Hawaii Condo Law

On April 25, 2006 and April 27, 2006, I reported on the conference committee on the planned community association bill that will unduly complicate the planned community association law. The hearing notice states that the conference committee will reconvene on Thursday, April 27, 2006 at 5:45 p.m. in Conference Room 016.

On April 24, 2006 and April 26, 2006, I reported on the conference committee on the leased fee conversion tax credit bill. The hearing notice states that the conference committee will reconvene on Friday, April 28, 2006 at 3:00 p.m. in Conference Room 016.

On April 25, 2006, I reported on the conference committee on two bills of interest to community associations.

SB2193 HD1 would unduly complicate the planned community association law. The hearing notice states that the conference committee will reconvene on Thursday, April 27, 2006 at 4:00 p.m. in Conference Room 016 to further consider the measure.

SB2545 HD2 would extend the “condo court” pilot project until June 29, 2009. The conference committee recommended approval of the bill with amendments even though there is apparently no funding in the bill. The bill will be going to House and Senate floors for final vote.

On April 24, 2006, I reported on the conference committee on the leased fee conversion tax credit bill. The hearing notice states that the conference committee will reconvene on Thursday, April 27, 2006 at 3:00 p.m. in Conference Room 016.

Updated 4/27/2006: Corrected title of post and added Legislation category.

There is a hearing on Wednesday, April 26, 2006 at 3:30 p.m. in room 016 on some bills of interest to community associations before two Conference Committee. The hearing notice discusses the following bills of interest to community associations:

House Conferees: Representatives Herkes, Chair; Schatz, Marumoto
Senate Conferees: Senators Menor, Chair; Ige, Whalen

SB2193 HD1 This bill would add a number of requirements in planned community associations, including:

• Prohibiting associations from charging a member for the cost of providing documents unless the association within 10 days of receiving the request provides written notice to the member that it intends to charge the member for the cost of providing the information and of the amount to be charged (documents on delinquent assessments or in connection with proceedings to enforce the law or the association’s governing documents are excluded);
• Allowing a member to withdraw a request for documents within 10 days of receiving the notice of costs;
• Obtaining an annual audit and unannounced cash verification (associations with fewer than 20 units can vote to waive the audit and verification);
• Providing the audit to every member that checks a box on the proxy;
• Providing that if the audit is not made available at the annual meeting, the unaudited financial statements must be made available and the audited financial statement be made available as soon as they’re prepared;
• Providing that the Department of Commerce and Consumer Affairs may conduct hearings on controversies and complaints regarding members in planned communities and recommend changes in the law;
• Providing the Department of Commerce and Consumer Affairs the authority to take any other actions that promote and ensure the rights of members;
• Eliminating the provision to all Board meetings to be held in closed session when it is not practicable;
• Prohibiting directors from voting on issues in which they have a conflict of interest;
• Requiring that the minutes of any meetings in which a Board appoints, alters or eliminates a committee shall identify the action taken, the members of the committee, and describe the matter that the committee is to consider and review; and
• Requiring a complex method of providing minutes to board meetings to members.

Unfortunately, certain proponents are trying to make the planned community law as complicated and difficult to understand as the condominium law. While it is possible to identify problems with the proposed changes (i.e. why should all the members have to pay for the cost of providing documents to a member who requests them?), the bigger question is why is it necessary to change the law. When asked, proponents were unable to identify planned community problems other than an ongoing dispute between a legislative aid and his condominium (not a planned community) and a situation that turned out to be factually different from what was represented. Passing these types of laws just means that associations have to spend more money trying to figure out what they can and cannot do.

House Conferees: Representatives Herkes/Wakai, Co-Chairs; Cabanilla, Marumoto
Senate Conferees: Senators Menor, Chair; Taniguchi, Co-Chair; Espero, Tsutsui, Trimble

SB2545 HD2 This bill would extend the “condo court” pilot project. During the first two years of the pilot project, a total of 3 matters have been submitted to condo court. It appears that those individuals alleging widespread improper activity in Hawaii’s condominium associations may have exaggerated the problem.

