Hawaii Real Estate Attorney

					CONDOMINIUM LAW RECODIFICATION
       Hawaii Real Estate Commission


Hilo Commission Meeting        May 11, 2004
           PRESENTATION OUTLINE
I.   Overview
      Why recodify HRS Chapter 514A?
      Why should we care?
      Basic Concepts
      Recodification History
II. Evolution of Recodification
     Draft #1
     Preliminary Draft #2
      PRESENTATION OUTLINE (continued)
II. Evolution of Recodification (continued)
     Public Hearing Discussion Draft
     Commission’s Final Draft
     SB 2210, SD 2, HD 1, CD 1
III. Selected Recodification Principles and Issues
      Generally
      Management
      Development/Consumer Protection (reserved)
               Why Recodify?

          Purpose of Recodification:

“[T]o update, clarify, organize, deregulate, and
  provide for consistency and ease of use of the
      condominium property regimes law.”

  ~ Act 213, Session Laws of Hawaii (2000)
           Why Should We Care?
• Prevalence of condominium ownership in
  Hawaii
• More efficient use of Hawaii’s limited land
  resources
• Hawaii’s housing stock and growth policies -
  “New development should pay its own way”
  (Private provision of “public” facilities and
  services)
              Recodification History
Dec. 1995      Real Estate Commission recommends
               recodification of HRS Chpt. 514A
May 2000       Legislature directs Commission to
               conduct recodification
April 2001     Commission formally, continuously,
- Dec. 2003    solicits public comment
Jan. 2002      Recodification Draft #1 done; Blue
               Ribbon Recodification Advisory
               Committee convened
               Recodification History
Dec. 2002      Preliminary Recodification Draft #2 done
May 2003       Legislature extends recodification project
Aug. 2003      Public Hearing Discussion Draft done
Sept. - Oct.   Statewide Public Hearings
2003           (Kauai, Maui, Kona, Hilo, Oahu)
Dec. 2003      Final report to Legislature
Jan. - May     Legislature considers and passes SB 2210,
2004           SD 2, HD 1, CD 1
              Evolution of Recodification
Draft #1         Based on Uniform Condominium Act and
                 Uniform Common Interest Ownership Act

Prelim.          Based on HRS Chapter 514A,
Draft #2         Uniform laws, and other sources

Discussion       Refinement of Preliminary Draft
Draft, &         #2 incorporating additional input
Final Draft      from stakeholders
SB 2210          Refinement of General Provisions,
                 Applicability, & Management provisions
                 Basic Concepts
• What is a “condominium?”
  “[R]eal estate, portions of which are designated for
  separate ownership and the remainder of which is
  designated for common ownership solely by the
  owners of those portions. Real estate is not a
  condominium unless the undivided interests in the
  common elements are vested in the unit owners.”

  Uniform Condominium Act (1980)
            Basic Concepts (continued)
• Condominium Property Regime Acts are
  essentially land ownership, consumer
  protection, and community governance laws.
  They are enabling Acts, allowing people to:
 Build, sell, and buy condominiums
 Protect purchasers through adequate disclosures
 Manage the ongoing affairs of the condominium
  community
        Generally: Guiding Principles

• Enhance clarity of Condominium Property Act
• Recognize difficulty of “one-size fits all”
  approach to consumer protection and
  management provisions
• Commission should require only information it
  will use or may find useful from a regulatory
  or consumer protection standpoint
   Generally: Guiding Principles (continued)
• Problems should be fixed where they are
  created
• To extent practicable, standardize approval
  percentage requirements
• Recodification should not increase cost of
  government
     General Provisions and Definitions
• Units and limited common elements precisely
  defined; common elements are everything else
• Specifically allows for air/water space condominiums
  (removes impetus for creating semi-fraudulent “tool
  shed” condominiums)
• Draws clear distinction between land use laws and
  land ownership provisions of condo law
• Supports fair and efficient functioning of
  condominium communities by negating Hiner v.
  Hoffman (1999)
Management: Association Functions

 “Every [community association] has
three functions - to serve as a business,
     a governance structure and a
             community.”

