Nicole Lacoste Folks & Saad Malik: Rent Stabilization Act & Tenants Bill of Rights

In this episode of the Gordon Feinblatt podcast, real estate attorneys Saad Malik and Nicole Lacoste-Folks discuss the recently passed Rent Stabilization Act in Maryland. They delve into the key components of the Act, including the establishment of the Office of Tenant and Landlord Affairs, the introduction of a Tenants Bill of Rights, the right of first offer for tenants, changes to eviction filing fees, and new regulations regarding security deposits. The conversation emphasizes the importance of understanding these changes for both landlords and tenants in navigating the evolving real estate landscape in Maryland.

Nicole Lacoste Folks Bio: https://www.gfrlaw.com/who-we-are/attorneys/folks-nicole-m-lacoste

Saad Malik Bio: https://www.gfrlaw.com/who-we-are/attorneys/malik-saad

Real Estate Practice Group Page: https://www.gfrlaw.com/what-we-do/real-estate

Gordon Feinblatt Home Page: https://www.gfrlaw.com/

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Transcript

Introduction (00:05)
Welcome to the Gordon Feinblatt podcast, your trusted source for legal insights in Maryland and beyond. We're here to help you navigate the often complex waters of legal matters. In each episode, our goal is to empower our community with the knowledge that you need. Whether you're keeping up with recent legislation or seeking general guidance, we've got you covered and we've likely solved problems like yours.

In today's episode, we have Saad Malik and Nicole Lacoste-Folks, two real estate attorneys from Gordon Feinblatt, joining us to discuss the Tenant Bill of Rights and the Rent Stabilization Act. This episode is a great listen for anyone in the real estate industry, whether you're a tenant, a landlord, a real estate agent, or so on. Please know that if you're in need of any legal assistance, we would be happy to help you, and you'll find our contact information

for the attorneys in today's episode and for the firm in the show notes. Now let's get started with today's episode.

Saad and Nicole:
Well, hi everyone. Thanks so much for tuning in. My name is Saad Malik. I'm a real estate attorney with Gordon Fine Blatt and I am joined today by my colleague, Nicole Foulkes.

Hello everyone, this is Nicole Lukas -Folks here. I'm also a real estate attorney at Gordon Fine Blatt. And today we are going to discuss what's commonly referred to as the Rent Stabilization Act.

So let's talk about this.

The name of the new law is the Renters' Rights and Stabilization Act, which is HB 693, and it was passed in the 2024 legislative session for the state of Maryland. So let's talk about what it does, Todd. Yeah, so I think Governor Moore had an interesting approach this legislative session, and it was really a part of his campaign to shift towards putting in place programs that are tenant friendly, first time buyer friendly in order to attack the housing crisis that has really been elongated partly due to the pandemic. So Governor Moore as a part of his housing package here had three big bills that he signed into place.

And as you mentioned, Nicole, the Renters Right and Stabilization Act is a big one. And I think it's going to have a big impact on tenants and landlords. So it's important for everyone in the housing industry to really understand what it's all about. Right, both on the landlord and the tenant side. So the Rent Stabilization Act does five main things. 

So let's list them and then we're going to talk specifically about each of those five components that are in the Rent Stabilization Act. So the first one is that the new law creates a state office of tenant and landlord affairs. The second part is that it creates a bill of rights for tenants. The third part is that it creates a right of first refusal to purchase for a tenant to purchase the rental property, and there's certain circumstances there, and we'll get into that. The fourth is evictions, and the fifth is new laws on security deposits. So, Saad, why don't we jump right in? Yeah, so, let's talk about the Office of Tenant and Landlord Affairs, because this is...

This is an interesting concept here. It's a new body, so to speak, that's being created by this legislation. Why don't you tell us a little bit more about what the Office of Tenant and Landlord Affairs does? Yeah, it's a new body at the state level. So we've seen similar offices at the county level, and those county offices will stay in place and continue to do the work on tenant and landlord affairs themselves.

