CONDOMINIUM LAW RECODIFICATION Hawaii Real Estate Commission Hilo Commission Meeting May 11, 2004

1. CONDOMINIUM LAW RECODIFICATIONHawaii Real Estate CommissionHilo Commission Meeting May 11, 2004

2. 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

3. 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)

4. 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)

5. 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)

6. 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

7. 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

9. 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

10. 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)

11. 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

12. 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

13. 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

14. 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)

15. Management: Association Functions “Every [community association] has three functions - to serve as a business, a governance structure and a community.” ~ Community Associations Factbook (1999)

16. 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

17. 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)

18. 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

19. 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)

20. 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)

21. 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

22. 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

23. 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

24. 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)

25. 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

26. 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)

27. 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.

28. 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

29. 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

31. 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/

32. CONDOMINIUM LAW RECODIFICATION