Hearing on Leased Fee Interest Right of First Refusal Bill

There is a hearing on Thursday, March 31, 2005 at 1:30 p.m. in room 325 on some bills of interest to community associations before the House Judiciary Committee before Chair Rep. Sylvia J. Luke and House Consumer Protection Committee before Chair Rep. Kenneth T. Hiraki. The hearing notice discusses the following bills of interest to community associations:

SB 1336 SD1 This bill would reduce the right of first refusal that condominium associations and residential cooperatives have when the owner of the leased fee interest sells to a third-party. When the leased fee interest is owned by more than one owner, the bill would give a superior right of first refusal to one of the co-owners. What this means is if one of the co-owners wants to sell to the Association, the co-owner of the leased fee interest would have a superior right to purchase the share.

We have serious concerns about this bill. The right of first refusal law was intended to address the situation where a lessor is selling the leased fee interest. If there is going to be a sale, the legislature determined that it is fair that the association be able to purchase it at the same price. The intent was to permit the lessees to own their apartments in fee simple rather than being thrown on the street at the end of the lease. There is no similar interest for co-owners of lease fee interests. As a co-owner of real property, there was always the possibility that their other co-owners may chose to sell their interest to someone else, including the lessees or the Association.

PERSONS WISHING TO TESTIFY ARE REQUESTED TO SUBMIT 40 COPIES OF THEIR TESTIMONY AT LEAST 24 HOURS PRIOR TO THE HEARING TO: (1) THE JUD COMMITTEE'S VICE CHAIR IN ROOM 422, STATE CAPITOL, OR (2) THE HOUSE SGT.-AT-ARMS TESTIMONY DROP OFF BOX IN THE TURNAROUND AREA OF THE CAPITOL BASEMENT PARKING LOT. TESTIMONY MAY ALSO BE FAXED IF LESS THAN 5 PAGES IN LENGTH TO THE HOUSE SGT.-AT-ARMS OFFICE AT: 586-6501 (OAHU) OR 1-800-535-3859 (NEIGHBOR ISLANDS). WHEN FAXING, PLEASE INDICATE TO WHOM THE TESTIMONY IS BEING SUBMITTED, THE DATE AND TIME OF THE HEARING, AND THE REQUIRED NO. OF COPIES THAT IS NEEDED FOR SUBMITTAL.

What should be in minutes?

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.

Hearing on Recodification & Investment Bills

There is a hearing on Thursday, March 31, 2005 at 2:00 p.m. in room 308 on some bills of interest to community associations before the House Finance Committee before chair, Rep. Dwight Y. Takamine. The hearing notice discusses the following bills of interest to community associations:

SB 1132 HD1 This is the second part of the Recodification. Although there are issues with the Recodification, it is better than the current law.

SB1137 SD1 This bill would eliminate the prohibition on purchasing CDs through a securities broker from the Recodification. The prohibition was added at the last minute and would make most associations immediately in violation of the law upon the effective date of the Recodification. There is no good reason for associations to be limited in the ways it acquires its federally insured investments.


PERSONS WISHING TO TESTIFY ARE REQUESTED TO SUBMIT 45 COPIES OF THEIR TESTIMONY AT LEAST 24 HOURS PRIOR TO THE HEARING TO: (1) ROOM 306, STATE CAPITOL, OR (2) THE HOUSE SGT.-AT-ARMS TESTIMONY DROP OFF BOX IN THE TURNAROUND AREA OF THE CAPITOL BASEMENT PARKING LOT. TESTIMONY MAY ALSO BE FAXED IF LESS THAN 5 PAGES IN LENGTH TO THE HOUSE SGT.-AT-ARMS OFFICE AT: 586-6501 (OAHU) OR 1-800-535-3859 (NEIGHBOR ISLANDS). WHEN FAXING, PLEASE INDICATE TO WHOM THE TESTIMONY IS BEING SUBMITTED, THE DATE AND TIME OF THE HEARING, AND THE REQUIRED NO. OF COPIES THAT IS NEEDED FOR SUBMITTAL.

Proposed Ban on Gated Communities

The Sunday Star-Bulletin reported that "Kauai Mayor Brian Baptiste wants to ban gated communities as part of his plan to build stronger communities on the Garden Island." Mayor Baptiste said that he will be submitting a bill to the Kauai County council that would ban future gated communities. The Star-Bulletin reports that there are only two gated communities on Kauai. Mayor Baptiste said, "I envision our island with integrated communities where people of various socio-economic levels and cultures can live together without gates or barriers that hinder access."

