Hawaii Condo Law

The Hawaii Real Estate Commission is revising, editing and rewriting its 1991 brochures entitled “Condominium Owners Rights and Responsibilities” and “Condominium Board Members Powers and Duties“. The brochures will be updated to be consistent with the current condominium laws (Hawaii Revised Statutes Chapters 514A and 514B) and other related federal and state laws, court decisions administrative decisions and policies and procedures. John Morris and I have been selected by the Commission to rewrite and update the brochures.

We are soliciting written comments, recommendations and suggestions from interested condominium community stakeholders. If you, your organization, or anyone you know has any comments, recommendations and suggestions regarding the rewrite and update, please submit them in writing to us by September 26, 2008. Our address is:

Richard S. Ekimoto, Esq.
Ekimoto & Morris, LLLC
1001 Bishop Street, Suite 780
Honolulu, Hawaii 96813-3410

You can also email your comments to us at brochure @ hawaiicondolaw.com. Please include HREC Rewrite in the Subject Line.

On June 17, 2008, the U.S. Justice Department (”DOJ”) published a notice of proposed rulemaking on the Americans with Disabilities Act (”ADA”). Title III of the ADA provides protections to disabled individuals in places of public accommodations. The ADA requires, among other things, that public accommodations remove architectural barriers to disabled individuals that are “readily achievable”. Readily achievable generally means that it can be easily done without much expense.

Most purely residential community associations are not governed by the ADA, but are instead governed by the Fair Housing Acts. One exception, however, is if the project contains places of lodging. There are a number of provisions that affect community associations, but of particular interest is the proposed definition of places of lodging. The proposed definition would eliminate time share units (at least when it is not involved in an exchange) from the definition of place of lodging. However, the proposed regulations and questions posed by the DOJ raises concerns for any community association that has transient accommodations.

By way of background, the DOJ’s ADA Standards requires a certain number of rooms in places of lodging to be modified for disabled individuals. This makes perfect sense for a hotel. In a 200 room hotel, 8 rooms are required to have mobility features, including 2 with roll-in shower stalls. The following issues arises in condominiums:

1. Who decides which owners have mobility features? Associations typically don’t have the authority to direct owners to make modifications to their own units.
2. Who pays for the modifications to the rooms? One might suggest that since all the owners renting their units on a transient basis benefit, they should all pay, but the owners renting their units on a transient basis change all the time.
3. What happens when an owner with a modified room leaves the rental pool? Since owners own their units, they can decide whether or not to rent it, but now you’re short a modified room.
4. What happens when an owner joins the rental pool? If it triggers a larger number of rooms modified for disabled individuals, what happens? Even if it doesn’t, does this person now pay for the modifications to the other rooms?

The DOJ’s questions point out some concerns for community associations with transient accommodations. In Question 54, the Department of Justice asks:

How should the Department’s regulation provide for a situation in which a new or converted facility constructs the required number of accessible units, but the owners of those units choose not to participate in the rental program? Does the facility have an obligation to encourage or require owners of accessible units to participate in the rental program? Does the facility developer, the condominium association, or the hotel operator have an obligation to retain ownership or control over a certain number of accessible units to avoid this problem? [Emphasis added.]

In Question 55, the Department of Justice asks:

How should the Department’s regulation establish the scoping for a time-share or condominium-rental facility that decides, after the sale of units to individual owners, to begin a rental program that qualifies the facility as a place of lodging? How should the condominium association, operator, or developer determine which units to make accessible? [Emphasis added.]

Note that the DOJ is not asking whether the condominium association should make the units accessible, but how should do it. It seems to assume that the association has control over whether units in the project are rented by the owners and that the owners are renting units on a joint basis. Why should owners not renting their units on a transient basis pay for making units accessible?

If your association is potentially affected, you may wish to present your comments to the DOJ. Simply click the link and enter: “DOJ-CRT-2008-0015-0001″ under Comment or Submission.

I realize that I’ve been remiss in posting anything for this legislative session. We’ve been extremely busy, but we’ll be making up for that by posting some of the new laws that affect community associations.

Act 13 (SB 1809) was signed by the Governor and became effective on April 15, 2008. It amends Hawaii Revised Statutes §514B-121(b). Previously, the Hawaii Condominium Property Act required that if 25% of the owners signed a petition calling for a special meeting, the Secretary or Managing Agent had fourteen days of receipt of the petition to mail out a notice of the special meeting to the owners. If the notice was not mailed out in that time frame, the petitioners could set the date, time and place of the meeting and mail the notice to all owners.

The law did not have a time period by which the special meeting was required to be held. For instance, as long as the notice was sent out within the 14 day deadline, it was theoretically possible for the special meeting to be noticed 7 months later. Act 13 requires that the special meeting be held within 60 days of the receipt of the petition. One timetable for special meetings for condominiums that wish to mail out standard proxy forms with the notice of the meeting would be as follows:

There is no requirement, however, that the Association send out proxy forms to the owners at Association expense. If standard proxy forms are not mailed out by the Association, the notices of distribution of proxies do not need to be posted in prominent locations on the Project. It will be important, however, for interested owners (whether petitioners, board members or other owners) to distribute their own legal proxies at their own expense. Otherwise, the interested owners will be relying on the votes of those owners that attend the meeting in person or have their own proxy forms.

