Carter v. Maryland Management Co.

⁵⁹⁸ WILNER, Judge. In Brown v. Housing Opportunities Comm., 350 Md. 570 , 714 A.2d 197 (1998), we pointed out that the Real Property Article of the Maryland Code contains three separate and distinct provisions under which a landlord may recover possession of leased premises. Section 8-401 provides for the recovery of possession when the tenant fails to pay rent that is currently due and payable. Section 8-402 — often referred to as the “tenant holding over” statute — permits recovery upon a finding that the tenant’s lease has expired, that notice to quit was given, and that the tenant has refused to vacate.

Section 8-402.1 — referred to as the “breach of lease” statute — provides for recovery when the tenant has breached a covenant of the lease, other than the covenant to pay rent, and the court finds that the breach was substantial and warrants eviction. The principal issue now before us is whether a landlord who is participating in the Federal Low-Income Housing Tax Credit (LIHTC) Program provided for in 26 U.S.C. § 42 may use the tenant holding over statute to evict a tenant who qualifies for and is receiving low-income housing assistance under the voucher program provided for in 42 U.S.C. § 1437f(o). The tenant here, petitioner Carter, contends that (1) provisions in 26 U.S.C. § 42 (h)(6)(B) and (E) preclude a participating landlord from terminating a lease except for good cause, (2) the effect of that Federal preclusion is to make the tenancy an indefinite one, without any fixed term, (3) the lease therefore does not expire, regardless of whether, on its face, it has an expiration date or provides for expiration, and (4) ás a result, the tenant holding over statute (§ 8^402) is inapplicable. She thus avers that, in order to terminate her tenancy, other than for nonpayment of rent, the landlord must proceed under the breach of lease provision (§ 8-402.1).

Petitioner adds that, even if the preclusion does not convert a fixed tenancy into an indefinite one, the landlord failed to establish good cause in this case for terminating her lease. The landlord — respondent Maryland Management Co. — argues that (1) except in one particular circumstance not applica ⁵⁹⁹ ble here, the Federal law does not require “good cause” for termination, (2) even if it does, that does not convert a fixed-term tenancy into one that is indefinite or perpetual, (3) if the requisites of § 8-402 are met, the landlord may therefore proceed, in accordance with State law, under the tenant holding over statute, and (4) if good cause is required by Federal law to be shown under the tenant holding over statute, respondent produced sufficient evidence in this case to establish such cause. The District Court concluded that good cause was required, that that requirement did not preclude use of the tenant holding over statute, and that the landlord had established good cause. It therefore entered a judgment of restitution.

The Circuit Court for Baltimore City affirmed, and so shall we. BACKGROUND On October 1, 1996, petitioner leased a townhouse in a project owned by respondent. By reason of its participation in the LIHTC program, respondent agreed to lease a certain percentage of the rental units in the project to persons, such as petitioner, who qualified for low-income rental assistance under 42 U.S.C., § 1437f. The initial lease, for 1996-97, is not in the record, but an addendum to it is in evidence The addendum, on a U.S. Department of Housing and Urban Development form for the “Section 8 Tenant-Based Assistance Rental Voucher Program,” notes that the lease ran from October 1, 1996 to October 1, 1997.

It states that the “term of the lease” would terminate if (1) the lease terminates, (2) the housing assistance payment contract between the public housing agency and the landlord terminates, or (3) the housing agency terminates program assistance for the tenant. The “lease” would terminate upon termination by the landlord, the tenant, or both. Paragraph 10 of the addendum expressly limited the grounds upon which the landlord could terminate the tenancy to “[sjerious or repeated violation of the terms and conditions of the lease; [vjiolation of Federal, State, or local law that imposes obligations on the tenant in connection with the ⁶⁰⁰ occupancy or use of the contract unit and the premises; [certain] [c]riminal activity [ ]; or [o]ther good cause.” The term “other good cause” was defined in ¶ 10 c. as including, but not limited to, “living or housekeeping habits resulting in damage to the unit or property.” Paragraph 11 required the landlord, as a condition of its terminating the lease, to give written notice to the tenant of the grounds for termination at or before the commencement of any eviction action. Whether this addendum, or one like it, accompanied subsequent leases is unclear.

