Hawaii Condo Law

Ed Foster of InfoWorld has a blog on gripes about computers and computer vendors. Today, he wrote about an issue that commonly arises for community associations — Evergreen clauses. You’re probably familiar with them. They’re automatic renewal clauses that extends the contract for a year or more unless one party cancels. With the change over of board members, site managers and managing agents, it is often difficult for community associations to remember to cancel the agreement. As Ed Foster points out, even normal businesses can fall prey to these types of clauses. The best thing to do is to write them out of all your contracts. The last thing you need is suddenly finding out that your landscaping contract has been automatically extended for another 3 years. If your vendor refuses, consider getting another vender. Do you really want a vendor that has to rely on tricks to make sure you remain their customer?

If you have existing contracts with Evergreen clauses or you can’t get the vendor to eliminate them and you feel the vendor is still the best choice, see if you can immediately exercise your right to cancel. If the contract does not require that the notice of cancellation for the additional term be made within so many days before the end of the existing term, you can give notice of cancellation of the additional term immediately upon signing the contract. For example, an Evergreen clause might read, “This contract is automatically extended for an additional three year term unless either party gives notification of cancellation at least 60 days before the end of the initial or renewal term.” Since the clause permits you to cancel 60 days or more before the end of the term, you can cancel the day you sign the contract. On the other hand, if you have to give notice, say within 60 days of the end of the existing term, you’re going to need to implement a calendaring or tickling system for your contracts so that you don’t miss the cancellation period by accident.

Finally, community associations should also consider reviewing their contracts to determine if they have Evergreen clauses.

Yesterday, the Governor signed into law Act 45 which allows the criminal justice center to expand the sex offenders that are listed on its website as sex offenders.

The Hawaii Supreme Court in State v. Bani, 97 Haw. 285, 36 P.3d 1255 (2001), overturned a prior statute that required that all sex offenders registration information be made available to the public. A constitutional amendment was passed last year permitting the legislature to make the information public. Act 45 implements the constitutional amendment and allows most of the sex offender registery information to be available online. According to the Attorney General, the online registry does not list the following sex offenders:

• About 300 whose offenses are less serious and whose information is available at the attorney general’s Criminal Justice Data Center and police stations.
• About 300 others whose cases are being worked on to determine if they meet the new standards for having their information posted. These cases include mostly people who moved to Hawaii.
• About 100 who have committed only single misdemeanor offenses and are not required to have their information made public.

Many community associations are faced with issue of whether it has a duty to inform residents whether a sex offender is living in the community. While an association will normally have the power to inform its members of a sex offender in the community, it probably does not have a duty. For most associations, however, it makes sense if they are aware of a sex offender in their community to inform their residents of the fact. We normally recommend, however, that instead of identifying the individual, the community simply inform residents where the information may be located.

The Community Association Network has a Daily News weblog feed that reports on news relating to community associations. Today, it referenced a Sun-Sentinel story about two disabled people suing their association for having an inaccessible clubhouse. The South Florida newspaper reported that John Garon and Vatrice Rivera, who use wheelchairs, claim that they are unable to properly use the parking lot, bathrooms and water fountains in their community’s clubhouse. They have filed suit claiming that because the clubhouse is open to the public for political debates and some entertainment, the building must comply with the federal Americans with Disabilities Act (”ADA”).

There are two federal laws that may impose disability access requirements on community associations. The Federal Fair Housing Act and the ADA. The Federal Fair Housing Act is intended to apply to residential situations while the ADA is intended to apply to most commercial operations open to the public (sometimes referred to as public accommodations). The main difference between the two Acts is that those covered by the ADA are required to make the facilities of the public accommodations accessible to the disabled if it is readily achievable while the Fair Housing Act requires the housing provider to permit a disabled individual to make reasonable modifications to the project at the disabled individual’s expense. In other words, whether the ADA or the Federal Fair Housing Act applies to a project is important because it determines who pays for the cost of eliminating barriers to the disabled.

If a condominium or planned community is purely residential, the ADA does not apply. However, if the condominium or planned community contains commercial uses, the Americans with Disabilities may apply at least to the extent that the commercial uses fall within the ADA and the common area is open to the customers of the commercial establishment. In the case of a residential project that opens its amenities to the general public, the analysis is a little more involved. If the amenity is open only to the residents and their guests, the ADA does not apply. Federal Regulations (28 CFR § 36.102(e)) states that the ADA does not apply to private clubs, but will apply to the facilities of a private club that is made available to customers of a public accommodation. Appendix B to the Federal Regulations states that:

An entity that is not in and of itself a public accommodation, such as a trade association or performing artist, may become a public accommodation when it leases space for a conference or performance at a hotel, convention center, or stadium. For an entity to become a public accommodation when it is the lessee of space, however, the Department believes that consideration in some form must be given. Thus, a Boy Scout troop that accepts donated space does not become a public accommodation because the troop has not “leased'’ space, as required by the ADA.