The big news of the day (with the possible exception of the announcement of Greg McMackin as the warrior’s football coach) is that the 2008 Hawaii Legislature opens today. As usual, we will be providing information about legislation that affects community associations, including commentary on the impact of bills if they are adopted. It is always difficult to predict what will happen during a legislative session, particularly when it’s an election year like this year. Hopefully, we’re only looking at some minor corrections to the community association laws rather than wholesale modifications of the law. In the next few weeks, I’ll be providing information about some of the major bills affecting community associations.

If you haven’t seen it yet, Ian Lind has an article in the Honolulu Weekly “Honolulu Diary” sectionentitled, Smoke gets in you lives about the State Department of Health’s and the Coalition for a Tobacco Free Hawaii’s initiative to prevent smoking in living units. I’ll post a link to the article once it’s posted on the Honolulu Weekly website.

Updated 12/31/2007: Added link to article and removed comment that I’ll post a link once it’s available.

A lot of the laws about community associations exist because of Fannie Mae & Freddie Mac. Fannie Mae and Freddie Mac are Government Sponsored Enterprises created by the U.S. Congress. Although they are government sponsored, they are privately-owned corporations without government guarantees or protections. They purchase mortgages on the secondary market, pool them, and sell them as mortgage-backed securities to investors on the open market.

Fannie Mae and Freddie Mac each have standards for the mortgages they are willing to purchase. These two sets of standards include requirements for community associations. For instance, Fannie Mae and Freddie Mac have insurance requirements for condominium associations. If your condominium association doesn’t meet their insurance requirements, standard mortgages are not available for the units in your condominium. Developers and owners want standard mortgages to be available for the units in a community association because it makes it easier to sell the units. All things being equal, a unit in a non-conforming project will be more difficult to sell and may affect the value of the units. As a result, it is common for statutory requirements and governing documents to comply with the Fannie Mae and Freddie Mac guidelines.

In addition, the free markets also tend to follow the guidelines. For instance, it is difficult to find association insurance policies in Hawaii that do not meet the Fannie Mae and Freddie Mac guidelines. The insurance companies want to have policies that will appeal to the biggest market. Creating insurance policies that are not in demand doesn’t make financial sense. Therefore, even if you wanted to purchase a non-conforming insurance policy for your association, you would have a hard time finding such a policy.

As most of you know, I have been involved with CAI’s National’s efforts to represent community associations in issues before the Federal Communications Commission (”FCC”). This summer, CAI submitted testimony on whether the FCC should consider prohibiting exclusive contracts for larger cable operators. CAI’s position was the same as it was 8 years ago when the FCC decided that it did not have the authority to prohibit exclusive contracts — that many community associations use exclusive contracts to negotiate better rates, special benefits (like rewiring of buildings) or prevent damage to the common areas. This summer the FCC reversed its prior decision and decided that it did have the authority to prohibit exclusive contracts.

Today, the FCC decided to adopt a rule prohibiting exclusive cable contracts for Multiple Dwelling Units (which would include condominiums, planned communities and residential cooperatives). Several people have asked why we haven’t written on this issue since it was a topic in recent newspaper articles. The difficulty is that although a rule has been adopted, the actual rule and FCC order is not yet generally available. The news paper accounts appear to be based on the FCC press release and the written statements of FCC Commissioners Martin, Copps, Adelstein, Tate and McDowell. A draft rule and order was also not available prior to the FCC Meeting.

It is clear from the press release and written statements that exclusive contract provisions in existing cable contracts with large cable companies are now void. However, other details will have to wait until the formal rule and order is issued. For instance, we do not know how bulk cable agreements will be affected by the FCC Rule and Order. It seems unlikely that bulk cable agreements would be prohibited, but it’s hard to comment without the actual rule and order. It is clear, however, that agreements with larger cable operators that prohibit other providers from the project would be illegal. The larger cable companies have indicated that they may challenge the FCC Rule and Order.

In addition to prohibiting exclusive cable contracts, the FCC also adopted a Further Notice of the Proposed Rulemaking that seeks comment on whether the FCC address exclusivity clauses entered into by Direct Broadcast Satellite providers (satellite television), private cable operators (smaller cable operators), and other multichannel video programming distributors.

I will update this article after the FCC’s Rule and Order is available.

Until the new condominium law, there was no formal statutory definition of a conflict of interest. HRS §514B-125(f) now defines:

“Conflict of interest”, as used in this subsection, means an issue in which a director has a direct personal or pecuniary interest not common to other members of the association.

Until the new condominium law, there was no formal statutory definition of a fiduciary duty. HRS §514B-106(a) now states:

In the performance of their duties, officers and members of the board shall owe the association a fiduciary duty and exercise the degree of care and loyalty required of an officer or director of a corporation organized under chapter 414D.

1. In good faith;
2. With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
3. In a manner the director reasonably believes to be in the best interests of the corporation.

Most of you are aware that the Hawaii State Legislature is in session to consider the super ferry bill. In addition, by law, the Senate is required to consider any appointments by the Governor to judgeships, cabinet positions and commissions. However, since no action involving community associations is likely, I was thinking that I didn’t have to say anything in the Hawaii Condo Law Blog. Then I realized that it was important to point that out so you’d know that we weren’t expecting any legislation involving community associations. If that changes, you’ll see something here.