The record contains a lease for the term October 1, 2000 to October 1, 2001, but there is no addendum to it. On September 4, 1998, a “Section 8 inspector” from the Baltimore City Housing Authority made an annual inspection of petitioner’s home, in conformance with requirements of the program, and found seven violations. Petitioner was directed to patch and repaint a hole in the living room wall, clean a dirty kitchen floor and stove, clean stains in the bathtub, cover and repaint holes in two bedroom walls, clean walls or the floor in three bedrooms, and clean the carpet and floors throughout the unit. In June, 2000, respondent filed actions under both § 8-402 and § 8-402.1 to evict petitioner, but those cases were generally postponed pursuant to a settlement agreement.

The agreement allowed petitioner to remain in the home, but provided that, if she breached the lease prior to December 13, 2000, the landlord would provide notice of the breach and, within 30 days, the cases would be rescheduled for trial. If there was no request to reschedule by December 13, the cases would be dismissed. Although the agreement did not specifically call for a new lease, one was entered into on January 5, 2001. As we shall see, the Federal regulations relating to leases with voucher program tenants changed considerably between 1996 and 2000, and the new lease reflected those changes.

The term was one year, commencing October 1, 2000, at the end of which period the parties could renew on a month-to-month basis. In addition to the renewal provision, there was a paragraph captioned “Tenant Holding Over,” which provided, in relevant part, that if the tenant continued ⁶⁰¹ to occupy the unit “after expiration of this Lease Agreement, or any renewal or extension thereof” and the landlord consented to such continued occupancy, the occupancy, unless agreed otherwise, would be on a month-to-month basis, at twice the rental payable under the lease, to continue until either party gave two months notice of termination. Included in the lease were certain rules and regulations, among which was a covenant by petitioner to “[k]eep the Premises in a neat, clean, good and sanitary condition.” The next annual inspection occurred in September, 2000. This time, one violation was noted; petitioner was directed to replace broken glass in the living room.

In June, 2001, respondent sent notice to petitioner of its intent to terminate the lease when it expired. In August, another annual inspection occurred and turned up seven violations. Petitioner was directed to repair or replace the bathroom door and a bedroom door, clean and paint a bedroom wall, replace inoperable smoke detectors, clean and paint the walls on the steps, replace missing screens, and clean or replace all rugs. The lease expired, by its terms, on September 30, 2001 and, when petitioner failed to vacate the premises at that time, respondent filed another tenant holding over action but did not specify in its complaint any cause for termination other than expiration of the lease.

When that case came to trial, petitioner argued that respondent could not terminate her tenancy absent a showing of good cause — something more than just termination of the lease. The District Court agreed and, noting that the June, 2001 notice failed to specify any such good cause, dismissed the case. On December 28, 2001, respondent sent a notice declaring that the lease would be terminated on February 28, 2002. The letter stated that the lease would not be renewed because petitioner had failed to maintain her unit in a neat, clean, sanitary, and safe condition.

It referenced the violations noted in the September, 1998, and August, 2001 inspection reports and indicated a lack of any evidence that those deficiencies had been corrected. At the same time, respondent informed the Housing Authority that it was terminating the ⁶⁰² housing assistance contract that it had with respect to petitioner. When petitioner failed to vacate in accordance with the notice, respondent filed new actions under both § 8-402 and § 8-402.1. At trial, the various notices were admitted into evidence, along with testimony by the Housing Authority inspector, who confirmed the violations and stated that those directed to the landlord had been corrected but not those directed at petitioner.

