Monday, April 1, 2019

Smith v. Wakefield, LP (Ct. of Appeals)

Filed:  February 27, 2019

Opinion by:  Judge Robert N. McDonald

Holding:  Action for back rent under a residential lease is subject to a three-year statute of limitations irrespective of whether the parties purport to convert the lease into a contract under seal.  The three-year statute of limitations governing residential leases is not subject to waiver.

Petitioner (“Tenant”) in 2007 entered into a month-to-month lease for an apartment in Baltimore City owned by respondent (“Landlord”).  The lease consisted of a one-page cover page and seven pages comprising 90 numbered terms and conditions.  Among those provisions was the following sentence: 

STATUTE OF LIMITATIONS: This lease is under seal and is subject to the twelve-year limitation period of Section 5-102 of the Courts and Judicial Proceedings Article of the Annotated Code of Maryland.

Tenant vacated after a few months and ceased to pay rent though the parties dispute whether Tenant vacated voluntarily after giving notice or had been evicted.

Nearly eight years later, Landlord sued Tenant to recover unpaid rent, arguing that CJ §5-101’s three-year period of limitations did not apply to a “contract under seal.”  The District Court of Baltimore City agreed and found in Landlord’s favor.  On appeal, the Circuit Court for Baltimore City affirmed.  Tenant thereafter petitioned for and was granted certiorari.

First, the Court set out the two relevant statutes prescribing statutes of limitation for civil actions: CJ § 5-101 providing the three-year limit for the majority of civil actions and CJ § 5-102 outlining the twelve-year limit for “specialities” such as instruments under seal, bonds, or judgments.

In Tipton v. Partner’s Management Co., the Maryland Court of Appeals had evaluated the merits of a similar action; there, a landlord had sued to collect back rent after failing to take legal action for seven years.  The Tipton Court exhaustively researched the legislative history of CJ § 5-101 and CJ § 5-102, determining that Maryland had applied the three-year period of limitations since colonial times, even though leases and conveyances of real property had customarily been executed “under seal.”  Maryland’s legislature had seen fit not to place residential leases among the “specialties” carved out from the general three-year limit when it revised the code and created CJ § 5-101.   Tipton held that a mere seal affixed to a lease would not waive the three-year period of limitations.  The Tipton Court, however, did not reach the threshold questions of the instant case: would a clear and explicit waiver of the three-year statutory period of limitations conflict with Maryland landlord-tenant law?

Landlord argued that Tipton’s holding left room for parties to agree to modify the limitation period.  The Court responded shrewdly: had anything changed so markedly in the five decades since the last code revision that supported quadrupling the period of limitations on an action for back rent to 12 years?  The 1970s legislature not only revised the Courts and Judicial Proceedings articles, but also the Real Property articles (e.g. attempting to eliminate the custom of executing leases under seal) and Landlord-Tenant law (e.g. attempting to neutralize the superior bargaining power of landlords).   Landlord’s last bastion was an attempt to point to more recent developments.

So looking, the Court turned its focus to Ceccone v. Carroll Home Services, LLC, decided in 2017.  The Ceccone Court held that parties could modify a statute of limitations that might otherwise apply to a cause of action provided that (1) there existed no controlling statute to the contrary, (2) the modification was reasonable, and (3) the modification was not subject to other defenses such as fraud, duress, or misrepresentation.  Finding some ambiguity in the application of the first element to RP § 8-208(d)(2)’s requirement that a lease be proscribed from waiving or foregoing any right or remedy provided by applicable law, the Court found more clarity in element two.  Ceccone’s framework for evaluating the reasonableness of a modification included the following factors: the length of the modified period of limitations, its relation to the statutory period, the relative bargaining power of the parties, the subject-matter of the contract, and whether the modification was one-sided in its effect.  

Applying this framework, the Court found the factors to lean in Tenant’s favor.  Government agencies would not have retained records for so long as twelve years, the lease terms and format argued against an arms-length bargaining process, and the Court could find no potential action that a tenant might reasonably bring under a lease a decade or more after its termination making the waiver one-sided in its application.  In the Court’s view, a nine-year extension of the time to bring an action for back rent did not constitute a reasonable modification of the statute of limitations.

The Court therefore found the three-year period of limitations (1) to apply to actions for back rent under residential leases regardless of language purporting to convert the lease to a contract under seal, and (2) not subject to waiver.

Two judges wrote in dissent, noting that the Maryland legislature in 2014 excepted from the twelve-year period of limitations certain instruments such as deeds of trust, mortgage, and promissory notes signed under seal, but did not include residential leases in that legislation.  Bills in 2016 and 2017 to craft such an exception failed, indicating legislative intent to militate precisely against the court’s majority reasoning.

The dissent further noted that statutes of limitation operate as procedural mechanisms rather than rights or remedies, meaning RP § 8-208(d)(2) should not limit a lease’s modification of the three-year general statute of limitations.

The full opinion is available in PDF.