Government encourages community associations because associations allows government to shift certain costs and responsibilities to the communities. Counties typically require that developers build parks for the community and require the community associations to maintain them. This not only reduces the need for the county to build more parks, it eliminates the requirement that the county maintain them. The county does not provide trash services to many community associations even though there is no reduction in the property tax rate for associations. The shift of other costs and responsibilities are less overt. Many community associations provide security and enforcement of activities that might otherwise become police matters, thereby reducing the demand on overworked police officers.

While I'm not sure that gated communities promote the general good of the community at large, it appears to me unfair that the government would seek to ban them while at the same time shifting these costs and responsibilities to community associations. Moreover, why is it permissible for an owner of a single-family home to put up a fence and gate, but impermissible for a community to do the same thing? After all, the park located on private property that is paid for and maintained by the community association should be protected from trespass just like the swing set in my back yard. Rather than banning gated communities, it would be better to address some of the inequities I mentioned and address the problems that lead people to want to live in gated communities.

What is the College of Community Association Lawyers?

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.

What is a PCAM?

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.

Hearing on Sunrise Review of Condominium Association Managers

There is a hearing on Wednesday, March 30, 2005 at 9:00 a.m. in room 016 on some bills of interest to community associations before the Senate Commerce, Consumer Protection and Housing Committee before Chair Sen. Ron Menor. The hearing notice discusses the following bills of interest to community associations:

SCR 167 On March 21, 2005, I reported on a hearing on House Concurrent Resolution 204. SCR 167 is identical to HCR 204. HCR 204 passed out of the House Consumer Protection Committee unamended. It is not unusual for two measures to move through both houses of the legislature at the same time.

Both resolutions would direct the Legislative Auditor to conduct a sunrise review of condominium association managers based on a bill introduced in 2003. SB 1454 contemplated a scheme for certification of condominium association managers. Under the bill, the Real Estate Commission would be authorized to designate an entity to certify condominium association managers. Under the bill, certain condominium association managers would be grandfathered. I believe that the only certification program for community association managers is the Certified Manager of Community Associations® (CMCA®) which is offered by the National Board of Certification for Community Association Managers (NBC-CAM).

At this point, however, all either resolution will do is direct the Legislative Auditor to conduct a sunrise review. After the review, the legislature would need to consider whether it would approve a bill mandating certification of condominium association managers.

Persons wishing to testify should submit 25 copies of their testimony to the committee clerk, Room 219, State Capitol, 24 hours prior to the hearing. Testimony may also be faxed if less than 5 pages in length, to the Senate Sergeant-At-Arms Office at 586-6659 or 1-800-586-6659 (toll free for neighbor islands), at least 24 hours prior to the hearing. When faxing, please indicate to whom the testimony is being submitted, the date and time of the hearing, and the required number of copies needed for submittal.

Using Discretion When Deciding When to Act

Mark Speigler, one of the partners at the first firm I worked at, told me that a lot of the advice he gave his clients was not strictly legal, but business advice. I remembered that because to me it represented the difference between a competent attorney and an exceptional attorney. A competent attorney tells you what you are legally authorized to do, an exceptional attorney provides that plus a little more.

In community association law, identifying an association's legal authority is only part of the process. Just because the association has the authority, does not mean it has to use it. Sometimes it makes sense to make a document available to an owner even if you aren't legally required to do so. If the request has a legitimate purpose and it's release would not harm the association or violate any laws or important policies, the board should consider approving the request.

Similarly, just because the association has the power to enforce a violation, does not mean that it should. Sometimes, an alleged violation is just a dispute between two neighbors. The board should consult with its attorney and consider the impact on the association and residents before acting. These types of disputes often have each neighbor pointing their finger at the other. I sometimes have trouble deciding which one of my kids is telling the truth when they're saying that the other one started it. It's even harder when a Board is dealing with bickering neighbors. Even if you can tell which neighbor might be at fault, the Association is not normally a substitute for the police or the court system. If the dispute does not affect anyone else, it may be more appropriate for the two neighbors to resolve the dispute themselves. That is why Hawaii condominium law permits owners to enforce the governing documents and house rules in appropriate cases. One area that the association may wish to be careful about is where there is an allegation of discrimination. I'll explain why in a future article.

Hearing on Sunrise Review of Condominium Association Managers

There is a hearing on Wednesday, March 23, 2005 at 1:30 p.m. in room 325 on some bills of interest to community associations before the House Consumer Protection Committee before chair Rep. Kenneth T. Hiraki. The hearing notice discusses the following bills of interest to community associations:

HCR 204 This resolution relates to the mandatory certification of condominium association managers. Under Hawaii law, before the state can implement a new scheme regulating a profession, it must first have the Legislative Auditor conduct a sunrise review. A sunrise review is a study evaluating the need for the regulation of the profession.