But this now is a state level office and so it'll serve as a resource to both tenants and landlords as a primary contact source when there are problems with a rental property between a landlord and a tenant. And so there are certain parts of this law, and we'll get into this later, that put additional obligations on a landlord, especially when it comes to the right of first offer. And so the office will provide resources to a landlord when it comes time to sell the property and if it's an applicable property that falls under the right of first offer conditions in this new law. Tenants can contact the office, landlords can contact the office, it's not a one -sided office, and they're going to just be able to give information about credit or financial counseling in connection with purchasing a home under the tenant's right of first refusal.

You'll be able to answer questions about existing laws in the state and the process for eviction and just general questions that any landlord or tenant might have. So we should think of this new office as a resource for both landlord and tenants. So let's break it down a little bit. If I'm a tenant, when would it be appropriate for me to contact the Office of Tenant and Landlord Affairs?

Yeah, that's a really good question because it would be like whenever a tenant has a problem communicating with the landlord, like you know the water has been cut off or there's a leaking ceiling or something like that and they just can't get a response from the landlord, they can contact the Office of Tenant and Landlord Affairs to find out what are their rights and you know what do they have to do to file you know, go and file in district court as far as what they need to do to get the landlord to act. But is that office giving me legal advice then? No, they are not giving legal advice. We have to think of them as a resource. 

Okay. Now, as I mentioned before, know, county, counties have their own assistance offices and then local courts have their own like help desks. Like for example, Baltimore City, if you go to the district court, there's a help desk on the second floor where both landlords and tenant can go and get legal advice. That's not the purpose of this office. This office is a resource of information, but not legal advice. So, so let's say I'm a tenant and I'm in a situation where I feel like my landlord is breaking the law.

I contact this office. They are then going to direct me somewhere, I guess. Correct. Yeah, no legal advice. And keep in mind, too, this office has not been created yet. So we'll see how it evolves, how it's, you know, after it is created. But the law was passed the last legislative session and this office is not established yet as of the date of this recording. And so we'll see if anything changes as far as how they function. But how the statute is drafted.

They do not give legal advice, but they can make referrals to legal service providers. So they're not giving legal advice, but let's say we're in a jurisdiction like Baltimore City where landlords are required to have some sort of license or certification to lease out their properties. I'm a tenant and I call the Office of Tenant Landlord Affairs and I tell them that I don't think my landlord has the proper licensing to do this. 

Can the office of tenant landlord affairs and post some sort of punishment on the landlord if something like that's found?

That's a good question. The Office of Tenant and Landlord Affairs does not have the authority to force a landlord to stop operating. And if a landlord is violating the law, the office can refer the case to the local authorities or the attorney general's office. Okay.

And you mentioned briefly that it's supposed to be a resource for tenants and landlords. Can you talk a little bit more about what kind of information a landlord could receive by contacting the office? Yeah, we had mentioned the right of first offer that we're going to get to in more detail later on. But the office will provide to landlords the forms that are needed for the tenant exclusive negotiation period and the rights of first refusal notice requirements that would have to be provided to the tenant under this new law.

Got it. And I think it's important to note as of now, that office has not been created, at least as of the date of this recording. Correct. And so we're talking a lot about contacting this office if you feel like you're in a need. That contact information isn't available yet. And when this law was put into place, the expectation was that by October 1st, we would have some information as far as where a prospective tenant or landlord could contact this office. But we still do not have that information.

So I guess that's just something that we're going to be on the lookout for to keep monitoring. Right. And I'm sure we'll post that information once we have it. So, but it's just not available at this time because this was just created last session, last legislative session. Sure. So why don't we jump into the next part of this new law and that is the Tenants Bill of Rights. so, Son, I'm going to ask you some questions about this because this is a new concept in Maryland. We have not had a statewide Tenant Bill of Rights in the past. 

And this is something that landlords need to become familiar with as well as tenants and why do both parties need to become familiar with this new Bill of Rights? Yeah, so one of the main functions of the Office of Tenant and Landlord Affairs is to publish and update something called the Tenants Bill of Rights and this is supposed to be an annual update. It's important to note that the Tenants Bill of Rights does not create any new rights or protections for tenants. It's supposed to serve as a summary of existing rights and protections.

