HAWAII COMMUNITY ASSOCIATIONS
A PUBLICATION OF COMMUNITY ASSOCIATIONS INSTITUTE - HAWAII CHAPTER Volume 19 Issue 4 August 2004 From Your Recodifying Hawaii’s President Condominium Law
Happy “hot” summer! [Act 164, Session Laws of Hawaii (2004)] This summer seems to be the hottest one in years. If your By Gordon M. Arakaki, Esq., Ashford & Wriston newsletter comes late, you After considering the recommendations of the Real Estate Commission and can blame it on me; can’t the testimony of many stakeholders, the 2004 Legislature passed Parts I seem to get anything done in (General Provisions), II (Applicability), and VI (Management of Condominiums) of this heat. the recodification bill/SB 2100 [Act 164 (SLH 2004)]. Parts III (Creation, ABC followup — Your Alteration, and Termination of Condominiums), IV (Registration and Hawaii Chapter of CAI just Administration of Condominiums), and V (Protection of Condominium conducted a successful ABC Purchasers) were reserved for further consideration during the legislative interim Class with over 80 attendees. and next session. The Legislature also requested that the Commission develop The planning and setup of this recommendations for reintegrating HRS 514A Part VI (Sales to Owner- course was arranged by the Occupants) into the new condominium law. coordination and kokua from several property management Why recodify? companies. We thank Certified The 2000 Legislature recognized that “[Hawaii’s] condominium property Management, Hawaiiana regimes law is unorganized, inconsistent, and obsolete in some areas, and Management, Hawaii First, micromanages condominium associations ... [t]he law is also overly regulatory Metropolitan Management, … and ignores technological changes ...” [Act 213 (SLH 2000)] Consequently, and Touchstone Management the Legislature directed the Real Estate Commission to conduct a review of for working together to make Hawaii’s condominium property regimes law and to submit draft legislation to this class a success. Alan the Legislature. Takumi has provided us with The purpose of the recodification/Act 164 (SLH 2004) is “to update, clarify, an article containing more organize, deregulate, and provide for consistency and ease of use of the condo- details on the actual class. minium property regimes law.” [Act 213 (SLH 2000)] Mediation — I was privi- leged to attend the first day of Why should people care? a basic mediation training pro- 25% of Hawaii’s housing units are held in condominium ownership. For gram by the Mediation Center decades, Hawaii has had the highest percentage of condominium housing units of the Pacific, Inc. The in the United States of America.1 Enough said. Mediation Center of the Given the importance of condominiums to the quality of life of Hawaii’s peo- Pacific, Inc. is a not-for-profit ple, the goal of the recodification was to make Hawaii’s condominium property agency whose mission is to law better for people who build, sell, buy, manage, and live in condominiums. provide high quality mediation and dispute resolution ser- What are some of the recodification’s improvements to the vices that are affordable and accessible. They have existed condominium law’s management provisions for twenty-five years and cur- The recodification makes many improvements to help condominium com- rently serve more than 7,000 munities function fairly and efficiently while balancing the rights and responsibili- people annually through their ties of individual unit owners and the association of unit owners as a whole. continued on page 2 continued on page 14 1 Community Associations Factbook, by Clifford J. Treese (1999), at page 18, The law is also important for land use, housing, and growth policy reasons. 2
Recodifying Hawaii’s Condominium Laws
continued from page 1 The improvements include: • Significantly better organized condominium management provisions; •Provisions that help avoid the “one-size fits all” (i.e., commercial, residential, big, small, attached, detached) requirements of the current HRS Chapter P.O. Box 976, Honolulu, Hawaii 96808 514A; (808) 488-1133 email: [email protected] • Encouraging owner participation by: • Expressly allowing e-mail notice of association meetings (at the unit Board of Directors owner’s option); President Steve Glanstein,PRP • Expressly allowing mail-in and e-mail voting by directed proxy; and Vice President Surita Savio • Removing the statutory requirement that, in order to be valid, a proxy Insurance Associates must have a “for quorum purposes only” box (which has caused the Secretary Agnes Ringle unnecessary disqualification of proxies and stymied the conduct of asso- Homeowner, Pacific Village ciation business) [Legislature reinserted box only for standard proxy forms Treasurer Mary Bergmann, CPA issued by associations]; Homeowner, Makakilo Hale I • Allowing boards to meet by telephone conference call and video-conferenc- Directors Steve Elisha, Esq. ing (and allowing associations to do so if provided for in the declaration or Elisha Ekimoto Harada bylaws); Ruth Okada, PCAM Aston Hotels & Resorts •Protecting the interests of associations by allowing executive session for attorney-client privileged matters and while negotiating contracts, leases, Boyd Ready and other commercial transactions; Akahi Service Terrance Revere, Esq. • Improved insurance provisions that, among other things, distinguish between Motooka Yamamoto & Revere attached and detached unit condominiums, allow responsible parties to be billed for deductibles, and allow association to require unit owners to carry Ted Walkey, PCAM Hawaiiana Management insurance covering their personal liability (helping to make sure that the right people pay for the right things); Newsletter Committee • Permitting associations to maintain and repair “high risk components” (e.g., Editor Steve Pherigo, PCAM Hawaiiana Management washing machine hoses, water heaters, toilet “O” rings) before they fail (which should help with insurance premiums); Jodee Acoba-Suganuma, PCAM Hawaiiana Management •To avoid harm to an elderly resident’s self or others and to avoid disruption Legal Coordination Jacqueline Thurston, Esq. to the condominium community, a Good Samaritan provision that limits the Motooka Yamamoto & Reveret liability of an association in requesting a functional assessment and recom- mendations for services;
The Hawaii Community Associations newsletter is • Giving associations the tools to deal with obsolete provisions in their decla- published for associations leaders and other relat- rations and bylaws by allowing circuit courts to excuse compliance with pro- ed professionals of CAI. Authors are visions in governing documents that unreasonably interfere with associa- encouraged to submit articles for publishing consideration. tion’s ability to manage its property; This publication is designed to provide accurate and authoritative information regarding the • Recognizing subject matter covered. It is issued with the the scope, understanding that the publisher is not engaged complexity, in rendering legal, accounting or other and impor- professional services. tance of improving CAI Hawaii Community Associations newsletter condominium provides an opportunity for information and/or comment. Articles do not necessarily reflect the alternative dis- viewpoint of the Chapter. The reader should not pute resolution act on information contained herein without mechanisms, seeking more specific professional advice. the Legislature
continued on page 12 3
What’s All The Paperwork About? Disclosure Documents For Residential Real Estate Transactions By Melanie Labudovski, Hawaii Account Executive, CondoCerts In the real estate industry, the aging agent treats the association to rescind the contract based on the axiom “location, location, location” is like the business that it is and keeps disclosure statement and other pro- being replaced by “disclose, dis- certain basic information available, visions. The Hawaii Association of close, disclose.” In Hawaii, the seller such as: Governing documents, Realtors (“HAR”) has drafted in a residential real estate transaction meeting minutes, annual budgets, Property Information Forms on which is statutorily required to provide a financial reports, collection activity, disclosures are made. Buyers written disclosure statements that litigation and reserve studies. This is require information from sellers, fully and accurately report any mate- information that any informed buyer which is provided on HAR form rial fact, defect or condition, past or would (or should) want to know prior “RR105a”. Sellers get the informa- present, relating to the property that to purchase. Sellers may be charged tion on their unit in these ways: per- may influence the decision of the for the cost of providing information, sonal knowledge, from the associa- buyer (see numbers for disclosure such as administrative and postage tion’s managing agent, from govern- forms below). Anything that could charges. mental agencies and departments negatively impact the value or mar- and from reports prepared for the With new emerging technology, it ketability of the property needs to be seller by third party consultants, that is becoming more and more com- divulged before closing. This leads deal with matters within the scope of mon for sellers and buyers to access to a lot of paperwork for the new the professional’s license or exper- some of this information easily and buyer to review. tise. quickly via the Internet. For exam- However, it is important for a ple, this technology can enable new Buyers may request copies of buyer purchasing property in a buyers to purchase the association’s the governing documents of the homeowner’s association to have all governing documents electronically property on form “RR105b.” the facts, since homeowner associa- without adding to the piles of paper- Managing agents provide informa- tions obligate their members to sub- work usually associated with a home tion about the overall property, which stantial financial obligations, both to sale. Electronic documents also may not be readily available to sell- the association and to each other. eliminate the need to sort through ers of units or lots in a community So, while a buyer may purchase a paper documents in order to find association or residential co-opera- condo that is in great condition and answers, by allowing searches to be tive on form RR105c. needs no repairs, that same buyer is done for specific works. also obligated to share the cost of Buyers who receive and review repairs to the common areas, which Policies and procedures for pro- disclosure forms and association may be in very bad condition. viding the mandatory disclosure governing documents are generally information are included in Act 214; more satisfied with their purchases The responsible board and man- generally allowing the buyer 15 days continued on page 7 4
