Saturday, April 30, 2005

Status of Cumulative Voting Bill

On April 20, 2005, I reported on a Conference Committee Hearing on the cumulative voting bill. The committee passed out an amended version of the bill and it will be going to House and Senate floors for final vote next week.

SB1798 CD1 This bill would provide that the removal of directors would require the approval of owners holding a majority of the common interest in the condominium association. The percentage would not change depending on whether cumulative voting was used to elect the director. The bill also provides that if the bylaws provide for cumulative voting by the owners, the owners may so vote if an owner gives notice of the owner's intent to cumulatively vote before voting commences. The Conference Draft represents a major improvement over earlier versions of the bill.




Status of Leased Fee Conversion Tax Credit Bill

On April 22, 2005, I reported on a Conference Committee Hearing on the leased fee conversion tax credit bill. The committee passed out an amended version of the bill and it will be going to House and Senate floors for final vote next week.

HB 1554 CD1 This bill will exempt from taxation 50% 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 Since Honolulu repealed Chapter 38 providing for mandatory conversion of the leased fee interest in condominiums and residential cooperatives, the tax incentive would be a welcome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.

Status of Condominium Records Bills

On April 22, 2005, I reported on a Conference Committee Hearing on bills relating to condominium records. The committee passed out amended versions of the bills and they will be going to House and Senate floors for final vote next week.

SB 1348 CD1 This bill requires that board of director minutes for the current and prior year be made available either at: (a) no cost or on 24 hour loan to all members at the project; or (b) mailed, faxed or emailed to the owner within 15 days of the request. If the owner indicates a preference for mail, fax or email in his or her request, the association must use that method of transmission. Any costs incurred by the Association must be revealed to the owner prior to the assessment of the fee. The bill makes changes to Chapter 514A and the Recodification. The Conference Draft represents a major improvement over earlier versions of the bill.

SB 1349 CD1 This bill would change the law so that associations would need to make financial statements, general ledgers, the accounts receivable ledger, accounts payable ledgers, check ledgers, insurance policies, contracts, and invoices available to its members for as long as the Association keep those records. Currently, owners have a right to those for 2 years and may request them thereafter. I have concerns about this bill because it attempts to micromanage condominium associations. However, the amended bill has addressed the concern that the bill requires associations to keep these types of documents for five years. Once again, the Conference Draft represents a major improvement over earlier versions of the bill.

Status of Solar Energy Bill

On April 21, 2005, I reported on a Conference Committee Hearing on the solar energy bill. The committee passed out an amended version of the bill and it will be going to House and Senate floors for final vote next week.

HB 1017 CD1 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. As we reported, the bill had some practical problems. It did not address the common situation where the Association's roof warranty may be voided by the penetration of pipes through the roof. It also did 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. These practical problems were addressed in a compromise version of the bill. I still believe that the bill is unconstitutional because 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. Although the constitutional problem remains, it is likely that the bill will address most of the practical issues that associations would have. It is imperative, however, that condominium associations adopt rules addressing solar energy devices by the effective date of the bill (September 1, 2005).

Status on Condominium Recodification and Investment Bills

On April 21, 2005, I reported on a Conference Committee Hearing on Recodification bill and investment bill. The committee passed out amended versions of the bills and they will be going to House and Senate floors for final vote next week.

SB 1132 CD1 This is the second part of the Recodification. Although there are issues with the Recodification, it is better than the current law.

SB1137 CD1 This bill will eliminate the prohibition on purchasing CDs through a securities broker from the Recodification. The prohibition was added at the last minute in the last legislative session 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. Substantially the same language is in SB 1132 CD1, so the issue appears to be resolved.

Wednesday, April 27, 2005

Where does an association's funds come from?

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.

Solar Bill Conference Committee Hearing

On April 21, 2005, I reported on the conference committee on the solar energy bill. The hearing notice states that the conference committee will reconvene on Thursday, April 28, 2005 at 11:00 a.m. in Conference Room 212.

Tuesday, April 26, 2005

Solar Bill Conference Committee Hearing

On April 21, 2005, I reported on the conference committee on the solar energy bill. The hearing notice states that the conference committee will reconvene on Wednesday, April 27, 2005 at 2:00 p.m. in Conference Room 212.

Recodification and Investment Bills Conference Committee Hearing

On April 21, 2005, I reported on the conference committee on the Recodification bill and the investment bill. The hearing notice states that the conference committee will reconvene on Thursday, April 28, 2005 at 10:00 a.m. in Conference Room 016.