And there are some new rules that have been put into place by the renters right and stabilization act but the actual bill of rights is not a new imposition it's just a I would look at it as a resource so it's a piece of it's a document it's a piece of paper or a digital file if it's an electronic document so what does a landlord have to do with this document so once it's published and again as the date of this recording there's nothing in place yet landlords are required to attach a copy of the most current version of the Tenants Bill of Rights as an addendum to any residential lease. And the latest version is going to be available at the Office of Tenant and Landlords Affairs website once it's created. And when are we expecting that? So the legislation initially targeted a date of October 1st, 2024. 

And recent updates have a new timeline anticipating that we'll have the first draft of the Tenants' Bill of Rights by January 1st, 2025, after there's been some input from stakeholders. Now, we're not sure who these stakeholders are going to be as real estate lawyers. We hope that we're consulted, but that information is yet to be revealed. And then this is somewhat of a living document. It'll be updated annually, correct? Yeah, it will be updated annually. 

What's interesting is the bill talks about the requirement to include the Tenants Bill of Rights in every residential lease, but where false silent is the enforcement of that But what happens if they don't? Yeah, so in short, I don't know. The bill doesn't discuss that. There's numerous occasions in which there's language that says that a landlord must or shall attach a copy of the Bill of Rights, but... there's nothing in there that says, if you don't attach it, your lease is unenforceable, or if you don't attach it, you're gonna be subject to such and such fines. So it'll be interesting to see if the next legislative session, if this is something that's tackled or discussed, and in practice, if landlords are failing to do so, because this is a new law, it's gonna happen.

We'll see what the impact of that is and how it's dealt with in court if a dispute arises. think it's fair to say that we're all very interested in seeing the first draft of the Bill of Rights. Right. We are very excited to see that, interested. Okay, so let's go on to the next part and that's the right of first offer. And let's make a caveat right here.

The right of first offer requirements that we're going to talk about now only apply to one, two, or three unit residential rental properties. And the tenant has to have lived at that property at least six months and is the named tenant on the lease. If the tenant does not fall under that category, this does not apply. So I'll repeat it again. One, two, or three unit residential rental properties for at least six month and the tenant is named on the lease. So now we'll go from there because we don't want to make everyone concerned that now every tenant has a right of first offer on any rental unit. That is not the case. is particularly defined as the one, two or three unit residential property. So let's talk about that. So.

I own a three unit rental property and I say I want to sell it. What is the first thing I need to do now? Well, I say now as of October 1st. Sure. You need to, before you decide that you're going to offer the property for sale to a third party, you as the owner of that residential property are required to notify tenants and give them an opportunity to make a good faith offer to purchase their property before it's listed or before you offer it for sale to a third party. Now that's going to trigger a negotiation period in which the tenant has 30 days to, in good faith, negotiate an opportunity to purchase their property from you.

And so Saad, what you just talked about was when the property owner decides to sell the property, but if there's an unsolicited offer to purchase the property delivered to a property owner, and the property owner intends to accept that offer from the third party, they still have to go back to the tenant for an opportunity to quote match the third party offer before the landlord can sell the property to that third party. So that right of first offer still is relevant on an unsolicited offer. And then if the tenant agrees to match that purchase price of the unsolicited offer, the owner must then sell the property to the tenant. 

And if then if the tenant says no, to matching the third party offer within that prescribed 30 day period, the right of first refusal is terminated and the owner can then sell to the party that made the unsolicited offer. But Nicole, let me ask you this. Let's say I have a developer that really likes my house and they have plans to build something really incredible in their minds where my property is located and they come to me and they make me an offer that's double market value and they say, we need you to accept this in seven days. I then have to, are you saying I have to now go to my tenant and I have to wait 30 days for the tenant to respond? Yes. So that's the idea of the right of first offer under this. But remember, I'll repeat it again. This only applies to one, two or three unit residential rental properties. And the party that the landlord is making the offer to can only be the tenant who is named on the lease.