This resolution would direct the Legislative Auditor to conduct a sunrise review of condominium association managers based on a bill introduced in 2003. SB 1454 contemplated a scheme for certification of condominium association managers. Under the bill, the Real Estate Commission would be authorized to designate an entity to certify condominium association managers. Under the bill, certain condominium association managers would be grandfathered. I believe that the only certification program for community association managers is the Certified Manager of Community Associations® (CMCA®) which is offered by the National Board of Certification for Community Association Managers (NBC-CAM).

At this point, however, all that the resolution would do is direct the Legislative Auditor to conduct a sunrise review. After the review, the legislature would need to consider whether it would approve a bill mandating certification of condominium association managers.

PERSONS WISHING TO TESTIFY ARE REQUESTED TO SUBMIT 35 COPIES OF THEIR TESTIMONY AT LEAST 24 HOURS PRIOR TO THE HEARING TO: (1) THE COMMITTEE'S VICE CHAIR IN ROOM 425, STATE CAPITOL, OR (2) THE HOUSE SGT.-AT-ARMS TESTIMONY DROP OFF BOX IN THE TURNAROUND AREA OF THE CAPITOL BASEMENT PARKING LOT. TESTIMONY MAY ALSO BE FAXED IF LESS THAN 5 PAGES IN LENGTH TO THE HOUSE SGT.-AT-ARMS OFFICE AT: 586-6501 (OAHU) OR 1-800-535-3859 (NEIGHBOR ISLANDS). WHEN FAXING, PLEASE INDICATE TO WHOM THE TESTIMONY IS BEING SUBMITTED, THE DATE AND TIME OF THE HEARING, AND THE REQUIRED NO. OF COPIES THAT IS NEEDED FOR SUBMITTAL.

Hearing on Sexual Orientation and Gender Identity Bill

There is a hearing on Wednesday, March 23, 2005 at 9:30 a.m. in room 229 on some bills of interest to community associations before the Senate Judiciary Committee before Chair, Sen. Colleen Hanabusa. The hearing notice discusses the following bills of interest to community associations:

SB 1715 HD1 This bill adds sexual orientation and gender identity to the category of protected classifications in the residential real property transactions. Sexual orientation is currently a protected classification under the State fair employment laws. The bill would mean that Hawaii condo associations would be subject to claims for discrimination on the basis of sexual orientation or gender identity. The bill vaguely defines gender identity as something that:

includes a person's actual or perceived gender, as well as a person's gender identity, gender-related self-image, gender-related appearance, or gender-related expression, regardless of whether that gender identity, gender-related self-image, gender-related appearance, or gender-related expression is different from that traditionally associated with the person's sex at birth.

Persons wishing to testify should submit 25 copies of their testimony, three-hole punched, to the committee clerk, Room 227, State Capitol, 24 hours prior to the hearing. Testimony may also be faxed if less than 5 pages in length, to the Senate Sergeant-At-Arms Office at 586-6659 or 1-800-586-6659 (toll free for neighbor islands), at least 24 hours prior to the hearing. When faxing, please indicate to whom the testimony is being submitted, the date and time of the hearing, and the required number of copies needed for submittal.

Hearing on Solar Energy Bill

There is a hearing on Tuesday, March 22, 2005 at 2:00 p.m. in room 224 on some bills of interest to community associations before the Senate Energy, Environment & International Affairs Committee before Chair,Sen. J. Kalani English and the Senate Commerce, Consumer Protection and Housing Committee before Chair Sen. Ron Menor. The hearing notice discusses the following bills of interest to community associations:

HB 1017 HD3 This bill would require townhouse associations to permit solar energy devices and require the association to adopt rules regarding the placement of solar energy devices. The proposed law is probably unconstitutional as the U.S. Supreme Court has ruled in a similar situation that any physical taking of real property under laws of this type requires just compensation. The common elements in a condominium are jointly owned by all the members of a condominium and the roof of a townhouse is normally a common element. The proponents of this bill fail to understand that the roof that they want to use is not owned by the owner of the unit, but owned by all the members of the condominium. The bill also has practical problems. It does not address the common situation where the Association's roof warranty may be voided by the penetration of pipes through the roof. It also does not require the owner of the unit to remove the solar energy device if it is necessary or convenient for the orderly maintenance of the common elements.

