Hawaii Condo Law

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.

The College of Community Association Lawyers is a group of attorneys that practice community association law. Members have distinguished themselves through contributions to the evolution or practice of community association law. Admission requirements includes: (1) a minimum of 10 years of practice in community association law; (2) substantial writing in the area of community association law; (3) significant teaching on community association law; and (4) community service or legislative activity. The College plans and presents what many consider the best educational program on community associations. Hundreds of attorneys, managers and others attend the CAI Law Seminar each year.

I’ve written this article for two reasons. First, I want to encourage any attorneys that meet the requirements of the College to apply for membership. Second, I want you to know that I’ll be in Washington, DC from April 8 to 12, 2005 to attend strategic planning for the Board of Governors of the College of Community Association Lawyers. While I will continue to post updates while I’m away from the office, there may be some delays particularly while I’m traveling.

A PCAM is a manager that has earned the highest designation available to a community association manager, the Professional Community Association Manager® designation. Managers that earn the PCAM® designation have, among other things, taken and passed six 200 level courses on Facilities Management, Association Communication, Community Leadership, Community Governance, Risk Management, and Financial Management. After passing the courses, the manager must successfully complete the Case Study, which includes a substantial paper on community association management.

The courses are taught by the National Faculty for the Community Associations Institute. I’m fortunate to be one of CAI’s National Faculty, teaching the course on Community Governance two or three times a year. While this means that I must occasionally travel to the mainland to teach courses (in addition to classes in Hawaii), it is fun teaching and learning from the managers taking the course.

I was recently talking to a friend of mine that is purchasing a unit in a highrise condominium project that hasn’t been built yet. He made the remark that he’s only buying air 80 feet in the sky. I said that wouldn’t change very much once the building was built.

Under Hawaii condo law a condominium property regime consists of common elements (including limited common elements) and apartments. The condominium declaration defines what part of the project is an apartment, common element or limited common elements. Almost every condominium declaration in Hawaii first defines the apartment and states that everything else is a part of the common elements. Certain designated portions of the common elements are limited common elements.

Most condominium associations use an airspace definition for the apartments. The reason it is called an airspace definition is that the apartment is essentially a bubble made up of air, paint, carpeting and interior non-load-bearing walls. The boundaries of most apartments are the interior decorated surfaces of the perimeter of the apartment. Everything inside the decorated surfaces other than load-bearing walls and utilities that serve more than one apartment are part of the apartment.

The part of the condominium project that my friend is going to own by himself is the apartment, while he’ll jointly own the structural elements of the project with the other members, he will mostly own air even after the condominium project is built.

This is one of those situations where the legal definition of a word is different than its every day usage. Under Hawaii condominium law, a condominium is a special way of owning property. In the United States, condominiums could not exist until laws were adopted to permit them. Until the condominium statutes were adopted, someone owning the land automatically owned everything on it. If 100 people owned the land, they all jointly owned everything on it.

Hawaii Revised Statutes §514A-3 defines condominium as this special way of owning property. It states that a condominium is, “the ownership of single units, with common elements, located on property within the condominium property regime.” In a condominium property regime, every member owns their own apartment or unit and all the members jointly own the common elements.

Even though this is the legal definition of condominium, most people (me included) often use it to refer to the condominium apartment or the condominium project. There’s nothing wrong with that and it rarely has any consequences as long as everyone realizes what you’re talking about.

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.

Last month, the National Association of Realtors (”NAR”) reported that condominiums are appreciating faster than single-family homes. NAR President Al Mansell, said the reputation of condos as an investment has changed dramatically. “In much of the 1980s and early 90s, condos earned a reputation for slow price growth, in many cases because there was an oversupply on the market,” he said. “With the maturation of this market segment, condos have been appreciating faster than single-family homes for the last four years. In the past, affordability was a bigger factor in condo sales – now, lifestyle choices have emerged as a driving force in their growing popularity.”

“Lifestyle choices” are what condominium associations are all about. Some people purchase a condominium unit because they chose a lifestyle where someone else maintains and repairs their home. Other people purchase a condominium unit because they chose a lifestyle where amenities are available to residents that would not be available to them if they lived outside a community association. Still other people purchase a condominium unit because they chose a lifestyle where they can rely on residents to abide by a shared set of rules and aesthetic appearance.

NAR’s pricing information is consistent with polling data. A 1999 Gallup poll showed that community association members were happy with their associations. The poll showed that 75% of association members were either extremely satisfied or very satisfied with their association. Another 20% were somewhat satisfied with their association. Not surprisingly, almost the same percentages thought their association was extremely, very and somewhat responsive. The poll also showed that 42% of community association members would not consider selling their home under any circumstances. Another 36% would consider selling at 15% above market value. While a condominium lifestyle choice is not for everyone, it is clear that they are translating into the bottom line for condominium owners.

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.

Under Hawaii Condo Law, boards of directors are authorized to enter executive session under certain limited situations. In executive session, the members of the Board of Directors have a duty to keep the discussions confidential and people unnecessary to the deliberations are excluded from the executive session. As a general rule, the Association members are not permitted to attend an executive session of the Board of Directors.

Before the Board enters executive session, a majority of the Board must approve the executive session. The nature, but not the details about the business to be conducted in executive session must first be announced in open session. Currently, executive session is appropriate for personnel matters and litigation in which the association is or may become involved.

Under the Recodification, the provisions relating to the appropriate topics for executive session have been clarified. Executive session will be appropriate under the Recodification for personnel matters, litigation in which the association is or may become involved, matters necessary to protect the attorney-client privilege of the association, and matters necessary to protect the interests of the association while negotiating contracts, leases, and other commercial transactions. The two additional matters permitted for executive session under the Recodification were probably included as litigation in which the association is or may become involved under current law.

Design review is the process by which a community association regulates the overall appearance of the Project. The purpose of design review is to maintain, protect and enhance property values and to regulate changes which are otherwise detrimental to the community.