Dua applies completely to the questions presented in the present case. We said there that [i]t has been firmly settled by this Court’s opinions that the Constitution of Maryland prohibits legislation which retroactively abrogates vested rights. No matter how “rational” under particular circumstances, the State is constitutionally precluded from abolishing a vested property right or taking of a person’s property and giving it to someone else.

Id. To determine whether Chapter 290 is constitutional under Maryland law, we evaluate whether the statute purports to apply retrospectively and abrogates a vested right or takes property without just compensation. If a retrospectively-applied statute is found to abrogate vested rights or takes property without just compensation, it is irrelevant whether the reason for enacting the statute, its goals, or its regulatory scheme is “rational.”Id. (stating that the relevant standard for determining whether a retrospective statute is constitutional is “whether the vested rights are impaired and not whether the statute has a rational basis.” (emphasis in original)).

The Muskin Court dealt with legislation for ground rent leases considered the meaning of “vested rights:”

B. Vested Rights.

A ground rent lease creates a bundle of vested rights for the ground rent owner, a contractual right to receive ground rent payments and the reversionary interest to re-enter the property in the event of a default or if the leaseholder fails to renew. These two rights cannot be separated one from the other; together they are the essence of this unique property interest, and as such, vested rights analysis must consider them together. As pointed out by the SDAT, there is no Maryland case on point that has held that the rights created under a ground lease are vested rights. Courts have struggled with the difficulty of determining a precise definition of vested rights.

A vested right is “something more than a mere expectation based on the anticipated continuance of the existing law; it must have become a title, legal or equitable, to the present or future enjoyment of a property.…” Allstate Ins. Co. v. Kim, 376 Md. 276, 298, 829 A.2d 611, 623 (2003) (citing Godfrey v. State, 84 Wash.2d 959, 963, 530 P.2d 630, 632 (Wash.1975)(emphasis in the original)). The ground rent owner has a legal title that is vested and a firm expectation for the future enjoyment of ground rent payments. The right to re-enter the property or eject the leaseholder secure the ground rent owner’s future enjoyment of ground rental income. In Dua, we said that vested rights include “that which is regarded as a property right under Maryland property law.” 370 Md. at 631, 805 A.2d at 1077. There can be no reasonable doubt that the reversionary interest to real property and the contractual right to receive ground rent are vested rights under Maryland law. Heritage Realty, 252 Md. at 11, 248 A.2d at 904 (recognizing the importance of the reversionary interest, stating that “[t]he owner [of the reversionary interest] is entitled to receive fair market value on condemnation”). As such, our holding in Dua, that retrospective statutes may not abrogate vested property rights, leads us to the conclusion that the extinguishment and transfer provisions of Chapter 290 are unconstitutional.

Muskin. Note again how the Court stated that “Courts have struggled with the difficulty of determining a precise definition of vested rights.”

Similar to the right to re-enter with a ground rent, a landlord with a regular lease has a vested right to repossess the property at the termination of the lease. Maryland law provides that a landlord may give the tenant a Notice to Quit:

(b) Notice to quit. —

(1)(i)Where any tenancy is for any definite term or at will, and the landlord shall desire to repossess the property after the expiration of the term for which it was leased and shall give notice in writing one month before the expiration of the term or determination of the will to the tenant or to the person actually in possession of the property to remove from the property at the end of the term, and if the tenant or person in actual possession shall refuse to comply, the landlord may make complaint in writing to the District Court of the county where the property is located.

Md Real Property Code Ann § 8-402. By forcing the landlord to renew the lease would appear to deprive the landlord retrospectively of the statutorily vested right to repossess the property from the tenant.

Does § 8-402 of the Real Property Code Preempt Local Legislation?

In addition, it would appear that § 8-402 preempts local law regarding the notice to quit. This is particularly evident where there are specific provisions applicable to Baltimore City and Montgomery County. See § 8-402 (3)(ii) and (iii). Thus, if CB33-2020 is preempted, it cannot prohibit a landlord from repossessing the property pursuant to a notice to quit. Tangentially related is what happens where the owner is unable or even does not want to renew its Howard County residential rental license? The bill cannot be drafted to force a landlord to allow a tenant to remain in possession after the expiration of lease or rental agreement.

Amendment 1 – Exception for Commercial Tenants in Default at Time of the Emergency

The exception for tenants in default at the time of the emergency is declared only applies to commercial tenants. Thus, does the bill give an incentive to residential tenants who were already in default or encourage those not in default to go into default and remain in possession of the leased property for months or even years?

Amendment 3 – Bill Should Only Apply to the Current Pandemic Emergency

Had it been in effect for the Ellicott City flooding, CB33 would have applied to the Flood State of Emergency. It could potentially also apply to an emergency caused by fire, tornado, snowstorm or civil unrest. The bill makes no allowance for terminating a lease or rental agreement when the facility is inaccessible or has been destroyed in the emergency. Nor does the bill have an exception for a property which becomes uninhabitable during the pandemic due to storm damage or fire. To give rental relief when there is an emergency from a tornado or flooding for just a few days does not necessarily have a nexus to rentals especially throughout the whole County. As stated in Engel’s letter, the bill should only apply to the current pandemic emergency.

Emergencies unrelated to the pandemic would not necessarily affect the ability of tenants to pay their rent. Governor Hogan placed Maryland under a opioid state of emergency in 2017. https://governor.maryland.gov/wp-content/uploads/2018/12/Executive-Order-01012018.30.pdf  https://wtop.com/maryland/2020/01/maryland-sees-slight-decline-in-opioid-overdose-deaths-state-tackles-crisis-with-new-plan/ In no way has this emergency affected most individuals financial situation and generally has become background noise as society and government continued to function until the COVID-19 state of emergency. More importantly, while Governor Hogan first declared the COVID-19 state of emergency on March 5, 2020 there was no practical effect on Maryland society until the Governor’s Order of March 12, 2020 Prohibiting Large Gatherings and Events and Closing Senior Centers. https://governor.maryland.gov/wp-content/uploads/2020/03/Prohibiting-Large-Gatherings.pdf Therefore, it seems likely that an underlying state of emergency for the pandemic now in its third month will last throughout the remainder of 2020 and into 2021. If the emergency lasts for more than a year, it could prohibit rent increases or terminations well into or even beyond 2021. Thus, there is an incentive for tenants to just not pay and await the landlord’s lawsuit for damages.  


While Amendment 3 makes it clear that it only applies to the COVID-19 emergency, it also addresses a technicality that the Governor’s proclamation are for 30 days subject to renewal. It also clears up an interpretation of whether it is necessary for the emergency to be declared by both the Governor and County Executive. However, by not striking lines 22 and 23 there is an unclear reference to County Executive Orders without the antecedent provision.

Amendment 5 – Prohibiting Late Fees Might Be Unconstitutional Retrospective Legislation

Amendment 5 which prohibits late fees in existing leases and rental agreements would appear to deprive the landlords of their vested rights retrospectively as discussed above.


C
onclusion

CB33-2020 needs to be amended and stripped-down to only those elements which afford protections to tenants. The ambiguous application to event and meetings rental agreements needs to be clarified. Those elements which are in conflict with the Charter, State law, or the Maryland Constitution need to be stricken.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s