Condominium Records Bills Conference Committee Hearing

On April 22, 2005, I reported on the conference committee on the condominium records bill. The hearing notice states that the conference committee will reconvene on Wednesday, April 27, 2005 at 10:00 a.m. in Conference Room 016 to discuss SB 1348 HD1.

Monday, April 25, 2005

Leased Fee Conversion Tax Credit Bill Conference Committee Hearing

On April 22, 2005, I reported on the conference committee on the Leased Fee Conversion Tax Credit Bill. The hearing notice states that the conference committee will reconvene on Thursday, April 28, 2005 at 3:00 p.m. in Conference Room 312.

Solar Bill Conference Committee Hearing

On April 21, 2005, I reported on the conference committee on the solar energy bill. The hearing notice states that the conference committee will reconvene on Tuesday, April 26, 2005 at 2:30 p.m. in Conference Room 212.

Condominium Records Bills Conference Committee Hearing

On April 22, 2005, I reported on the conference committee on the condominium records bill. The hearing notice states that the conference committee will reconvene on Tuesday, April 26, 2005 at 9:00 a.m. in Conference Room 016 to discuss SB 1348 HD1.

The conference committee voted to report out a CD1 that incorporates the SB 1349 HD1 langugage. This bill would change the law so that associations would need to make financial statements, general ledgers, the accounts receivable ledger, accounts payable ledgers, check ledgers, insurance policies, contracts, and invoices available to its members for as long as the Association keep those records. Currently, owners have a right to those for 2 years and may request them thereafter. While I have concerns about this bill because it attempts to micromanage condominium associations, the House Consumer Protection Committee eliminated the primary concern that the bill would have required associations to keep these types of documents for five years.

Friday, April 22, 2005

Cumulative Voting Bill Conference Committee Hearing

On April 20, 2005, I reported on the conference committee on the cumulative voting bill. The hearing notice states that the conference committee will reconvene on Tuesday, April 26, 2005 at 10:30 a.m. in Conference Room 016.

Recodification and Investment Bills Conference Committee Hearing

On April 21, 2005, I reported on the conference committee on the Recodificationbill and the investment bill. The hearing notice states that the conference committee will reconvene on Tuesday, April 26, 2005 at 10:30 a.m. in Conference Room 016.

Solar Bill Conference Committee Hearing

On April 21, 2005, I reported on the conference committee on the solar energy bill. The hearing notice states that the conference committee will reconvene on Monday, April 25, 2005 at 2:45 p.m. in Conference Room 212.

Leased Fee Conversion Tax Credit Bill Conference Committee Hearing

There is a hearing on Monday, April 25, 2005 at 3:00 p.m. in room 312 on some bills of interest to community associations before a Conference Committee.

House Conferees: Representatives Kanoho/Kahikina/Hiraki/Nishimoto, Co-Chairs; Fox
Senate Conferees: Senators Menor, Chair; Taniguchi, Co-Chair; Espero, Tsutsui, Hogue

The hearing notice discusses the following bills of interest to community associations:

HB 1554 SD2 This bill would exempt from taxation 50% 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. Unfortunately, the Senate reduced the amount that would be exempt from 75% to 50%. In addition, it inserted a defective effective date of July 1, 2050.

AS THIS IS A DECISION MAKING MEETING ONLY, NO PUBLIC TESTIMONY WILL BE ACCEPTED. You can of course contact any of the conferees.

Condominium Records Bills Conference Committee Hearing

There is a hearing on Monday, April 25, 2005 at 9:00 a.m. in room 016 on some bills of interest to community associations before a Conference Committee.

House Conferees: Representatives Hiraki, Chair; Schatz, Stonebraker
Senate Conferees: Senators Menor, Chair; Espero, Hogue

The hearing notice discusses the following bills of interest to community associations:

SB 1348 HD1 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 or residence. Currently, only the current minutes are available at no cost or 24 hour loan. In addition, the bill will require that the agendas for the current and prior year must also be made available at the resident manager's office or residence.
I have concerns about the bill because it micromanages condominium associations. There is no value in making the old agendas available at the manager's office since an agenda only is a proposal for what is to be discussed at a meeting. Once the meeting is over, no one really needs to see it. There is also a serious issue about whether a resident manager's home should be invade to make minutes available to the members. The Association should be free to make the documents available on site or in other locations when it makes sense.