Persons wishing to testify should choose one of the following options; submit 35 copies of their testimony to the committee clerk, Room 205, State Capitol, 24 hours prior to the hearing, testimony may also be faxed if less than 5 pages in length, to the Senate Sergeant-At-Arms Office at 586-6659 or 1-800-586-6659 (toll free for neighbor islands), at least 24 hours prior to the hearing. E-mail testimony will not be accepted. When faxing, please indicate to whom the testimony is being submitted, the date and time of the hearing, and the required number of copies needed for submittal.

New Bankruptcy Bill Passes U.S. House Judiciary Committee

On Friday, March 11, 2005, I reported that the U.S. Senate passed the New Bankruptcy bill. Yesterday on March 17, 2005, the U.S. House of Representatives Judiciary Committee passed the bill without any amendments by a vote of 22 to 13. The bill continues to contain the language that would clarify that community associations, including homeowner associations and commercial condominiums are entitled to post-petition assessments as long as the debtor owns the property. Specifically, it would expand the bankruptcy exemption contained in 11 U.S.C. 523(a)(16) to read as follows:

for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor's interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or posessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case. . . .

The bill next goes to the U.S. House Finance Committee. If it passes out of the Finance Committee, it is scheduled to go to the whole U.S. House of Representatives the week after April 5, 2005.

Hearing on Bill to Remove Sunset Date for Family Child Care Law

There is a hearing on Tuesday, March 22, 2005 at 2:00 p.m. in room 308 on some bills of interest to community associations before the House Finance Committee before chair, Rep. Dwight Y. Takamine. The hearing notice discusses the following bills of interest to community associations:

SB 1210 This bill would eliminate the repeal date for the provisions relating to family child care homes in condominium associations and community associations. In 1999, a law was adopted which permitted family child care homes in associations provided that certain protections for the associations were met. The 1999 law had a provision that the law would automatically lapse on June 30, 2005. The bill would eliminate the automatic repeal provision.

PERSONS WISHING TO TESTIFY ARE REQUESTED TO SUBMIT 45 COPIES OF THEIR TESTIMONY AT LEAST 24 HOURS PRIOR TO THE HEARING TO: (1) ROOM 306, STATE CAPITOL, OR (2) THE HOUSE SGT.-AT-ARMS TESTIMONY DROP OFF BOX IN THE TURNAROUND AREA OF THE CAPITOL BASEMENT PARKING LOT. TESTIMONY MAY ALSO BE FAXED IF LESS THAN 5 PAGES IN LENGTH TO THE HOUSE SGT.-AT-ARMS OFFICE AT: 586-6501 (OAHU) OR 1-800-535-3859 (NEIGHBOR ISLANDS). WHEN FAXING, PLEASE INDICATE TO WHOM THE TESTIMONY IS BEING SUBMITTED, THE DATE AND TIME OF THE HEARING, AND THE REQUIRED NO. OF COPIES THAT IS NEEDED FOR SUBMITTAL.

Hearing on Resolution to Establish Task Force on Naturally Occurring Retirement Communities

There is a hearing on Monday, March 21, 2005 at 2:45 p.m. in room 016 on some bills of interest to community associations before the Senate Human Services Committee before Chair, Sen. Suzane Chun Oakland and Senate Health Committee before Chair Sen. Rosalyn Baker. The hearing notice discusses the following bills of interest to community associations:

SCR 79 This Resolution would establish a task force that would identify issues and problems that inhibit the establishment of naturally occurring retirement communities and provide potential solutions on how condominium and housing associations and other real property organizations may be able to most expediently and cost-effectively resolve these issues and problems. The task force would include members from he Elderly Affairs Division of the City and County of Honolulu, The Assisted Living Options Hawaii, Catholic Charities Elderly Services, The Hawaii Council of Associations of Resident Managers; and The Community Association Institute.

Persons wishing to testify should submit 27 copies of their testimony to the committee clerk, Room 220, State Capitol, 24 hours prior to the hearing. Testimony may also be faxed if less than 5 pages in length, to the Senate Sergeant-At-Arms Office at 586-6659 or 1-800-586-6659 (toll free for neighbor islands), at least 24 hours prior to the hearing. When faxing, please indicate to whom the testimony is being submitted, the date and time of the hearing, and the required number of copies needed for submittal.