Petitioner acknowledged most of the conditions reported by the inspector. She said that respondent had repaired some of them and that she had tried to remedy others. After listening to the evidence, the District Court found, from the various violations going back to 1998, that there was good cause for termination of the lease and that petitioner was a tenant holding over. Concluding that the tenant holding over statute was applicable, it entered judgment for restitution in favor of respondent under that statute and dismissed the action brought under the breach of lease statute.

Petitioner appealed, arguing, as she does here, that (1) under Federal law, her lease was an indefinite one, without any fixed term, and that the tenant holding over statute was therefore inapplicable, and (2) respondent failed to establish good cause in any event. The Circuit Court found no merit to either argument and affirmed the District Court judgment. DISCUSSION The Good Cause Requirement The issues here depend entirely on the effect that the Federal statutes (and implementing Federal regulations) have on State landlord-tenant law. There is no substantial dispute that, if respondent had not subjected petitioner’s townhouse to the Federal low-income housing program by qualifying for the Federal tax credit under 26 U.S.C. § 42 , and the issue were thus governed solely by Maryland landlord-tenant law, petitioner would, indeed, be a tenant holding over, and respondent would be entitled to use § 8-402 to have her evicted.

The one-year term of the last lease had expired, the lease had been ⁶⁰³ converted by its terms into a month-to-month tenancy, and respondent had given the requisite 60-day notice to quit. It is critical, therefore, to understand the nature and requirements of the Federal statutes. The statutory basis for the Federal low-income housing program is split between the tax code, 26 U.S.C. § 42 , and the general program for assisted housing, 42 U.S.C., § 1437 et seq. Section 42 sets forth the eligibility criteria for the tax credit.

The provisions in title 42 authorize the Secretary of Housing and Urban Development to enter into annual contributions contracts with public housing agencies in order to provide rental assistance payments to owners of certain dwelling units rented to approved low-income tenants. In conformance with statutory guidelines, the Secretary is to establish the maximum monthly rent the owner is entitled to receive for the units and the amount of rent that the tenants are required to pay, the latter being set as a percentage of the tenants’ family income. The difference is made up by the government assistance payments. See 42 U.S.C. §§ 1437a and 1437f.

For our purposes, the pertinent provision in title 42 is § 1437f — the current emanation of what began as Title I, § 8 of the National Housing Act of 1937 — and, in particular, § 1437f(o), the § 8 voucher program. Both sets of provisions— § 42 and § 1437f — are exceedingly long, complex, and convoluted, as befitting Federal programs in general and Federal tax laws in particular. Section 1437f and the regulations adopted pursuant to it have undergone many changes in just the past 20 years, and keeping up with the shifts in policy and approach is not easy. We shall begin with the tax provision, known as the Low Income Housing Tax Credit (LIHTC).

It was enacted as part of the Tax Reform Act of 1986, as an effort to encourage the private development of low income housing. 1 Substantial amendments, relevant to ⁶⁰⁴ the issue before us, were made as part of the Omnibus Budget Reconciliation Acts of 1989 and 1990. Section 42 of title 26, coupled with § 38 of that title, provides a tax credit, usable ordinarily over a ten-year period, for a “qualified low-income housing project.” Section 42(g)(1) defines such a project as one for residential rental property in which minimum enumerated percentages of the residential units are both rent-restricted and occupied by persons whose income does not exceed certain amounts. In its initial (1986) version, the law, through its definition of “qualified low-income building,” required the building to remain part of a “qualified low-income housing project” during a 15-year “compliance period.” See P.L. 99-514, § 252, enacting 26 U.S.C. § 42 (c)(2) and (i), 100 Stat. 2191 , 2199 (1986). The 1989 amendment added a new subsection (h)(6) to § 42, in which was imposed the requirement of a further 15-year “extended use period.” See P.L. 101-239, § 7108(c), 103 Stat. 2308 -2311.