While I’m sure all residents have been happy that Condominium Association there hasn’t been a sewer fee increase since 1993, the stark reality is that we’re under a federal consent decree. Issues and Action And we’ve still got over $1 billion in sewer projects to complete in the next 15-20 years. The challenge is how By Duke Bainum do we raise that money and do it in a way that is fair to everyone. Some of the most contentious issues I have faced in public service are related to real property and condomini- Some tough decisions need to be made that have um ownership. Real property taxes, lease to fee conver- been avoided in the past. As mayor, I will seek input from sion, water and sewer fees, noise pollution, rubbish col- the stakeholders to ensure we hear all sides to be able to lection…all of these issues are relevant and difficult make tough and fair decisions. because there are no perfect, easy answers that will I would seek this type of input on leasehold conver- please everyone, and with each issue, different stakehold- sions, as well. My position has always been in support of ers have vastly divergent points of view. the law, but I recognize this is a highly emotional issue As Mayor, though, these are issues that must be dealt that requires sensitivity and fairness. with, and issues that cannot be ignored. * Bill 35 would give landowners an across-the-board 95% With real property taxes, there is always the issue of discount on real property assessments for one year, fairness and who should pay. Bill 10, which I introduced with no requirement that their land be dedicated to while at the City Council, was written to address one such farming. issue of fairness. Prior to Bill 10, many landowners were receiving breaks on their real property tax assessments Duke Bainum is running for Mayor of the City and County due to an outdated law that provided discounts for grow- of Honolulu. Duke has extensive experience in govern- ing crop-type agriculture such as sugar cane and pineap- ment and is also a licensed, practicing physician in ple. Although these types of crops have long been Hawaii. For more information log onto his website at phased out, a loophole in the law allowed landowners to www.dukebainum.com or call 951-5111. continue to take advantage of the tax breaks. With noth- ing to force landowners to either continue to practice agri- culture on their land or be faced with assessments based on current fair market values, many landowners quietly continued to take advantage of undeserved substantial tax breaks while other property owners paid their fair share. Bill 10 closed this loophole. It forced landowners to either dedicate their land to farming to receive the tax breaks, or pay property taxes based on fair market value, like the rest of Honolulu’s property owners. Although Bill 10 is not popular with landowners – as evidenced by Bill 35*, which was drafted by the Land Use Research Foundation, an organization paid for and repre- sented by the large landowners of Hawaii, and supported by Mufi Hannemann – it is fair…to all of Honolulu’s prop- erty owners. This issue of fairness in real property assessments is an issue I faced before with apartment and condominium owners. As the chair of the 1999 Real Property Task Force, I was able to get legislation passed that ensures that single-family homeowners and apartment and condo owners pay the same rate. With respect to water and sewer fees, with apartment and condominium owners, to be fair, you almost have to address rubbish fees at the same time due to differences in usage and collection as compared to single-family homeowners. The City also needs to revisit the frequency and sched- uling of bulky item and recyclable pick-ups in communities dense with apartment and condominium buildings, where there is a lack of storage space in the buildings. 5