Hearing on Non-Judicial Foreclosure Bill & Leased Fee Conversion Tax Credit

There is a hearing on Monday, March 21, 2005 at 9:00 a.m. in room 016 on some bills of interest to community associations before the Senate Commerce, Consumer Protection and Housing Committee before chair Sen. Ron Menor. The hearing notice discusses the following bills of interest to community associations:

HB 783 HD2 The first version of this bill would have repeal the 1874 nonjudicial (power of sale) foreclosure law and amend the 1998 alternate power of sale foreclosure process by allowing all mortgages to be foreclosed through the process, capping the public sale purchaser's downpayment to not more than 10 percent of the highest successful bid, removing the requirement that the borrower sign the conveyance document, and clarifying that the new property owner may take possession no sooner than 45 days after the public sale. Effective July 1, 2099. That version of the bill would be an improvement because the 1874 law does not contain consumer protections. The 1998 law was never used because no one would use the law because they couldn't rely on the borrower to sign the conveyance document after the foreclosure. The bill also adds the additional consumer protection that a 10% downpayment thereby insuring that more people would bid on the property. The current version of the bill, however, has reinstated the requirement that the borrower sign the deed and reinstated the 1874 law, which means in its current state, it will not do anything
because no one will use it because they can't rely on the borrower to sign the conveyance document after the foreclosure.

HB 1554 HD2 This bill would exempt from taxation 75% of the income received from the sale to a lessee of the leased fee interest in a residential house lot or multi-family residential leasehold property, or to the association of apartment owners, residential cooperative, or planned community of the multi-family residential leasehold building. Since Honolulu repealed Chapter 38 providing for mandatory conversion of the leased fee interest in condominiums and residential cooperatives, the tax incentive would be a welcome change to the law which may remove one reason a lessor may be unwilling to sell the leased fee interest to the lessees.


Persons wishing to testify should submit 25 copies of their testimony to the committee clerk, Room 219, State Capitol, 24 hours prior to the hearing. Testimony may also be faxed if less than 5 pages in length, to the Senate Sergeant-At-Arms Office at 586-6659 or 1-800-586-6659 (toll free for neighbor islands), at least 24 hours prior to the hearing. When faxing, please indicate to whom the testimony is being submitted, the date and time of the hearing, and the required number of copies needed for submittal.

What is a condominium unit or apartment?

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.

What is the definition of "condominium?"

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.

Hearing on Recodification, Investment, Condo Court, Records & Cumulative Voting Bills

There is a hearing on Monday, March 14, 2005 at 1:30 p.m. in room 325 on some bills of interest to community associations before the House Consumer Protection Committee before chair Rep. Kenneth T. Hiraki. The hearing notice discusses the following bills of interest to community associations:

SB 1132 SD2 This is the second part of the Recodification. Although there are issues with the Recodification, it is better than the current law.

SB1137 SD1 This bill would eliminate the prohibition on purchasing CDs through a securities broker from the Recodification. The prohibition was added at the last minute and would make most associations immediately in violation of the law upon the effective date of the Recodification. There is no good reason for associations to be limited in the ways it acquires its federally insured investments.

SB 1345 SD1 This bill would expand the scope of the pilot condo court law to any matter that is subject to mediation. While I believe that the condo court pilot project should be expanded, the proposed expansion is over broad. It is hoped that an expanded pilot project would allow a realistic evaluation of an administrative process for condominium associations. One possible outcome might be a reduction in the number of bills each year seeking to further limit the ability of Hawaii condominium associations to self-govern. I believe that the original pilot project was so restrictive that no cases would be heard and it would not be possible to evaluate the program. In fact, that has turned out to be the case. No one has filed any cases under the pilot project.

However, the proposed bill goes too far in the other direction. It covers any matter that may be mediated. Effectively, it covers any disputes at all. The expansion overload the limited ability to the administrative hearings office to handle cases. More importantly, the expansion would include questions of interpretation of the Association's Declaration, By-Laws and House Rules. While it is reasonable for an administrative law judge to be familiar with the Hawaii Condo Law, it is not reasonable for them to be conversant with the multitude of different condominium documents used throughout the State.

In addition, exceptions for the removal of directors (HRS 514A-82(b)(1)), the amendment of the By-Laws (HRS 514A-82(b)(2)), non-judicial foreclosure of association liens (514A-82(b)(13)), and pets to the extent that they involve fair housing (HRS 514A-82.5 & 82.6) are not appropriate for Condo Court. If the removal of directors or an amendment to the By-Laws are being challenged that is something so serious that the courts need to be involved. The foreclosure of association liens should be handled as provided by Hawaii Condo Law. If the owner pays the delinquency subject to challenge, the owner is able to bring an action in small claims court or force mediation. Finally, if there is a claim involving a pet that raises Federal or State Fair Housing concerns, they should be addressed pursuant to Federal and State law. It is doubtful whether the state law could supercede the Federal Fair Housing Act.