Therefore, a factor in the analysis is whether the association charged for the use of the premises. Even if an association does not charge for the use of its amenities, it may wish to limit access to residents and their guests to avoid a claim that they must undertake modifications to the amenities to comply with the ADA.

The Americans with Disabilities Act (”ADA”) is a federal law that provides protections to people with disabilities. One part of the ADA provides protections for employees of employers with more than 15 employees. Other parts of the ADA applies to state and local government and transportation systems. Title III of the ADA applies to public accommodations and is usually the section of the ADA that community associations have questions about.

Public accommodations under the ADA are:

1. An inn, hotel, motel, or other place of lodging . . .
2. A restaurant, bar, or other establishment serving food or drink;
3. A . . . theater . . . or other place of exhibition or entertainment;
4. An auditorium . . . or other place of public gathering;
5. A bakery, grocery store, clothing store, hardware store, shopping center, or other sales or rental establishment;
6. A laundromat, dry-cleaner, bank, barber shop, beauty shop, travel service, shoe repair service, funeral parlor, gas station, office of an accountant or lawyer, pharmacy, insurance office, professional office of a health care provider, hospital, or other service establishment;
7. A . . . station used for specified public transportation;
8. A museum . . . or other place of public display or collection
9. A park, zoo . . . or other place of recreation;
10. A . . . place of education;
11. A day care center . . . or other social service center establishment;
12. A gymnasium . . . or other place of exercise or recreation.

If the business does not fall within one of the 12 categories, the ADA does not apply. However, the types of businesses within the 12 categories are illustrative. For instance, just because a service establishment is not listed under item six does not mean that it is not covered by the ADA.

If the business is a public accommodation, it has two major obligations under Title III of the ADA: (a) make reasonable accommodations in policies, practices or procedures when it’s necessary to afford the goods, services, facilities, privileges, advantages or accommodations to individuals with disabilities; and (b) remove barriers to disabled persons in the areas open to the general public at its own cost if the removal is readily achievable. Under the ADA, both the public accommodation and the landlord have obligations to remove barriers.

Occasionally, I am asked whether comments made by individuals during the course of a proxy fight, election or removal effort can be the basis of a defamation claim. Even under the best of circumstances, courts have difficulty with the concept of defamation. They try to balance the interests of innocent people to be free of lies that might tarnish their reputations against the free speech rights of people making the allegedly defamatory statements. This balancing act becomes even more difficult when statements are made in the context of an election or removal. Whether based in law or not, courts have an underlying belief that elections should be decided by the voters after each side has had an opportunity to present their case.

The Wyoming Supreme Court recently addressed this issue in the context of a community association. In Martin v. Committee for Honesty and Justice at Star Valley Ranch, a board member filed a defamation action against a committee of homeowners who were criticizing the board member’s role in the resignation of the general manager. The Wyoming Supreme Court ruled against him. “The dispute at issue here was, at its essence, a political one,” the court concluded in a unanimous decision. The governing board in a homeowners’ association serves as the equivalent of a city council in a community, the court said, and members of the association should have the same right as residents of a community to criticize their elected officials. The Court then ruled that the board member was a limited public figure. Under defamation law, it is necessary to prove actual malice in addition to a false statement when the plaintiff is a public figure.

A California Court of appeals, however, reached the opposite conclusion. In Lee v. Ford, a homeowner, accused a board member of stealing from the association, receiving kickbacks from contractors, and a variety of other improper and illegal acts, all of which were proven to be false. The board member filed suit for defamation and won an award of $5,000.00. The California court ruled that the board member was not a public figure saying, the homeowner “cannot bootstrap her private anger at [the board member] into a public controversy by vilifying [him] with false accusations.”

On February 28, 2005, the Department of Housing and Urban Development (”HUD”) published it’s final report on the 2003 Uniform Building Code (”UBC”). By this action, HUD has said that if construction complies with the 2003 UBC, it will not be in violation of the accessibility requirements of the Federal Fair Housing Act. In order to obtain the “safe harbour” status for the UBC, the International Code Council (drafters of the UBC) agreed with HUD’s interpretation that the UBC requires an accessible pedestrian route from site arrival points to accessible building entrances, unless site impracticality applies, along with two other relatively minor points. Since the UBC is used in many western states, including Hawaii, the safe harbour simplifies compliance with the accessibility requirements of the Federal Fair Housing Act.