reasons that I opposed it was that the City was not going to Condominium Association enhance or expand its services to apartments and condo- miniums. Shortly after I was removed as Council Chair, the Issues and Action City “found” the money and the subject of a tax on munici- pal waste was dropped. It was that same session that for- By Mufi Hannemann mer Councilmember Donna Kim, John Henry Felix, and I vehemently objected to the bogus argument of the revenue 2004 presents an exciting opportunity for the residents neutral approach to property taxes. We voted against the of Honolulu to elect a new mayor for a full four-year term. budget and joined hands with many condominium and Based on the numerous discussions, I have had with count- apartment dwellers that were seeing their taxes raised less residents all over Oahu, everyone is pleading for a unfairly in relation to the single-family homeowner. greater emphasis on basic city services and public safety – It is this same attitude and philosophy of fairness that issues that I have consistently championed during my convinced me to oppose Duke Bainum’s Bill 10 that the Council tenure and run for Mayor in 2000. Pacific Business News described as “clumsy” and a The priority core city services that will receive top atten- “bureaucratic mess.” Bainum, in his attempt to solicit votes tion include: road resurfacing, sewer repairs, park mainte- for Bill 10 while on the Council, assured his colleagues that nance, solid waste management, including recycling, and of his bill was “revenue neutral.” Bill 10, as it turns out did course, public safety. raise taxes astronomically for hundreds of farmers on Oahu. My goals, if elected your Mayor, will be to correct the Imagine the loss of open space and the potential damage to fiscal problems that I had identified many years ago. A our aina and environment if farmers were not granted some Hannemann administration can be expected to adopt a kind of relief to remain in agriculture. Even Mayor Harris back-to-basics approach to City government, with an called for a repeal of Bill 10 earlier this year. Fortunately the emphasis on public health and safety and essential City present City Council, under the leadership of Council Chair services. We will restore openness and accountability to Donovan Dela Cruz and Budget Chair Ann Kobayashi voted City finances, enabling the public to see how money is resoundingly 7 to 2 to grant the farmers who descended being spent. Any new City services and construction will upon City Hall in droves to protest this negative ramification be judged on a need-to-have rather than a nice-to-have of Bainum’s Bill 10 a one-year reprieve. basis. One can be assured that I will continue, like I did on It is this same attitude and philosophy of fairness that the Council, to be a Mayor who will never support expen- led me to ask the Council leadership to introduce a resolu- sive community signs that cost $565,000 or million dollar tion this year to call for a once a month bulky item pick-up median strips that the impacted community, by in large, service for all of Oahu. Presently, taxpaying residents who oppose. live in Leeward, Central, Windward Oahu and the North Besides being fiscally accountable, residents need to Shore portion of our county have to schedule an appoint- know that their county leaders will be fair and will not toler- ment for such a pick-up – no wonder illegal dumping con- ate unfair treatment for a specific group or community. In tinues to be a problem in the aforementioned areas! the case of real property taxes, taxpayers need to be It should be the intention of our next Mayor that it assured that government has been cut to the bone and friv- shouldn’t matter whether you live in Hawaii Kai or Waianae, olous spending curtailed before taxes are raised. This is or whether you reside in a home, apartment, or condo, why I opposed a garbage collection fee in 1999 that the every taxpayer should be treated fairly and receive all the City said was needed to balance the deficit. One of the continued on page 7
❑ Real Property Transactions and Development BROOKS TOM ❑ Condominium and Community Association Law PORTER & ❑ Voluntary and Involuntary Lease To Fee Conversions QUITIQUIT, LLP ❑ Construction Litigation ATTORNEYS AT LAW ❑ Employment Law Edward R. Brooks ❑ Civil and Commercial Litigation Carl Tom ❑ Christian P. Porter Business Law S.V. (Bud) Quitiquit ❑ Civil Appellate Practice Charles M. Heaukulani David W.H. Chee HONOLULU 841 Bishop Street, Suite 2125 • Honolulu, HI 96813 Jeffrey D. Watts Phone: (808) 526-3011 • Fax: (808) 523-1171 Donna Yamamoto Email: [email protected] R. Laree McGuire KAILUA-KONA 75-1000 Henry Street, Suite 208 • Kailua-Kona, HI 96740 Of Counsel: Arlene S. Kishi Phone: (808) 326-7000 • Fax: (808) 326-7725 Email: [email protected] • Email: [email protected] 6 Mold Litigation Mitigation By Sherree McKellar, CMCA What next? There’s another big There are some encouraging prece- newswire.com/industrynews/Detail ugly cloud on the horizon for commu- dents, like the one in the box above, ed/535.shtml.) nity associations, and running for the where a defendant won the mold According to Sue Savio of storm cellar won’t keep it away. case brought against them. Also, Insurance Associates, settlements for From Connecticut to Florida to mold problems are now specif- California, state legislators are ically excluded by most insur- grappling with mold related Klinedinst Attorneys Win Verdict in ance companies, so home- issues such as licensing