SB 1349 HD1 This bill would change the law so that associations would need to make financial statements, general ledgers, the accounts receivable ledger, accounts payable ledgers, check ledgers, insurance policies, contracts, and invoices available to its members for as long as the Association keep those records. Currently, owners have a right to those for 2 years and may request them thereafter. I have concerns about this bill because it attempts to micromanage condominium associations. However, the House Consumer Protection Committee has addressed the concern that the bill requires associations to keep these types of documents for five years.

CAI and the sponsor of the bill appear to have reached a compromise on these bills.


AS THIS IS A DECISION MAKING MEETING ONLY, NO PUBLIC TESTIMONY WILL BE ACCEPTED. You can of course contact any of the conferees.

Hearing on Sunrise Review of Condominium Association Manager Certification

There is a hearing on Thursday, April 28, 2005 at 9:30 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:

HCR 204 On March 21, 2005, I reported on HCR 204. The same bill is being heard by the Senate Commerce, Consumer Protection and Housing Committee. 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 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.

Thursday, April 21, 2005

Cumulative Voting Bill Conference Committee Hearing

On April 20, 2005, I reported on the conference committee on the cumulative voting bill. The hearing notice states that the conference committee will reconvene on Friday, April 22, 2005 at 10:30 a.m. in Conference Room 016.

Solar Bill Conference Committee Hearing

There is a hearing on Friday, April 22, 2005 at 1:00 p.m. in room 016 on some bills of interest to community associations before a Conference Committee.

House Conferees: Representatives Morita/Hiraki/Luke/Yamashita, Co-Chairs; Thielen
Senate Conferees: Senators English, Chair; Menor/Taniguchi, Co-Chairs; Espero, Hanabusa, Hemmings

The hearing notice discusses the following bills of interest to community associations:

HB 1017 SD2 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. The Senate added an effective date of July 1, 2050 to allow further review and discussion of the bill.



AS THIS IS A DECISION MAKING MEETING ONLY, NO PUBLIC TESTIMONY WILL BE ACCEPTED. You can of course contact any of the conferees.

Recodification and Investment Bills Conference Committee Hearing

There is a hearing on Friday, April 22, 2005 at 10:30 a.m. in room 016 on some bills of interest to community associations before a Conference Committee.

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.

House Conferees: Representatives Hiraki/Takamine, Co-Chairs; Wakai, Fox
Senate Conferees: Senators Menor, Chair; Taniguchi, Co-Chair; Baker, Espero, Hogue

SB1137 HD1 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. The bill has a defective effective date of July 1, 2010, so it will be necessary to fix that.

House Conferees: Representatives Hiraki/Takamine, Co-Chairs; Wakai, Fox
Senate Conferees: Senators Menor, Chair; Espero, Hogue

AS THIS IS A DECISION MAKING MEETING ONLY, NO PUBLIC TESTIMONY WILL BE ACCEPTED. You can of course contact any of the conferees.

Wednesday, April 20, 2005

Cumulative Voting Bill Conference Committee Hearing

There is a hearing on Thursday, April 21, 2005 at 2:00 p.m. in room 016 on some bills of interest to community associations before a Conference Committee.

House Conferees: Representatives Kahikina/Nishimoto, Co-Chairs; Moses
Senate Conferees: Senators Menor, Chair; Espero, Hogue

The hearing notice discusses the following bills of interest to community associations:


SB1798 HD1 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. The House placed an effective date of 2099 to insure that further discussion is held on the bill.



AS THIS IS A DECISION MAKING MEETING ONLY, NO PUBLIC TESTIMONY WILL BE ACCEPTED. You can of course contact any of the conferees.

President Signs Bankruptcy Bill

On April 14, 2005, I reported on passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Today at 2:35 EST, President Bush signed the bill into law. Most of the provisions of the law will be effective on October 17, 2005, 180 days after today. Except for a few provisions of the bill, the new law will not affect bankruptcies filed before October 17, 2005. Under the Act, community associations can expect to collect more delinquent common assessments than they did under the old law. In large part, this is because the Act makes it more difficult for anyone to eliminate their personal obligation to pay debts through bankruptcy ("discharge").

