Hawaii Condo Law

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.

On December 1, 2005 and December 2, 2005, I wrote articles about comfort animals. At that time, I noted that the 9th Circuit was likely to rule whether a comfort animal must be specially trained to ameliorate a disability. The Hawaii Federal District court ruled in Prindable v. AOAO 2987 Kalakaua, 304 F.Supp. 1245, 2003 U.S. Dist. LEXIS 23744 (D. Haw. 2003) that in order for an animal to be covered by the reasonable accommodation provisions of the Fair Housing Acts, the animal must be individually trained to ameliorate the effects of the disability. While on appeal, the owners’ unit was foreclosed upon for failure to pay maintenance fees. The owners of the unit had been permitted to keep the animal temporarily until they were removed the unit after the foreclosure. The 9th Circuit Court ruled in Dubois v. Association of Apartment Owners of 2987 Kalakaua that because the owners had never been prevented from having the animal, there was no valid claim of a Fair Housing violation. Although the Hawaii District Court decision was affirmed, the 9th Circuit did not address the issue of an association’s obligations with respect to comfort animals. At this point, the law in Hawaii appears to be the District Court’s decision that a comfort animal must be specially trained to ameliorate a disability.

Note: Due to this recent decision, the planned posting on the applicability of the Recodification to existing condominiums will be delayed a short time.

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.

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.

Joe West in his Community Associations Network recently wrote about the stupid legislative amendment of the year. The proposed amendment would require associations in Arizona to have a website with current rules and schedule of fees and fines. Failure to do so would require the Association to pay $1,000 per violation (plus $100 per day) to each member. Of course, the Association’s funds come from the owners. So, the association would assess each owner for the fine that they would pay to the owner. Although this is a more extreme example of misunderstanding the source of an association’s funds, we see variations of this all the time. In one case, some homeowners demanded that they should be reimbursed for their hotel expenses when the project was undergoing necessary repairs. Even if the association were obligated to reimburse those expenses, it would mean that all the other owners could have made the same demand. The result would be the same — the association assessing all owners the hotel expenses to pay the expenses.

Going back to legislation, bills often propose expanding the obligations of associations without regard to the fact that these new obligations cost money. Often these bills claim to help homeowners but they do not always consider the association’s cost is paid by those same homeowners. The fact that an association is made up of the homeowners is hidden by the fact that the association is an entity.

There are normally two options for most community associations to file their federal tax returns. The 1120-H tax form is a special filing available only for certain homeowner associations. The 1120-H tax form is authorized under Internal Revenue Code §528 (26 U.S.C. §528). Only certain homeowner associations qualify to file an 1120-H tax form. A homeowner association qualifies if:

1. it is organized and operated to provide for the acquisition, construction, management, maintenance, and care of association property;
2. substantially all of the units (85%) must be used for residential purposes.
3. it elects to have the section apply for the taxable year;
4. no part of the net earnings of the association inures to any private shareholder or individual;
5. 60% or more of the association’s gross income consists solely of amounts received as membership dues, fees, or assessments from owners of residential units, residences or residential lots (exempt function income); and
6. 90%or more of the association’s expenditures for the taxable year are expenditures for the acquisition, construction, management, maintenance, and care of association property.

If the homeowners association qualifies under Section 528, the dues or assessments received from property owner-members of the association are exempt from taxation if the dues and assessments are used for the maintenance and improvement of its property. All non-exempt income is taxed at the 30% tax rate from the first dollar of income.

If the association does not elect to file an 1120-H tax form or is not qualified, it must file an 1120 tax form. Under Internal Revenue Code §277 (26 U.S.C. §277), the income of homeowner associations are treated the same as a corporation. Membership dues or assessments are taxable subject to applicable deductions and adjustments.

On March 31, 2005, the Mayor of the City and County of Honolulu signed into law Ordinance 05-007. The new law deals with dangerous dogs. Sec. 7-7.1 of the Honolulu Revised Ordinances defines “Dangerous dog” as any dog which, without provocation, attacks a person or animal. A dog’s breed shall not be considered in determining whether or not it is dangerous.

If a dangerous dog injures someone other than the dog’s owner, special conditions are placed on the dog and the dog owner. One of the new conditions is that when outside the owner’s premises, the dog shall be attended and kept on a leash no longer than four feet in length and under the control of a person eighteen years of age or older. It is likely that a court would treat the common elements of a condominium project as “outside the owner’s premises”. Therefore, if there is a dangerous dog in your project the City Ordinance will require that the dog be kept on a short leash.

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.

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.