Precedent-Setting Mold Wrongful owners in community associa- requirements for mold removal Death Case tions who file lawsuits are companies, and whether insur- SAN DIEGO, CA - Klinedinst attorneys Kevin essentially suing themselves ance companies should be Gramling and Steve Pratt obtained a defense and their neighbors, since the allowed to have mold exclu- verdict in what is believed to be the first wrong- cost for the repairs they are sions in homeowners’ policies. ful death mold trial in the United States. demanding will come out of There are some excellent Klinedinst’s successful defense could set a the association’s reserves. websites available to help you new precedent in the increasingly complex and While the thousands of keep up with what’s happening expensive arena of mold litigation. mold cases that are resolved in the “mold world.” Go to successfully on behalf of com- www.moldupdate.com where February 2004 munity associations do not you can review the various leg- http://www.klinedinstlaw.com/news/2004/02/20/ make the news, the few that islative bills being proposed are lost become big news. around the country. There is Recently we had our first big even a mold update newsletter you settlement of a mold case in Hawaii. can have sent to you automatically. proving that mold is the culprit for In that case, the judge said that the Reports from Texas indicate that health symptoms is becoming more condominium association had a duty mold litigation is already subsiding. difficult. See http://www.aec- to repair the slab under an owner’s 7 unit and to correct the ponding prob- Mike McKenzie of McCleans lem caused by the rain gutter system Restorations Services, which Paperwork adjacent to the unit. Failure to do this removes mold from homes and continued from page 3 resulted in a mold problem in the unit. businesses, says, “Honolulu had because surprises about the property Judge McKenna found that the condo only one or two companies spe- are less likely to occur. Usually, the association “wrongly failed and cializing in mold removal a few disclosure form also states that the refused to perform and denied its years ago, now there are 15. The information provided does not duty to repair its common elements,” market is just flooded with fly-by- negate the benefit of independent The first step in avoiding litigation nighters.” home inspections, encouraging the is to regularly inform all owners of the Jason Princenthal, President and buyer to confirm the condition of importance of reporting water intru- chief indoor air-quality consultant their potential property. sion as soon as they see it. The for AirCare Environmental The next time you plan on pur- biggest problem may be getting ten- Services Inc. states, “While there’s chasing real estate within a home- ants to notify the property owner. The nothing illegal about forming a owners association, make sure you Association’s management should company to remove or identify have all of the facts and have care- schedule periodic inspections for mold, inexperienced companies fully reviewed the information provid- mold. The results should be docu- might overstate the problem.” ed by the real estate agent. A happy mented in writing and sent to any The National Association of Toxic buyer is an educated buyer! affected owner. Mold website has some excellent If mold is discovered in any unit, a resources: http://www.natmr.org/, Melanie Labudovski is the Hawaii reputable mold remediation company and, if you don’t mind reading long Account Executive for CondoCerts, should assess the type of mold and lists, there is a comprehensive list of the industry leader in the online deliv- the origin and extent of the problem. medical symptoms, attorneys who ery of Homeowner Association docu- A report that contains a toxic type of specialize in mold cases, and more ments and critical data required for mold may necessitate the homeowner resources than you could ever need at real estate transactions. She can be or tenant moving out of the unit tem- www.mold- reached at 808-306-3646 or email: porarily. If the problem is the associa- help.org/pages/sitemap.htm. [email protected]. tion’s responsibility, it may have to The purpose of this article is to pay to temporarily house the residents help you avoid mold litigation by help- until remediation work is completed. ing you learn what resources are In this process it’s critical to find a available. Even though the current reputable mold removal company. concern about mold borders on hys- According to Randy Herold, teria, it is still prudent for those of us President of MoldPro in community associations to be wise International, a Kailua-based in the ways of mold and its remedia- indoor air-quality inspection and tion. consultation company, “In any embryonic industry, you have Sherree McKellar is the Corporate opportunists. There were guys Vice President of Certified that were mowing lawns three Management, Inc. She can be weeks ago who are now calling reached by email at [email protected] themselves mold remediators!” PACIFIC ELEVATOR CORP.