Okay. And so it's not an assignable writer first offer. No. Okay. No. And there are exceptions. there are, they, they've put in some exceptions to this, writer first refusal off requirements and I'll list them, family members, as a spouse, former spouse, domestic partner, child, parent, grandparent, grandchild, any kind of family member. If they are the purchasing party, the landlord does not have to provide the the right of first offer, as we just talked about. If it's a business entity that's wholly owned by the owner, the right of first offer requirements do not apply. Any type of court order transfer, like a foreclosure, tax sale, sale by a court appointed trustee or a court appointed settlement, anything like that is exempt from this. A transfer through will or probate is also exempt and transfer to into a revocable trust with as long as it doesn't have consideration. That is exempt as well. Transfer of title to any level of government, a state or local government or a public housing authority, anything like that. Transfer in lieu of foreclosure such as a short sale transfer of title through bankruptcy court or sale by a bankruptcy trustee or debtor in possession, a gift transfer to a tax exempt nonprofit, and any transfer to a residential rental community with four or more dwelling units as we already talked about. Those are all exempt. 

So if you have a landlord and you are transferring to any of those types of entities or persons, you do not have to comply with the right of first refusal offer, right of first offer requirements that we just talked about. So what happens if there are multiple tenants on a property? How do I decide who I'm giving the right of first offer to? Or is it going to everyone? Yeah, it can go to all of them and actually qualified tenants, people who have their names on the lease, they can jointly deliver an offer to purchase and jointly contract to purchase the property if that's what they want to do. 

Okay. So I'm going to go back to the scenario that I was talking about before. I get an offer from a developer that's double market value and they're putting me in a take it or leave it situation. If I go to my tenant and I say, I'm getting this offer, odds are a tenant's not going to be willing to pay double market value. And if I risk engaging in a 30 day waiting period, then my other offer is going to go. Right, they might walk. I might just decide it's in my best interest to not abide by this right or first offer rule. What kind of penalty is what I'd be facing? Well, that's a very good point because the...the landlord is subject to fines up to $1,000 per violation of the right of first offer provisions of the Rent Stabilization Act. so $1,000 side, you're getting a double the market value offer and landlord is facing up to $1,000 violation penalty fine. And so that is a question there. 

That's a very good point. $1,000 is the...is the fine. I might just decide to raise the price by $1,000 to cover that violation, right? Yeah, I mean, that's maybe something that was not considered there when they found about a $1,000 fine for violating the right of first offer. Now, we also have to remember that we're dealing with smaller rental units, up to three units. We're not talking about 50, 100 unit condominiums. But still, mean, it's a really good point you raised that with a $1,000 fine, yeah. You gotta do a financial analysis on what's the benefit of which way to go. What's also not clear here is that the penalty is $1 ,000 per violation. So if we're looking at a building with three units and you have three tenants in there, is the violation based off of the actual building being one violation or is it per violation meaning each tenant is $1,000?

I think the law is not clear on that. that's a really good point because it doesn't say that. It says up to $1,000 per violation. So is a violation per sale or per tenant? Yeah, it's And what if you have multiple tenants on one lease? So that's a good question that we don't have the answer to it right now. I think a landlord is just going have to make a business decision at that point and see if any complaints come out of...Well, and that's another thing that the Office of Tenant and Landlord Affairs is going to be handling. They will keep track of how often this right of first offer comes into play and when a tenant does buy it because they want to track the statistics of how that happens. Sure. Okay.

Nicole, you talked a little bit at the beginning and mentioned that evictions are also a big part of this act. How much is it going to cost to file an eviction suit in district court now? Well, depends. So in Baltimore City, it will be $60 to file a failure to pay rent eviction case. And in all other counties in the state, it will be $50. So $60 for Baltimore City, $50 elsewhere.

And then there'll be a $43 surcharge on each of these filings. And what's really interesting is I was reading some of the press clippings with respect to this act and the justification that the legislators had regarding this is that Maryland has the lowest in the nation eviction filing fees. This doesn't bring us to the highest of eviction fees, but it brings us kind of back into the average. Sure, yeah.

Then talk about some other court fees that may have increased. So the surcharge in district court civil cases will increase from $18 to $28. And so that makes the total filing fee for a small claim $44 and the total filing fee in a large claim $56. And then the surcharge for circuit court civil cases will increase from $55 to $85, making the total filing fee for a circuit court civil case, $195. Right. And we talked about in the beginning what Governor Moore's mission is with respect to these laws. He's really trying to tackle the housing epidemic, so to speak. So where's the money going from all of this? They're going to go to the Maryland Legal Services Corporation Fund. So the funds will go there for furthering the governor's initiative to create a more fair housing in the state. Sure, and Maryland Legal Services Corporation, MLSC, funds various pro bono legal organizations throughout the state, many of which are designed to offer pro bono legal help to tenants that may be in situations from the fallout of a lease gone bad.