SB 1348 SD1 This bill requires that board of director minutes for the current and prior year be made available at no cost or on 24 hour loan to all members at the resident manager's office. Currently, only the current minutes are available at no cost or 24 hour loan. The other minutes for the current and prior year are available for review at a convenient location designated by the Board (usually the managing agent's office). I have concerns about the bill because it micromanages condominium associations. The Association is free to make the documents available on site, but many associations have few or no onsite members. The Senate placed an effective date of 2050 to insure that further discussion is held on the bill.

SB 1349 SD1 This bill would change the law so that associations would need to make 5 years of financial statements, general ledgers, the accounts receivable ledger, accounts payable ledgers, check ledgers, insurance policies, contracts, and invoices available to its members rather than 2 years. I have concerns about this bill because it attempts to micromanage condominium associations. What many people misunderstand is that there is a cost to keeping records and there does not appear to be a good reason to require that 5 years of documents be maintained and made available to members. The Senate placed an effective date of 2050 to insure that further discussion is held on the bill.

SB 1798 This bill would eliminate condominium associations from the coverage of the cumulative voting sections of the nonprofit corporation act. There really is no reason to treat condominiums differently from other nonprofit corporations. The nonprofit corporation act recognizes that cumulative voting takes away power from the majority. As a result, the law requires that notice be given and a member request cumulative voting before it be applied.


PERSONS WISHING TO TESTIFY ARE REQUESTED TO SUBMIT 35 COPIES OF THEIR TESTIMONY AT LEAST 24 HOURS PRIOR TO THE HEARING TO: (1) THE COMMITTEE'S VICE CHAIR IN ROOM 425, STATE CAPITOL, OR (2) THE HOUSE SGT.-AT-ARMS TESTIMONY DROP OFF BOX IN THE TURNAROUND AREA OF THE CAPITOL BASEMENT PARKING LOT. TESTIMONY MAY ALSO BE FAXED IF LESS THAN 5 PAGES IN LENGTH TO THE HOUSE SGT.-AT-ARMS OFFICE AT: 586-6501 (OAHU) OR 1-800-535-3859 (NEIGHBOR ISLANDS). WHEN FAXING, PLEASE INDICATE TO WHOM THE TESTIMONY IS BEING SUBMITTED, THE DATE AND TIME OF THE HEARING, AND THE REQUIRED NO. OF COPIES THAT IS NEEDED FOR SUBMITTAL.

Bankruptcy Reform Bill Passes U.S. Senate

On Monday, February 28, 2005, I reported that a new Bankruptcy Bill was introduced in the U.S. Senate. Yesterday, the U.S. Senate passed the bill. It contained the language that would clarify that community associations, including homeowner associations and commercial condominiums are entitled to post-petition assessments as long as the debtor owns the property. Specifically, it would expand the bankruptcy exemption contained in 11 U.S.C. 523(a)(16) to read as follows:

for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor's interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or posessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case. . . .

The bill is currently scheduled to be marked up by the Judiciary Committee in the U.S. House of Representatives on March 16, 2005.

Is an association clubhouse subject to the Americans with Disabilities Act?

The Community Association Network has a Daily News weblog feed that reports on news relating to community associations. Today, it referenced a Sun-Sentinel story about two disabled people suing their association for having an inaccessible clubhouse. The South Florida newspaper reported that John Garon and Vatrice Rivera, who use wheelchairs, claim that they are unable to properly use the parking lot, bathrooms and water fountains in their community's clubhouse. They have filed suit claiming that because the clubhouse is open to the public for political debates and some entertainment, the building must comply with the federal Americans with Disabilities Act ("ADA").

There are two federal laws that may impose disability access requirements on community associations. The Federal Fair Housing Act and the ADA. The Federal Fair Housing Act is intended to apply to residential situations while the ADA is intended to apply to most commercial operations open to the public (sometimes referred to as public accommodations). The main difference between the two Acts is that those covered by the ADA are required to make the facilities of the public accommodations accessible to the disabled if it is readily achievable while the Fair Housing Act requires the housing provider to permit a disabled individual to make reasonable modifications to the project at the disabled individual's expense. In other words, whether the ADA or the Federal Fair Housing Act applies to a project is important because it determines who pays for the cost of eliminating barriers to the disabled.

If a condominium or planned community is purely residential, the ADA does not apply. However, if the condominium or planned community contains commercial uses, the Americans with Disabilities may apply at least to the extent that the commercial uses fall within the ADA and the common area is open to the customers of the commercial establishment. In the case of a residential project that opens its amenities to the general public, the analysis is a little more involved. If the amenity is open only to the residents and their guests, the ADA does not apply. Federal Regulations (28 CFR § 36.102(e)) states that the ADA does not apply to private clubs, but will apply to the facilities of a private club that is made available to customers of a public accommodation. Appendix B to the Federal Regulations states that:

An entity that is not in and of itself a public accommodation, such as a trade association or performing artist, may become a public accommodation when it leases space for a conference or performance at a hotel, convention center, or stadium. For an entity to become a public accommodation when it is the lessee of space, however, the Department believes that consideration in some form must be given. Thus, a Boy Scout troop that accepts donated space does not become a public accommodation because the troop has not "leased'' space, as required by the ADA.