The Federal Fair Housing Act (”FHA”) includes provisions for accessibility for disabled individuals in new construction. The FHA requires the following for new construction:

1. the public use and common use portions of the dwellings must be readily accessible to and usable by disabled individuals;
2. the doors are designed to allow passage into and within the dwelling to a wheelchair; and
3. the dwellings contain certain features of “Adaptive Design”.

Adaptive Design is a concept that was developed by Barrier Free Environments, Inc. in a technical manual for HUD called Adaptable Housing. The only features of adaptive design required by the FHA (42 U.S.C. 3604(f)(3)) are:

1. accessible route into and through the dwelling;
2. light, switches, electrical outlets and environmental controls in accessible locations;
3. reinforcements in bathroom walls to allow later installation of grab bars; and
4. usable kitchens and bathrooms such that an individual in a wheelchair can maneuver).

The statute (42 U.S.C. 3604(f)(4)) itself contains a safe harbor which permits projects to meet these three requirements by complying with ANSI A117.1. The addition of the 2003 version of the UBC adds a second safe harbour for the accessibility requirements for new construction.

In order to understand what a HO6 policy is, I need to explain a condominium master policy. Under Hawaii Condo Law, condominium associations are required to have property insurance that covers the common elements and all walls, floors and ceilings even if they are not a part of the common elements. In addition, most condominiums have a public liability policy that covers claims on the common elements (e.g. someone slips and falls on the common element walkway).

The policies purchased by the condominium association are sometimes referred to as a master policy. The master policy does not cover all situations and property. First, the condominium master policy do not cover personal property inside the apartment. For instance, if there is a fire, the master policy will not cover the personal property in the apartments. Second, the master policy does not cover apartment owners for liability claims inside the apartments. If your guest slips and falls in your bathroom and sues you, the master policy will not cover you or your guest. Third, most condominium master policies do not cover improvements or upgrades inside the apartment. The most that these master policies will cover is the cost to restore the apartment to the original condition even if you made changes to your apartment (presumably with Association approval). Fourth, some condominium master policies do not cover anything other than the common elements and the walls, floor and ceilings. The other parts of the condominium apartment (like the stove, kitchen cabinets, etc.) may not be covered by the condominium’s master policy. Fifth, most condominium master policies have a relatively high deductible for property claims. Deductibles of $5,000 or higher are common because insurance companies or associations want to limit the number of relatively minor claims.

If there is an incident that would normally be covered by insurance (i.e. a fire, windstorm, etc.) the condominium master policy will cover the claim but it would exclude, coverage for personal property in the apartment, upgrades to the apartment, and things other than the common elements or walls, floors and ceiling. In addition, liability inside your apartment would not be covered by the master policy. Any claims would be subject to the association’s deductible. Some people assume that the Association will cover these things even if the insurance company does not. They are wrong. The Association is not a substitute for the insurance company. If an owner doesn’t have his or her own insurance policy, they will have to pay for these types of losses out of their own pocket or try to prove that another owner was negligent. That’s where an HO6 policy comes in.

A HO6 policy is purchased by an owner of a condominium apartment and covers these items and usually has a relatively small deductible ($250 to $500). The cost of a HO6 policy is relatively small (about $200 a year) and provides important protections for apartment owners. In addition to covering things excluded from the condominium master policy, the HO6 will often cover assessments by the Association for rebuilding if there is insufficient funds because of exclusions in the master policy. More importantly, the HO6 policy will pay to defend you if someone is injured in your apartment. For this reason, it is very important for owners to have their own HO6 policy.

The Recodification will provide allow Boards to require owners to have a HO6 policy if the By-Laws give the Board this power. Associations may wish to take advantage of this provision of the Recodification. HO6 policies address a common problem for condominium associations. If water is pouring out of an apartment and damages other apartments, the master policy will not cover all the damages for the reasons I’ve already explained. The Association will not be responsible for the shortfall unless the Association is negligent. If the owner of the leaking apartment had a HO6 policy, it would protect the owners of the apartments damaged by the water. By requiring all owners to have a HO6 policy, all the members of the Association would be protected by the acts of their neighbors. Since HO6 policies are so inexpensive, it is a cost effective way of filling a gap in the coverage provided by the master policy. For that reason, condominium associations should consider adopting amendments to their By-Laws authorizing the Board to require owners to have a HO6 policy.