The Act also includes a specific provision for the protection of community associations. Bankruptcy courts across the country have had different rules for delinquent assessments after an owner files bankruptcy. Some courts said that the right to assessments arise at the creation of the community and when the bankruptcy filing occurs, assessments after the bankruptcy filing can be discharged. A few courts said that assessments after the bankruptcy cannot be discharged. A 1994 law made assessments after the bankruptcy filing non-dischargeable in a residential condominium or cooperative if the owner resided in or rented out the apartment. However, the different rules continued to exist for many planned community associations and commercial condominiums or cooperatives. The 1994 law also meant that if the owner moved out or stopped renting the apartment, the post-petition delinquencies could be discharged. The Act makes all post-petition common assessments non-dischargeable.

I will be posting a short FAQ about the law and how it affects community associations shortly.

Monday, April 18, 2005

House Passes Bankruptcy Bill

On April 14, 2005, I reported on passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

President Bush has issued a news release commending Congress and indicating that he will be signing the bill.

The bill contains 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. . . .
I will be posting a short FAQ about the law and how it affects community associations once the President signs it.

Saturday, April 16, 2005

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

There is a hearing on Tuesday, April 19, 2005 at 9:00 a.m. in room 329 on some bills of interest to community associations before the House Human Services Committee before Chair Rep.Alex M. Sonson and the House Health Committee before Chair Rep. Dennis A. Arakaki. The hearing notice discusses the following bills of interest to community associations:

SCR 79 SD1 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; The Community Association Institute; The Hawaii Council of Association of Apartment Owners;The Hawaii Long Term Care Association;The Healthcare Association of Hawaii;Hawaii Independent Condominium and Cooperative Owners; and Association of American Retired Persons.

PERSONS WISHING TO TESTIFY ARE REQUESTED TO SUBMIT 35 COPIES OF THEIR TESTIMONY AT LEAST 24 HOURS PRIOR TO THE HEARING TO: (1) THE HUS COMMITTEE'S VICE CHAIR IN ROOM 303, 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.

IT IS ALSO REQUESTED THAT THE COPIES BE ON ONE SIDE OF AN 8-1/2" X 11" SHEET WITH TWO HOLES PUNCHED AT THE TOP. FOR FURTHER INFORMATION, PLEASE CALL THE HUS COMMITTEE CLERK AT 586-6520.

Friday, April 15, 2005

What is a 1120-H filing? (In honor of tax day)

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.

Thursday, April 14, 2005

Status on Leased Fee Conversion Tax Credit Bill

On April 6, 2005, I reported on a Senate Ways and Means Committee Hearing on bills relating to leased fee conversion tax credits. The committee passed out amended version of the bills and the bills will be going to conference committee.

HB 1554 SD2 This bill would exempt from taxation 50% 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. Unfortunately, the Senate reduced the amount that would be exempt from 75% to 50%. In addition, it inserted a defective effective date of July 1, 2050.

If you wish to make your comments known, you should contact Representative Ken Hiraki and Senator Ron Menor before the conference committee meets.

Status on Leased Fee Interest Right of First Refusal Bill

On March 29, 2004, I reported on a House Judiciary Committee Hearing on a bill relating to the right of first refusal for leased fee interests. The committee passed out amended version of the bills and the bills will be going to conference committee.

SB 1336 HD1 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 if both co-owners are tax exempt under IRS Code §501(c)(3). 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 if both are tax exempt.

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.


If you wish to make your comments known, you should contact Representative Ken Hiraki and Senator Ron Menor before the conference committee meets.

Status on Solar Energy Bill

On April 7, 2004, I reported on a Senate Commerce, Consumer Protection and Housing Committee Hearing on a bill relating to solar energy. The committee passed out amended version of the bills and the bills will be going to conference committee.

HB 1017 SD2 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. The Senate added an effective date of July 1, 2050 to allow further review and discussion of the bill.

If you wish to make your comments known, you should contact Representative Ken Hiraki and Senator Ron Menor before the conference committee meets.

House Passes Bankruptcy Bill

Just moments ago, I watched the U.S. House of Representatives on CSPAN pass S.256, the bankruptcy bill without any amendments. This is the same bill that I reported on in an article on March 18, 2005.

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 President is expected to sign the bill and would become effective 180 days thereafter. However, there are some rumours that a "technical corrections" bill will be considered to fix certain problems before the effective date.


Wednesday, April 13, 2005

New City & County of Honolulu Leash Law for Dangerous Dogs

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.

Hearing on Sunrise Review of Condominium Association Manager Certification

There is a hearing on Wednesday, April 13, 2005 at 3:00 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:

HCR 204 On March 21, 2005, I reported on HCR 204. The same bill is being heard by the House Finance Committee. 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.