Okay, so now we're at the last point, the fifth point of the Rent Stabilization Act, and that's security deposits. So Saad, tell me, what is now the maximum security deposit that a landlord can require a tenant to pay under their lease? Sure, so effective October 1st, 2024, a lease may not require a tenant to pay a security deposit greater than the amount of one month's rent. The law previously stated that the maximum security deposit could be up to two months rent.

So this is a pretty big change here by cutting the maximum in half. So what happens to all the leases that are in place now that require two months of rent for the security deposit? Do they stay in place? Are they impacted by this at all? Those still stay in place. This is just a requirement going forward. In order to commence any new lease, that's what the security deposit has to be capped at. Right, starting on October 1st of 2024. Correct.

With this discussion on security deposits, can the landlord require a tenant to pay first and last month's rent in addition to a security deposit at the beginning of a lease? No, so under this act, a tenant can only be required to pay one month's security deposit and first month's rent in order to commence a lease. You can't go with the kind of old approach of first month's rent, last month's rent, and the security deposit.

Right, so they can't collect, they can't require or collect a security deposit of more than one month's rent, regardless of the method or time in a collection, correct? Correct.

Okay, so we've covered the five points that are part of the Rent Stabilization Act. The new state office of tenant and landlord affairs, the bill of rights for tenants, the right of first offer process that landlords will have to go through, I should say certain landlords, the filing fees increased for eviction actions and other actions, and then the security deposit restrictions that Saad just talked about.

So how as lawyers are we going to draft residential leases differently?

Yeah, I think as we discussed, we've had an approach that's kind of been set in stone with respect to how you draft residential leases, especially if you're drafting from a landlord's perspective to try to give them the most protection possible. A lot of these leases have these standard approaches of including first month's rent, last month's rent, and two month's security deposit. We just can't do that anymore. So you're going to need to change that to comply with the law.

You also want to make sure that you are providing tenant with adequate information with respect to what their rights are in any particular lease. Right, it's a new exhibit on the lease. The bill of rights, the tenant bill of rights is going to be a new exhibit on all your residential leases. And then the security deposit, if your forms have more than the one month's rent, then they have to change.

And all of those apply to all rental units, not just the ones the restrictions under the right of first offer. They apply to all of them. And so with the evictions as well, landlords will have to keep in mind that it will cost us a little bit more to file for evictions as well. And I think from a practical level, a landlord is going to want to consider how they're dealing with their rental properties. you are a serial landlord and you have a practice of commingling your security deposits and dealing with different properties, well, the amount that you're able to withhold now is significantly smaller. So you may need to recalculate how you are having your tenant landlord relationship and you may need to consider other protections for your property in a lease.

Absolutely, yeah. So there is additional precautions that a landlord is going to have to take once this law goes into effect on October 1st. And they'll have to make sure they're aware of all these requirements in the new Rent Stabilization Act. It's very important that both parties understand their rights and obligations.

Well, Nicole, thank you so much for going over the Renters Right and Stabilization Act with me. I think this is important information for anyone in the real estate market, and I'm looking forward to seeing what the impact's gonna be on the community. Right, I agree. I'm really interested to see how the new Office of Landlord and Tenant Affairs comes out and interested to see that draft of the Tenant Bill of Rights. 

So for more information on this topic, for myself, Nicole Lacoste -Folks, and for Saad Malik, along with the firm of Gordon Feinblatt. Information will be available to listeners in the show notes. So please reach out if you have any questions. And we really enjoyed this. Thanks, Saad. Thank you.

Outro:
Thank you so much for joining us on this episode of the Gordon Feinblatt podcast. At Gordon Feinblatt, we're not just your lawyers, we're your trusted advisors, dedicated to serving you, our clients, and our community. If you have questions or need assistance, don't hesitate to reach out. Information for the attorneys in each episode, the firm, and any other relevant materials will be available to you in the show notes. Be sure to subscribe or reach out directly. Until next time, take care.