AS THIS IS A DECISION MAKING MEETING ONLY, NO PUBLIC TESTIMONY WILL BE ACCEPTED. You can of course contact any of the conferees.

On April 21, 2006, I reported on a Conference Committee Hearing on several bills of interest to community associations.

HB1935 SD1 This bill would require that the planned community association governing documents be provided by the seller or the seller’s agent when a home in a residential planned community is sold. The conference committee recommended that the bill pass with an amendment to make the bill effective upon approval. The bill will be going to House and Senate floors for final vote.

HB3100 SD1 This bill would expand the types of community associations that would receive notice of a non-judicial foreclosure of a unit and limit the amount of a required downpayment in a non-judicial foreclosure to 10% of the highest bid amount. The bill passed without amendments and will go to the House floor for a final vote (the Senate has already approved the bill in its current form).

HB3225 SD1 This bill corrects some issues with the Recodification. The conference committee recommended that the bill pass with an amendment to make the bill effective on July 1, 2006. The bill will be going to House and Senate floors for final vote.

There is a hearing on Tuesday, April 25, 2006 at 3:50 p.m. in room 016 on a bill of interest to community associations before a Conference Committee.

House Conferees: Representatives Kahikina/Herkes/Nishimoto, Co-Chairs; Pine
Senate Conferees: Senators Menor, Chair; Taniguchi, Co-Chair; Baker, Espero, Kokubun, Hogue

The hearing notice discusses the following bill of interest to community associations:

SB2076 HD2 This bill will exempt from taxation 100% of the income received from the sale to a lessee of the leased fee interest in a residential house lot or multi-family residential leasehold property, or to the association of apartment owners, residential cooperative, or planned community of the multi-family residential leasehold building. Since Honolulu repealed Chapter 38 providing for mandatory conversion of the leased fee interest in condominiums and residential cooperatives, the tax incentive would be a welcome change to the law which may remove one reason a lessor may be unwilling to sell the leased fee interest to the lessees. The tax credit would be in effect for the years 2007 to 2011.The House placed an effective date of 2020 to insure that further discussion is held on the bill.

AS THIS IS A DECISION MAKING MEETING ONLY, NO PUBLIC TESTIMONY WILL BE ACCEPTED. You can of course contact any of the conferees.

The Senate Committee on Commerce, Consumer Protection, and Housing before Chair Ron Menor will hold an information briefing on Tuesday, April 25, 2006 at 5:00 p.m. on Hurricane Insurance. The hearing notice states that the purpose of the informational hearing is to briefing is to provide the public with a comprehensive overview of the issues related to the decision by the state’s largest insurer to discontinue selling hurricane insurance on a large segment of homes in the state, namely:

• homes with single-wall construction;
• those built before 1981 that have not been retrofitted with hurricane clips to meet 1993 or 1994 building codes; and
• homes located within 2,500 feet of the ocean without flood insurance — even if they are not in a flood zone.

As reported in the The Honolulu Star-Bulletin, Zephyr Insurance Co. will not be issuing policies to new customers that fall under one of the three types of dwellings described above. Zephyr stated that recent hurricanes have affected the availability and cost of reinsurance. Reinsurance is the process where an insurance company shares the risk covered by the policy with other insurers.

Update 4/24/2006: Sue Savio, insurance guru has informed me that Zephyr only writes policies for buildings with 4 or fewer residential units. So Zephyr’s decision will not affect larger buildings.

There is a hearing on Monday, April 24, 2006 at 10:30 a.m. in room 016 on some bills of interest to community associations before two Conference Committee. The hearing notice discusses the following bills of interest to community associations:

House Conferees: Representatives Herkes/Luke, Co-Chairs; Karamatsu
Senate Conferees: Senators Menor, Chair; Espero, Hogue

HB1935 SD1 This bill would require that the planned community association governing documents be provided by the seller or the seller’s agent when a home in a residential planned community is sold.

