Hawaii Condo Law

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:

Event	When
Receive Petition
Mail Notice of Special Meeting to Owners without Proxy Forms	within 14 days of receipt of the petition
Post Notices of Distribution of Proxies	ASAP but at least 21 days before you mail or otherwise distribute the proxy forms
Interested Owners turn in one page proxy solicitation statement	within 7 days of posting the notices of distribution of proxies
Mail proxy forms to Owners with timely 1 page statements	21 days after the notices of proxy distribution is posted
Owners turn in proxies	4:30 p.m. on the 2nd business day before the special meeting
Special Meeting held	within 60 days of receipt of the petition

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.

Under Hawaii Condo Law (HRS §514A-82(b)(4)), if the Association uses Association funds to distribute proxies, it must first post notice of its intent to use association funds to distribute proxies at least 30 days before the distribution. The notice must be posted in prominent locations on the project. Owners have 7 days after posting of the notice to request that their proxy solicitation statement be included with the Association’s distribution of proxies. Under Hawaii Condo Law (HRS §514A-83.2(c))the Board or any Board member is prohibited from using Association funds to solicit proxies, although they may respond to the notice of proxy distribution like any other owner. There are a number of misconceptions about the statute:

• The notice applies to distribution of proxies not the solicitation of proxies. The law was changed to apply to distribution of proxies rather than solicitation. If the Association uses Association funds to distribute proxies including enclosing the standard form proxy with the notice of meeting, it must first post the notice.
• There is no legal requirement that the Association distribute proxies. Although it is unlikely that the meeting would meet the quorum requirements, the Association could legally send a notice of the meeting without a standard form proxy. For some associations where everyone is distributing their own proxies, this may not be a problem.
• Since the statute refers to “prominent locations,” the notice should probably be posted in at least two locations.
• While the statute provides that those timely responding to the notice can include a 100 word statement to be sent out with the proxy distribution, Associations through their Boards can permit longer statements provided it treats everyone the same. Under the Recodification, the 100 word requirement will change to a single side of an 8½ x 11 sheet of paper.

I’m often asked what should be included in the meeting minutes. My wife, Lois Ekimoto is a Profession Registered Parliamentarian as well as a PCAM. She provides this list of items to be included in the minutes pursuant to Robert’s Rules of Order, Newly Revised (10th Edition):

1. The name of the organization (name of the association);
2. The type of meeting (e.g., regular or special board meeting);
3. Date and time of the meeting and the place, if it is not always the same;
4. The presence of the president and secretary, or their substitute if they are absent. Note: meetings covered by HRS Chapters 514A (condominiums), 421I (cooperatives) and 421J (planned communities) have special legal requirements concerning the recorded vote of each board member;
5. Whether the minutes of the preceding meeting were approved, and how (e.g., adopted as written, or as corrected);
6. All main motions, including the exact wording of the motion as it was finally adopted and whether it was adopted, lost, or temporarily set aside Note: meetings covered by HRS Chapters 514A (condominiums), 421I (cooperatives) and 421J (planned communities) have special legal requirements concerning the recorded vote of each board member);
7. Notices of motions (This does not usually apply to association meetings);
8. Points of order and appeals, whether sustained or lost and the chair’s ruling and reasons for the ruling; and
9. The time of adjournment.

Lois also lists the items not included in the minutes according to Robert’s:

1. The name of the person who seconded the motion;
2. Points of information and parliamentary inquires;
3. Rational for making the motion;
4. Discussion or debate about the motion;
5. Withdrawn motions;
6. Secondary motions (e.g. recess, amend, limit debate, etc.), unless they are necessary for clarity;
7. Copies or summaries of reports (e.g. from officers, managing agents, auditors, etc.); and
8. Copies or summaries of speeches and reports (although they can be referenced — for example: Mr. Smith presented a report on parking security.

Remember that the purpose of minutes is not to record what was said at the meeting, but only the major decisions. These lists are generally applicable to both Board minutes and Association minutes. As Lois notes in items 4 & 6, under Hawaii condominium law, the vote of each director is required to be placed in the board minutes. Although the statute requires the same information for association meetings, it is unlikely that a court would rule that the statute overrides the secret ballot requirements in Bylaws. The Hawaii Planned Community Association Act and the Hawaii Residential Cooperative Act also require that the vote of board members be included in the board minutes.

A few years ago, the legislature adopted a law that governs the operation of nonprofit corporations that are incorporated. The law modifies the way that incorporated associations handle cumulative voting. Under Hawaii nonprofit corporation law, the following must happen before cumulative voting will be permitted at a community association’s election. The law for cumulative voting for nonprofit corporations requires all three of the following things before cumulative voting is allowed:

1.   Cumulative voting must be authorized by the association’s Articles of Incorporation or By-Laws;
2.   The notice of the association’s meeting (or a statement accompanying the notice) must state that cumulative voting will take place; and
3.   A member must give notice of intent to cumulatively vote at least 48 hours before the meeting or such longer period provided in the By-Laws.

The Hawaii law is based on the Model Nonprofit Corporation Act. The reason for these provisions in the Model Nonprofit Corporation Act is that cumulative voting deprives the rights of a majority of the owners. Cumulative voting allows a minority to elect a director even though the majority would prefer another candidate. Since it is contrary to the rights of the majority, the Hawaii Nonprofit Corporation Act requires notice be given and a member request the cumulative voting. There were probably some other policy concerns about cumulative voting. The average member does not understand how cumulative voting works. Since only a few people understand the process and the way it can be used to maximum effect, it’s antidemocratic effect is even more pronounced. In addition, there was also the practical recognition that if someone didn’t request cumulative voting, the corporation should have to go through the process of voting cumulatively.

As a result of this law, we recommend that all incorporated community associations other than condominiums to include the following language in their notice of meeting at which directors are to be elected if their By-Laws or Articles of Incorporation permit cumulative voting

Article ____, Section _____ of the Association’s By-Laws states that the election of directors shall be by cumulative voting. Hawaii Revised Statutes Section 414D-114 states that if the By-Laws authorizes cumulative voting by the members, cumulative voting will be permitted only if a member gives notice of intent to cumulatively vote not less than 48 hours before the meeting. Accordingly, unless notice is given within the time period mandated by the statute, cumulative voting will not be permitted.

After the notice of the meeting is distributed to the members, any member, including any board member may provide notice of intent to cumulatively vote.

In 2005, the cumulative voting provisions of the Nonprofit Corporation were partially superceeded for condominium associations only. For condominium associations (including incorporated condominium associations) owners holding more than 50% of the common interest in the condominium can remove any director at a meeting regardless of the provisions of the association’s By-Laws. The percentage would not change depending on whether cumulative voting was used to elect the director. If the By-Laws provide for cumulative voting by the owners, the owners may so vote if an owner gives notice of the owner’s intent to cumulatively vote before voting commences.

Revised August 14, 2005: This article was revised to incorporate the effect of Act 155 which adopted special rules for cumulative voting of condominium associations .