Articles
|
Publications
Front Foot Benefit Companies: Remember to Disclose
Members of Linowes and Blocher LLP recently participated in a well received seminar sponsored by the Suburban Maryland Building Industry Association regarding the use of Front Foot Benefit companies ("FFB companies") in Montgomery and Prince George's Counties. As we have discussed in previous issues, although the Washington Suburban Sanitary Commission ("WSSC") is generally authorized to construct, maintain and operate systems for water supply and sewage conveyance and treatment in the Washington Suburban Sanitary District, WSSC has more recently begun to offer developers an alternative to WSSC installation of water and sewer systems under an agreement known as a memorandum of understanding ("MOU") between the developer and WSSC. Because the water and sewer systems in developments covered by an MOU are not installed by WSSC, front foot benefit charges will not be imposed by WSSC against the lots in the development. However, the developer has experienced a cash outlay in connection with the installation of the water and sewer systems that can be recouped by means of an FFB company formed by the developer for this purpose. Although there currently exits no specific statutory framework governing the creation or operation of FFB companies in Montgomery or Prince George's Counties, we believe that developers that establish FFB companies are well advised to provide their purchasers with complete disclosures regarding the FFB company to ensure the enforceability of the charges imposed by the FFB company against such purchasers.
In this regard, we believe that it is prudent to provide the following disclosures:
- Although an FFB company is not what might be considered to be a "traditional" homeowners association subject to the disclosure requirements of the Maryland Homeowners Association Act ("Act"), we believe that it is prudent to treat the FFB company as such, and to provide purchasers with a disclosure statement patterned after the disclosure statement that they would be provided for a homeowners association under ¤11B-105 of the Act. This disclosure statement should include basic information about the FFB company and the development, and somewhat extensive disclosures regarding the charges imposed by the FFB company, including annual payment amounts and disclosure of prepayment rights. A copy of the covenant establishing the charges imposed by the FFB company is typically attached to this disclosure statement.
- Contracts with purchasers of lots subject to FFB company charges should include the contract notice required under ¤11B-105 of the Act, and should also include a specific disclosure of the charges imposed by the FFB company which is patterned after the notice required by ¤14-117(b) of the Real Property Article of the Annotated Code of Maryland.
- In many cases the developer that establishes an FFB company is also selling finished lots to builders that will in turn construct the dwelling unit for sale to consumer purchasers. This means that the developer will not necessarily have a direct contractual relationship with the purchaser of the lot that is ultimately called upon to pay the charges imposed by the FFB company. Thus, it is important for the developer to have input on the disclosures to be provided by the builders to its purchasers. The developer should include in its builder contracts a provision requiring the builders to provide their purchasers with a complete disclosure statement regarding the FFB company. We recommend that the developer actually provide its builders with the form of disclosure statement as well as any applicable contract notices that the builders are to provide to their purchasers.
- Builder contracts include the contract notice and disclosures required under ¤11B-107 of the Act.
|