Therefore, a factor in the analysis is whether the association charged for the use of the premises. Even if an association does not charge for the use of its amenities, it may wish to limit access to residents and their guests to avoid a claim that they must undertake modifications to the amenities to comply with the ADA.

What is the Americans with Disabiities Act?

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.

Condos appreciating faster than single-family homes

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.

Is a board member a public figure for purposes of defamation?

Occasionally, I am asked whether comments made by individuals during the course of a proxy fight, election or removal effort can be the basis of a defamation claim. Even under the best of circumstances, courts have difficulty with the concept of defamation. They try to balance the interests of innocent people to be free of lies that might tarnish their reputations against the free speech rights of people making the allegedly defamatory statements. This balancing act becomes even more difficult when statements are made in the context of an election or removal. Whether based in law or not, courts have an underlying belief that elections should be decided by the voters after each side has had an opportunity to present their case.

The Wyoming Supreme Court recently addressed this issue in the context of a community association. In Martin v. Committee for Honesty and Justice at Star Valley Ranch, a board member filed a defamation action against a committee of homeowners who were criticizing the board member's role in the resignation of the general manager. The Wyoming Supreme Court ruled against him. “The dispute at issue here was, at its essence, a political one,” the court concluded in a unanimous decision. The governing board in a homeowners’ association serves as the equivalent of a city council in a community, the court said, and members of the association should have the same right as residents of a community to criticize their elected officials. The Court then ruled that the board member was a limited public figure. Under defamation law, it is necessary to prove actual malice in addition to a false statement when the plaintiff is a public figure.

A California Court of appeals, however, reached the opposite conclusion. In Lee v. Ford, a homeowner, accused a board member of stealing from the association, receiving kickbacks from contractors, and a variety of other improper and illegal acts, all of which were proven to be false. The board member filed suit for defamation and won an award of $5,000.00. The California court ruled that the board member was not a public figure saying, the homeowner “cannot bootstrap her private anger at [the board member] into a public controversy by vilifying [him] with false accusations.”

HUD adopts Safe Harbour for Accessibility Provisions of Federal Fair Housing Act

On February 28, 2005, the Department of Housing and Urban Development ("HUD") published it's final report on the 2003 Uniform Building Code ("UBC"). By this action, HUD has said that if construction complies with the 2003 UBC, it will not be in violation of the accessibility requirements of the Federal Fair Housing Act. In order to obtain the "safe harbour" status for the UBC, the International Code Council (drafters of the UBC) agreed with HUD's interpretation that the UBC requires an accessible pedestrian route from site arrival points to accessible building entrances, unless site impracticality applies, along with two other relatively minor points. Since the UBC is used in many western states, including Hawaii, the safe harbour simplifies compliance with the accessibility requirements of the Federal Fair Housing Act.

The Federal Fair Housing Act ("FHA") includes provisions for accessibility for disabled individuals in new construction. The FHA requires the following for new construction:

1. the public use and common use portions of the dwellings must be readily accessible to and usable by disabled individuals;


2. the doors are designed to allow passage into and within the dwelling to a wheelchair; and


3. the dwellings contain certain features of "Adaptive Design".

Adaptive Design is a concept that was developed by Barrier Free Environments, Inc. in a technical manual for HUD called Adaptable Housing. The only features of adaptive design required by the FHA (42 U.S.C. 3604(f)(3)) are:

1. accessible route into and through the dwelling;


2. light, switches, electrical outlets and environmental controls in accessible locations;


3. reinforcements in bathroom walls to allow later installation of grab bars; and


4. usable kitchens and bathrooms such that an individual in a wheelchair can maneuver).

The statute (42 U.S.C. 3604(f)(4)) itself contains a safe harbor which permits projects to meet these three requirements by complying with ANSI A117.1. The addition of the 2003 version of the UBC adds a second safe harbour for the accessibility requirements for new construction.