~ Community Associations Factbook
             (1999)
      Management: Guiding Principles

• Minimal government involvement; i.e., self-
  governance by the condominium community
• Recognize the difficulty of a “one size fits all”
  approach to management provisions
• Enhance clarity of Condominium Property Act
 Management: Powers, Duties, Generally
• Reorganizes entire part for clarity (e.g., consolidates
  provisions on similar issues, minimizes statutory
  requirements for governing documents while
  incorporating certain provisions of HRS Sec. 514A-
  82 in more appropriate statutory sections)
• Allows entirely non-residential condominiums and
  small condominiums (i.e., 5 units or less) to opt out
  of the statutory management provisions
• Clarifies borrowing authority of associations (which
  helps avoid special assessments against owners)
 Management: Powers, Duties, Generally

• Permits board to take direct action to control behavior
  of tenants if owner/landlord fails to do so
• In certain situations, allows judicial excuse of
  compliance with provisions in governing documents
  that unreasonably interfere with association’s ability
  to manage its property
   Management: Elections and Meetings
• Encourages owner participation by:
   – Expressly allowing use of e-mail notice to unit
     owners who agree to receive such notice
   – Expressly allowing mail and e-mail voting by
     directed proxy
• Allows owners to send out requests for proxies, at
  association expense, on an 8 1/2” by 11” sheet of
  paper (instead of current 100 word restriction)
   Management: Elections and Meetings
• Allows boards to meet by telephone conference call
  and video-conferencing (and allows associations to
  do so if provided for in the declaration or bylaws)
• Protects interests of association by allowing
  executive session for attorney-client privileged
  matters and when association is negotiating contracts,
  leases, and other commercial transactions
• Provides definition of conflict of interest for directors
  (from Robert’s Rules of Order)
            Management: Operations

• Protects unit owners from contract or tort liability of the
  association
• To avoid harm to an elderly resident’s self or others and
  to avoid disruption to the condominium community, a
  Good Samaritan provision limits liability of association
  in requesting functional assessment and
  recommendations for services
            Management: Operations
• Improves insurance provisions (helping to make sure
  that the right people pay for the right things, e.g., by
  allowing responsible parties to be billed for deductibles)
• Continues assessment liens’ limited priority over
  mortgage liens (Act 80, SLH 2003)
• Legislature decided to continue in-state restriction on
  deposit of association funds
• Requires that association records be kept on the island
  where the project is located
 Management: Alternative Dispute Resolution
• Allows any party to request mediation (not just owners
  or board)
• Requires parties to file for trial de novo within thirty
  days of written demand or lose right to trial de novo
• Recognizing scope, complexity, and importance of
  improving condominium alternative dispute resolution
  mechanisms, Legislature established a two-year “condo
  court” pilot project
      Corrections to Misinterpretations
• Fiduciary duty of board members was NOT eliminated
  (Legislature added redundant language to clarify)
• Non-owners are NOT allowed to serve on boards
• Approval of association meeting minutes by the board is
  CONSISTENT with Robert’s Rules
• Protecting “good faith effort” in calculating reserves
  does NOT shield board from liability for gross
  negligence
• Members COULD ALWAYS SUBMIT “for quorum
  purposes only” proxies (Legislature reinserted box only
  for standard proxy forms issued by associations)
      Development: Guiding Principles
• Adequate disclosure to prospective
  condominium purchasers is the foundation of
  consumer protection in the condominium law
• Disclosure of material facts involves more
  than disclosures for real property sales in non-
  condominium projects
• Risk to purchasers’ funds should be correlated
  with the rights and obligations of developers
                Sales/Disclosures
• Requires additional disclosures for special types of
  projects (e.g., condominiums on agricultural land;
  assisted living units) (example on next slide)
• Streamlines public report process (i.e., requires one
  public report vs. preliminary, contingent final, and
  final public reports; supplemental public report for
  material changes)
              Sales/Disclosures (continued)
§ -84(b) Projects on agricultural land. In addition to the information
required by section -83, the public report for a project on agricultural
land must disclose:
    (1) Whether the structures and uses anticipated by the developer’s
        promotional plan for the project are in compliance with all
        applicable state and county land use laws;
    (2) Whether the structures and uses anticipated by the developer’s
        promotional plan for the project are in compliance with all
        applicable county real property tax laws, and the penalties for
        noncompliance; and
    (3) Such other disclosures and information that the commission
        may require.
           Sales/Disclosures (continued)
• Clarifies right to cancel and statutory rescission rights
  provisions
• Clarifies circumstances under which additional public
  reports should be required; implications
• Legislature directed Commission to submit
  recommendations for improving and reintegrating
  sales to owner-occupants provisions
              Project Development
• Permits exchange of limited common elements
  besides parking stalls among unit owners
• Clarifies when purchasers’ funds may be released for
  construction of project
• Clarifies when project common elements may
  undergo change in use
• Revises parking requirements (under HRS Chapter
  514A, one stall per unit except in certain cases) to
  follow county law
      Recodification Contact Information
• Write:
    Mitchell Imanaka & Gordon Arakaki
    DCCA - Real Estate Branch
    335 Merchant Street, Room 333
    Honolulu, HI 96813
• Call:
    586-2643
• E-Mail:
    Gordon.M.Arakaki@dcca.hawaii.gov
• Recodification Drafts and information available online at
  www.hawaii.gov/hirec/
CONDOMINIUM LAW RECODIFICATION

				
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