With that amendment, § 42(h)(6)(A) makes clear that no credit is allowed with respect to a building unless an “extended low-income housing commitment,” as defined in § 42(h)(6)(B), is in effect at the end of the taxable year. Thus, to qualify for the tax credit, the commitment must remain in effect for a “compliance period” of 15 taxable years, dating from the first taxable year of the credit period, and an “extended use period,” which, subject to § 42(h)(6)(E), may not end earlier than 15 years after the close of the “compliance period.” See § 42(i)(l) and (h)(6)(D). The effective commitment is thus, ordinarily, for 30 years. Section 42(h)(6)(E) permits an early termination of the “extended use period” in two circumstances.

If a mortgage on the building is foreclosed, the “extended use period” terminates on the date the building is acquired pursuant to the foreclosure. After the fourteenth year of the “compliance period,” the owner may request the housing credit agency to ⁶⁰⁵ find a buyer for the taxpayer’s interest in the low-income portion of the building, and, if the agency is unable to present a qualified contract for the acquisition of that portion by a person who will continue to operate it as a low-income building, the “extended use period” ends on the last day of that one-year period. See § 42(h)(6)(E)(i) and (I). Subsection 42(h)(6)(E)(ii) provides, however, that “[t]he termination of an extended use period under clause (i) shall not be construed to permit before the close of the 3-year period following such termination— (I) the eviction or the termination of tenancy (other than for good cause) of an existing tenant of any low-income unit; or (II) any increase in the gross rent with respect to such unit.” This provision, added as § 42(h)(6)(E)(ii) by the 1989 amendment, clearly applies only in the event of an early termination of the “extended use period” and is intended to protect existing low-income tenants, as to both their tenancy and the rent, for a three-year period.

A new owner who acquires the building by virtue of a foreclosure or the existing owner who is allowed to terminate the commitment under § 42(h)(6)(E)(i)(II) may not evict or terminate the leases of low-income tenants, other than for good cause, or raise their gross rent beyond what is permitted during that three-year period. The provision that lies at the heart of petitioner’s indefinite tenancy argument is contained in § 42(h)(6)(B) which, as noted, defines the term “extended low-income housing commitment” — the commitment that must be in effect in order to entitle the owner to the tax credit. A brief explanation is required. Section 42(a) establishes the amount of the tax credit as “(1) the applicable percentage of (2) the qualified basis of each qualified low-income building.” Section 42(c), in turn, defines the “qualified basis” of a “qualified low-income building” as an amount equal to “the applicable fraction” of “the eligible basis” for the building.

The “applicable fraction” ⁶⁰⁶ is the smaller of the “unit fraction” or the “floor space fraction,” each, itself, being a defined term. All of this relates to how the credit is to be calculated and, until the 1990 amendment to § 42(h)(6)(B) added by Congress in the Omnibus Budget Reconciliation Act of 1990 (P.L. No. 101-508, § 11,701, 104 Stat. 1388 , 1388-506 (1990)), would have been quite irrelevant to what is now before us. As budget reconciliation Acts tend to be, the 1990 Act was comprehensive in nature. 2 Title XI, which carried its own name, the Revenue Reconciliation Act of 1990, dealt with a variety of revenue provisions. Subtitle G, captioned Tax Technical Corrections, made a number of amendments to the Revenue Reconciliation Act of 1989, one of which effectively amended § 42(h)(6)(B)(i).

That subparagraph stated one of the six criteria for an “extended low-income housing commitment.” The amendment added the language noted below in italics: “For purposes of this paragraph, the term ‘extended low-income housing commitment’ means any agreement between the taxpayer and the housing credit agency— (i) which requires that the applicable fraction (as defined in subsection (c)(1)) for the building for each taxable year in the extended use period will not be less than the applicable fraction specified in such agreement and which prohibits the actions described in subclauses (I) and (II) of subpara-graph (E)(ii).” (Emphasis added). Petitioner views that 1990 amendment as giving the