Fire Sprinkler Tax Credit Bill Hearing

There is a hearing on Thursday, March 5, 2005 at 5:00 p.m. in room 308 on some bills of interest to community associations before the House Finance Committee before chair, Rep. Dwight Y. Takamine. The hearing notice discusses the following bills of interest to community associations:

HB 1448 HD2 This bill would grant a tax credit for fire sprinklers installed after June 30, 2006. Details about the amount of the credit have not been established by the legislature yet. The credit, if implemented, would reduce the financial impact of measures being considered by the City and County of Honolulu to require retrofitting of existing buildings. A tax credit would also encourage condominium associations to consider retrofitting their buildings.

PERSONS WISHING TO TESTIFY ARE REQUESTED TO SUBMIT 45 COPIES OF THEIR TESTIMONY AT LEAST 24 HOURS PRIOR TO THE HEARING TO: (1) ROOM 306, STATE CAPITOL, OR (2) THE HOUSE SGT.-AT-ARMS TESTIMONY DROP OFF BOX IN THE TURNAROUND AREA OF THE CAPITOL BASEMENT PARKING LOT. TESTIMONY MAY ALSO BE FAXED IF LESS THAN 5 PAGES IN LENGTH TO THE HOUSE SGT.-AT-ARMS OFFICE AT: 586-6501 (OAHU) OR 1-800-535-3859 (NEIGHBOR ISLANDS). WHEN FAXING, PLEASE INDICATE TO WHOM THE TESTIMONY IS BEING SUBMITTED, THE DATE AND TIME OF THE HEARING, AND THE REQUIRED NO. OF COPIES THAT IS NEEDED FOR SUBMITTAL.

What is a HO6 policy and is it important?

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.

What is executive session?

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.

Leased Fee Interest Right of First Refusal Law

There is a hearing on Wednesday, March 2, 2005 at 9:30 a.m. in room 229 on some bills of interest to community associations before the Senate Judiciary Committee before chair Sen. Colleen Hanabusa. The hearing notice discusses the following bills of interest to community associations:

SB 1336, SD1 This bill would reduce the right of first refusal that condominium associations and residential cooperatives have when the owner of the leased fee interest sells to a third-party. When the leased fee interest is owned by more than one owner, the bill would give a superior right of first refusal to one of the co-owners. What this means is if one of the co-owners wants to sell to the Association, the co-owner of the leased fee interest would have a superior right to purchase the share.

We have serious concerns about this bill. The right of first refusal law was intended to address the situation where a lessor is selling the leased fee interest. If there is going to be a sale, the legislature determined that it is fair that the association be able to purchase it at the same price. The intent was to permit the lessees to own their apartments in fee simple rather than being thrown on the street at the end of the lease. There is no similar interest for co-owners of lease feeefee interests. As a co-owner of real property, there was always the possibility that their other co-owners may chose to sell their interest to someone else, including the lessees or the Association.

Persons wishing to testify should submit 25 copies of their testimony, three-hole punched, to the committee clerk, Room 227, State Capitol, 24 hours prior to the hearing. Testimony may also be faxed if less than 5 pages in length, to the Senate Sergeant-At-Arms Office at 586-6659 or 1-800-586-6659 (toll free for neighbor islands), at least 24 hours prior to the hearing. When faxing, please indicate to whom the testimony is being submitted, the date and time of the hearing, and the required number of copies needed for submittal.

Leasehold Conversion Tax Credit

There is a hearing on Wednesday, March 2, 2005 at 9:30 a.m. in room 211 on some bills of interest to community associations before the Senate Ways & Means Committee before chair Sen. Brian T. Taniguchi. The hearing notice discusses the following bills of interest to community associations:

SB 1793 SD1 This bill would exempt from taxation 100% of the income received from the sale to a lessee of the leased fee interest in a residential house lot or multi-family residential leasehold property, or to the association of apartment owners, residential cooperative, or planned community of the multi-family residential leasehold building. Since Honolulu repealed Chapter 38 providing for mandatory conversion of the leased fee interest in condominiums and residential cooperatives, the tax incentive would be a welcome change to the law which may remove one reason a lessor may be unwilling to sell the leased fee interest to the lessees.

ONLY WRITTEN COMMENTS SHOULD BE SUBMITTED, NO ORAL TESTIMONY WILL BE ACCEPTED.

Persons wishing to submit written comments should submit 35 copies of their comments to the committee clerk, Room 210, State Capitol during regular business hours, or outside the Senate Sergeant-at-Arms Office, Room 015, State Capitol for all other times, 24 hours prior to the hearing. Comments may also be faxed if less than 5 pages in length, to the Senate Sergeant-At-Arms Office at 586-6659 or 1-800-586-6659 (toll free for neighbor islands), at least 24 hours prior to the hearing. When faxing, please indicate that the comments are to be submitted for this particular decision making and the required number of copies needed for submittal.