March Real Estate Update | Cushman & Wakefield of Maryland, Inc. v. DRV Greentec, LLC

The Court of Appeals of Maryland issued two recent decisions impacting landlord/tenant issues.

Cushman & Wakefield of Maryland, Inc. v. DRV Greentec, LLC

In Cushman & Wakefield of Maryland, Inc. v. DRV Greentec, LLC, filed on March 4, 2019, the Court of Appeals held that a commercial broker could not enforce an obligation to pay a commission against an owner’s assignee. In Cushman & Wakefield, the owner of a commercial building executed a lease with a government contractor which expressly obligated the landlord to pay commissions totaling in excess of $1.08M in the event that the tenant exercised its renewal option. After occupancy began, but before the option was exercised, the owner defaulted on its mortgage and was foreclosed upon by Bank of America which subsequently sold its interest to a new owner.

The Court of Appeals noted that the lease provision was subject to the mortgage and further bound the brokers to look solely to the landlord’s equity in the property. In an attempt to sidestep this provision, the brokers argued that the new owner nevertheless expressly assumed an obligation to pay the commission by accepting the lease. The Court of Appeals noted that the obligation did not run with the land and the “mere acceptance” of the lease by the new owner “does not bind the successor to pay those commissions.” The Court of Appeals has, thus, made clear that a broker must record an instrument in the land records—which would certainly need to be agreed to beforehand by any landlord—in order to fully protect themselves or run the risk of not receiving the fruits of their labor.

Smith v. Wakefield, LP

In the second matter decided by the Court of Appeals of Maryland, Smith v. Wakefield, LP, the Court closed the door on a pressing residential tenancy issue while simultaneously opening the same door in the commercial context. In Smith, filed on February 27, 2019, the Court of Appeals decided that residential leases are subject to a three year limitation period notwithstanding a landlord’s claim that a lease executed under seal should be subject to the 12 year limitation for sealed instruments. Importantly, the Court of Appeals of Maryland distinguished its rationale as to residential leases from commercial leases and expressly did not address the obvious next question of whether the limitation period for filing suit to enforce a commercial lease can be extended.

In Smith, a resident’s lease was terminated in 2008 under disputed circumstances and the landlord waited until 2015 to file suit seeking back rents. After recognizing that the three year limitation period has remained unchanged in the Maryland Code since first enacted in 1715, the Court of Appeals pointed to the Maryland Code’s residential leasing anti-waiver provision which prohibits a residential landlord from enforcing any lease provision which requires a tenant to waive his/her rights. Here, that meant that the lease being under seal would not cause the tenant to suffer under the longer limitation period where he would otherwise enjoy a three year limitation.

Much of the Court of Appeals’ discussion revolved around whether the inclusion of a seal in a residential lease would be an unreasonable method to extend the limitation period. However, the Court of Appeals distinguished the “relative bargaining power” of residential tenants from that of commercial tenants. Thus, whether a commercial landlord could negotiate for a limitation period for more than three years is explicitly unanswered in its decision.

This alert is not intended to contain legal advice or to be an exhaustive review. If you have any questions about real estate leases in the state of Maryland, please contact Chris Glaser, Esq. at Jackson & Campbell, P.C.