The End of 40-Year Agreements

BY KATHLEEN DARTEZ, ESQ.
Director of Legal Affairs for Maryland REALTORS®

Q: I heard that there is a new law in Maryland, limiting the duration of a listing agreement. Can you please outline the details so I can ensure that my brokerage’s agreements are compliant?

A: There is a new law, effective June 1, 2023, which limits the duration of “service agreements.” A “Service Agreement” is defined as “an agreement where a Service Provider agrees to provide an individual services for (i) the maintenance of residential property that the individual owns; or (ii) the purchase or sale of residential property.” The statute defines Service Provider as “a person that provides services to an individual through a service agreement for (i) the maintenance of residential property that the individual owns; or (ii) the purchase or sale of residential property.” If you provide services to an individual for the purchase or sale of residential property, you are a “Service Provider” under the new law.

The law applies only to Service Agreements entered into on or after June 1, 2023. The new law excludes several products from the definition of a Service Agreement including home warranties, utility providers, and mechanics liens.

The new law does more than just limit the duration of a listing or buyer agency agreement. The law also prohibits Service Agreements that bind subsequent bona-fide purchasers that grant a lien or other security interest in the residential property to a Service Provider; or that allow the Service Provider to transfer its rights under the agreement to a third party without notice to the homeowner.

The new law was prompted by concerns about “40-year listing agreements.” In Maryland, and throughout the country, homeowners were being solicited to enter into agreements with a duration of 40 years. The service provider would pay the homeowner a small sum of money, typically a few thousand dollars. In exchange, the homeowner would sign an agreement stating that if they chose to list their home, they would utilize the service provider. If the homeowner listed their home with another brokerage/service provider, the homeowner would be charged a “termination fee” of 3% of the then market value of the property. These agreements, which were recorded in the land records, would be binding upon the homeowner’s heirs and/or Personal Representatives, and upon subsequent owners of the property.

While the new law only applies to Service Agreements entered into on or after June 1, 2023, the Maryland Office of Financial Regulation (“OFR”) issued guidance expressing serious concerns about the legality of agreements entered into prior to that date. In its July 31, 2023 guidance, the OFR noted:

Read the OFR Guidance from July 31, 2023 here.

To remain compliant, your brokerage should ensure that brokerage agreements do not have a duration of more than one year and you should not record your brokerage agreements in the land records.