House Conferees: Representatives Herkes, Chair; Schatz, Marumoto
Senate Conferees: Senators Menor, Chair; Espero, Hogue

HB3100 SD1 This bill would expand the types of community associations that would receive notice of a non-judicial foreclosure of a unit in one of the communities. Currently, condominium associations and residential cooperatives receive notice of the non-judicial foreclosure if a unit in their communities are being foreclosed. Planned community associations would be added to the list. In addition, it would would limit the amount of a downpayment in a non-judicial foreclosure to 10% of the highest bid amount.

HB3225 SD1 This bill corrects some issues with the Recodification. The prinicpal provisions are:

• Eliminates the repeal of 514A as it applies to existing condominiums where the Recodification does not apply
• Clarifies when 514A applies to existing condominiums
• Changes the definition of “Association” to include associations created under previous condominium statutes
• Provides that most of the management provisions of the Recodification applies to existing condominiums when the events occurs after the effective date of July 1, 2006 and the Recodification does not conflict with the governing documents in a way that it would be an unreasonable impairment of contract (an unreasonable impairment of contract refers to a constitutional standard — the effect is that most procedural provisions of the Recodification management provisions would supercede the governing documents)
• Permits existing condominium associations to adopt amendments to the governing documents to conform to the Recodification upon a majority vote of the owners
• Eliminating the need for an amendment to the Declaration to change common element open spaces or landscaped spaces to other uses
• Permits the Board to approve minor additions to or alterations of the common elements for the benefit of individual units if the additions or alterations can be accomplished without substantial impact on the interests of other owners
• Clarifies that the requirements for leases of the common elements (approval of 67% of the owners required for leases more than 5 years and without a 60 day cancellation provision) does not apply to telecommunications leases pursuant to HRS 514B-140(d)
• Permits the establishment of a fining system by the Board provided that there is an appeal procedure and provides for contesting the fine after payment through mediation, arbitration or “condo court” proceeding.
• Eliminates the notice requirement for cumulative voting if it is provided for in the bylaws
• Excludes the financing of insurance premiums from the requirements for owner approval for borrowing
• Provides that condominiums with more than 100 units can reduce the number of directors by an amendment to the By-Laws
• Provides that condominiums with more than 100 units with more than 75% of the units not occupried by the owners may reduce the number of directors to as few as five upon a vote of a majority of a quorum. Unfortunately, the bill uses the term, “majority of a quorum”. It was a phrase that was eliminated in the recodification because taken literally, it means a little more than 25% for condominiums with a quorum requirement equal to a majority of the owners.
• Clarifies the representatives of legal entities (corporations, partnerships, limited liaibilty companies, etc.) that may serve on the Board
• Eliminates beneficiaries of trusts as individuals that may serve on the Board (trustees continue to be able to serve on the Board)
• Restores the provision that employees of managing agents may serve on the Board, but not serve as an officer for the associations that the agent manages
• Allows associations to correct the percentage of common interest in the project by restatement where the percentages in the declaration does not add up to 100%
• Clarifies that in the absence of protest, any owner can issue a proxy on behalf of the unit owner
• Clarifies that the requirement that managing agents distribute materials requested by the Hawaii Real Estate Commission is at the expense of the condominium association
• Restores more discretion to the Board in determining the types of insurance to be purchased
• Permits a vote of the owners to require all members to acquire an individual insurance policy which usually costs less than two or three hundred dollars a year. These policies provide substantial protections for the members and the association.
• Clarifies when the costs of lease rent renegotiation will be assessed the lessees in a partially converted building.
• Changes the vote requirement for fee conversions by the Association from 75% to 67%.

The bill currently has a defective effective date of July 1, 2050. This was to allow the bill to move forward while still requiring further action by the legislature.

AS THIS IS A DECISION MAKING MEETING ONLY, NO PUBLIC TESTIMONY WILL BE ACCEPTED. You can of course contact any of the conferees.