In a long-awaited opinion, filed on March 25, 2024, the Supreme Court of Maryland ruled that the definition of rent in a residential lease means the “fixed, periodic payments a tenant owes for use or occupancy of a rented premises” within the context of Maryland’s summary ejectment statute (MD Real Property § 8-401) in Westminster Management v. Smith (Westminster), affirming the Appellate Court of Maryland’s ruling.
In conducting its analysis, the Court stated that the issue in determining the scope of “rent” for the purposes of the summary ejectment statute is “whether a landlord can enforce any such obligation through the mechanism of a summary ejectment action.” All seven justices, in an opinion authored by Chief Justice Matthew Fader, noted that summary ejectment is a special statutory process due to its speedy occurrence, the absence of a personal service requirement, the lack of opportunity for pretrial discovery, the allowance for one side to be represented by non-lawyers and the short window for appeal, among other factors.
The National Apartment Association (NAA), the Maryland Multi-Housing Association, Inc. (MMHA) and the Apartment and Office Building Association of Metropolitan Washington (AOBA) filed a joint amicus brief at the petition phase, urging the Supreme Court of Maryland to hear the case so it could clarify the meaning of “rent” and “costs” under RP §§ 8-208 and 8-401. Once the Supreme Court of Maryland granted review, the Associations filed another amicus brief on the merits of the case, urging the Court to reverse the Maryland Appellate Court’s ruling and to uphold the trial court’s grant of summary judgement for the housing provider. NAA will continue to track the issue of “rent” in Maryland post the Westminster decision.
Overview of Prior Maryland Case Law
In reviewing previous Maryland case law regarding summary ejectment proceedings, the court in Westminster noted that “introducing issues involving “possible complexities of proof” would be contrary to the purpose of the summary ejectment statutory scheme” and specifically noted that prior case law suggested that broad definitions of rent in residential leases may be determined on a case-by-case basis. In reviewing the summary ejectment statute, the Court found that the amount of rent due for each rental period under the lease and late fees for overdue rent payments are separate amounts to be calculated for purposes of helping the court determine “the amount of rent and late fees due.” In the Court’s view, if rent included late fees, the two amounts would not need to be separately identified. The Court used this reasoning to suggest that if “rent” included other amounts beyond “the amount of rent due for each rental period” that housing providers would presumably be required to specify those charges as well. Additionally, the Court reviewed other portions of § 8-401 and noted that “rent” is listed separately from “late fees” and “costs of suit.”
Allocation of “Rent” Lease Clauses
The Court also ruled that an allocation of rent clause violates § 8-208(d)(2) if the clause results in the waiver of a resident’s rights to be subject to a summary ejectment proceeding only for failure to pay “rent.” The Court reviewed the United States District Court for the District of Maryland’s interpretation of Maryland law in Sager v. Housing Commission of Anne Arundel County. In that case, the federal court ruled under Maryland law, “a tenant has the right not to be summarily evicted except for failure to pay rent.” The same court also expressly stated that when a resident does not pay other “properly imposed charges” the resident would be subject to eviction after “a more fulsome proceeding and a finding that the failure to pay the fees is a ‘substantial’ breach of [the tenant’s] lease that warrants an eviction.” After reviewing the Sager decision, the Westminster court reviewed Westminster’s contention that the clause served as a permissible contractual agreement that provided predictability in how a resident’s payments would be allocated; however, the Westminster court disagreed – stating that “predictability in allocation is not an exception to the prohibition against lease provisions requiring tenant to waiver or forego legal rights or remedies.” The Westminster court also noted that the clause did not mandate a particular method of allocating payments.
Late Fees and Court Costs Addressed
The Westminster court also addressed the issue of late fees and court costs, noting that while § 8-208(d)(3)(i) speaks of “a “penalty” for late payment,” § 8-401 speaks of the same amount as a “late fee.” After an analysis of the interplay between the two statutes and the determination of “penalty” and “late fees” meanings, the Court determined that a “late fee” is a fixed charged that is incurred for late payment. The Court’s analysis of § 8-208 determined that the legislative purpose was to regulate leases for residential property for the protection of the resident by including certain prohibitions in the ordinance on what must and must not be listed in the residential lease, specifically noting that “[n]othing in the statutory scheme supports that punitive interpretation of § 8-208(d)(3)(i)”. The Court reasoned that when a housing provider charges a fee for late payment but chooses not to hire an agent to file summary ejectment proceedings (before a resident becomes current on rent), the housing provider comes out ahead under the Court’s interpretation of § 8-208(d)(3)(i). Under the Court’s analysis, a housing provider does not need to incur hard costs of pursuing summary ejectment each time a resident is late in paying rent because the amount that can be charged can be up to 5% under state law.
The Court nodded to the legislature in its decision, addressing a Westminster contention that not allowing a housing provider to recover all the payment obligations in a summary ejectment proceeding would subject the resident to both a summary ejectment proceeding and a separate action for breach of contract. The Court’s response to that contention noted such “is a policy decision for the General Assembly to make.”
Post Westminster Ruling
As a result of the Court’s decision in this case, Maryland housing providers should review how rent is defined in their lease agreements along with any language related to late fees and other fees that are connected to filing a summary ejectment action. NAA has reviewed the Maryland Click & Lease forms library with its local counsel to ensure the Maryland Click & Lease forms comply with the rulings in this case.
Housing providers should continue to work with their risk management and legal teams when filing summary ejectment actions as a result of the ruling in Westminster.
NAA continues to track and share updates on the legal issues impacting its members and will continue to serve as a voice for the industry in courtrooms across the nation. For more information on NAA’s Legal Advocacy Program, please click here or contact Ayiesha Beverly.