THIS IS A DECISION MAKING MEETING ONLY, NO PUBLIC TESTIMONY WILL BE ACCEPTED.

Thursday, April 07, 2005

Senate Commerce, Consumer Protection and Housing Committee Hearing

There is a hearing on Friday, April 8, 2005 at 11:00 a.m. in room 211 on some bills of interest to community associations before the Senate Commerce, Consumer Protection and Housing Committee before Chair Sen. Ron Menor and Senate Ways and Means Committee before Chair Sen. Brian T. Taniguchi. The hearing notice discusses the following bills of interest to community associations:

HB 1017 SD1 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 submit 40 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.

Condo Court Bill Hearing

There is a hearing on Thursday, April 7, 2005 at 1:30 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 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.

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.

Status on Recodification Bill

On March 28, 2004, I reported on a House Finance Committee Hearing on the Recodification bill. The committee passed out the bill unamended and the bill will be probably be going to conference committee.

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.

If you wish to make your comments known, you should contact Representative Ken Hiraki and Senator Ron Menor before the conference committee meets.

Wednesday, April 06, 2005

Status on Sexual Orientation and Gender Identity Bill

On March 18, 2004, I reported on a Senate Judiciary Hearing on bills relating to sexual orientation discrimination. The committee passed out amended version of the bills and the bills will be going to conference committee.

HB 1715 SD1 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 continues to vaguely define gender identity.

Conference committee members have not been selected.

Hearing on Leased Fee Conversion Tax Credit Bill

There is a hearing on Friday April 8, 2005 at 10:00 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:

HB 1554 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.

Tuesday, April 05, 2005

Status on Non-Judicial Foreclosure Bill

On March 16, 2004, I reported on a Senate Commerce, Consumer Protection and Housing Hearing on a bill relating to non-judicial foreclosure. The committee held the bill and absent something unusual, the bill is dead for this year.

HB 783 HD2 Various versions of the bill attempted to address issues with the 1874 nonjudicial (power of sale) foreclosure law which contains no consumer protection provisions and the 1998 alternate power of sale foreclosure process which was never used because no one would go through the process in the hopes that the delinquent party would sign the conveyance document after the foreclosure. Currently, non-judicial foreclosures are handled under the 1874 law although title companies require that the foreclosing party follow the consumer protection requirements in the 1998 law (but do not require that the delinquent party sign the foreclosure deed). That practice will likely continue since the bill appears to be dead.

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

On March 17, 2004, I reported on a House Finance Committee Hearing on a bill relating to family child care. The committee passed out the bill and it is pending before the Governor.

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.

Status on Cumulative Voting Bill

On March 11, 2004, I reported on a House Consumer Protection Hearing on a bill relating to cumulative voting. The committee passed out amended version of the bill and the bill will be going to conference committee.

SB1798 HD1 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. The House placed an effective date of 2099 to insure that further discussion is held on the bill.

If you wish to make your comments known, you should contact Representative Ken Hiraki and Senator Ron Menor before the conference committee meets.

Status of Bills on Condominium Records

On March 11, 2004, I reported on a House Consumer Protection Hearing on bills relating to records. The committee passed out amended version of the bills and the bills will be going to conference committee.

SB 1348 HD1 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 or residence. Currently, only the current minutes are available at no cost or 24 hour loan. In addition, the bill will require that the agendas for the current and prior year must also be made available at the resident manager's office or residence.
I have concerns about the bill because it micromanages condominium associations. There is no value in making the old agendas available at the manager's office since an agenda only is a proposal for what is to be discussed at a meeting. Once the meeting is over, no one really needs to see it. There is also a serious issue about whether a resident manager's home should be invade to make minutes available to the members. The Association should be free to make the documents available on site or in other locations when it makes sense.

SB 1349 HD1 This bill would change the law so that associations would need to make financial statements, general ledgers, the accounts receivable ledger, accounts payable ledgers, check ledgers, insurance policies, contracts, and invoices available to its members for as long as the Association keep those records. Currently, owners have a right to those for 2 years and may request them thereafter. I have concerns about this bill because it attempts to micromanage condominium associations. However, the House Consumer Protection Committee has addressed the concern that the bill requires associations to keep these types of documents for five years.

If you wish to make your comments known, you should contact Representative Ken Hiraki and Senator Ron Menor before the conference committee meets.