Mufi Hannemann continued from page 5 We're not just benefits and services that the City dispenses in an equitable manner. another elevator The bottom line is that the City will be facing major challenges in the com- company... ing year to ensure a quality of life second to none. This is definitely no time for “on the job” training. I bring strong bi-partisan leadership experience at all three We specialize in providing levels of government, proven private sector managerial experience with Hawaii- solutions to the rising cost of based businesses, and quality time spent in the community, as a teacher, elevator services. Let us show coach, board member and non-profit volunteer. This lifetime preparation, cou- you how we can reduce pled with my solid academic background and great familiarity with the issues of your building’s elevator costs. our island home, put me in an excellent position to “hit the ground running” as the next Mayor of Honolulu. I hope you will grant me the privilege and honor. 377 Keahole Street, Suite D10 Honolulu, Hawaii 96825 Mufi Hannemann is running for Mayor of the City and County of Honolulu. Mufi (808) 395-6695 has extensive experience in government and also is a strong contributer to www.pacific-elevator.com community service projects. For more information log onto his website at License No. C-24682 www.votemufi.net or call 597-1488. 8
How To Select A Reserve Consultant By H. Alan Mooney, P.E., R.S. We typically get the call that goes • Agreeing on who or what type of sists of two parts: the physical analy- as follows: “I’d like to get a bid for a firm is necessary to achieve that sis and the financial analysis. reserve study.” Managers or board scope members who are a little sophisticat- There are a great many consider- ed will add: “What do you need to In this article, I hope to provoke ations that are not part of a standard know?” The expected response to your thinking about scope and qualifi- reserve study but may be of interest that question is, number of units, cations, and then offer some tools to to the board and owners. Here are common elements, age of property, help simplify the task of developing a some. request. existence of plans and previous stud- • Would you like a property condition ies, etc. Defining the Scope assessment as well as a reserve study? The standard reserve study Our typical response to that Any risk management consultant incorporates the results of a field question, however, is: “What do you will tell you that most disagreements survey in the determination or need?” CAI has done a valuable ser- between clients and consultants reserves. However, those results vice by defining a standard reserve occur as a result of the failure to are rarely reported to you. If you study. But in truth, the consulting ser- properly define the scope of services. would like a more complete vice that results in a reserve study If the expectations of the parties are description of the property, build- may be anything but standard. not aligned at the outset, dissatisfac- ings, systems, and components, as Standards define a baseline so that tion is almost guaranteed. people can make comparisons. More well as their current condition, you often than not, our success, and our CAI defines a standard reserve must ask for it. study as: A budget planning tool that clients’ satisfaction, is dependent on • Would you like the consultant to identifies the current status of the defining the assignment according to report on elements that are not part reserve fund and a stable and equi- their needs. These fall into two cate- of what are defined as common table funding plan to offset the antici- gories: elements? Often, what are com- pated future major common-area mon elements are defined as legal • Agreeing on a scope expenditures. The reserve study con- “We Love Our Customers and They Love Us”
City Mill’s Credit Supervisor, Jan away. If you have missing invoices, we can DON’T have to carry cash, checks or have Jones, loves helping the City Mill Charge usually get copies one more card in their wallet. They just pres- and Cash Account Customers. “6 years at out that day or the ent their I.D. That’s a big security relief for City Mill and my job is still the GREAT- next working day! everyone!” EST,” says Jan, “Here at City Mill we get to Our accounts “For over 105 years City Mill has know our customers and they have come to depend on the fast had the privilege of serving Hawaii. Thank rely on us to help them with any changes or turnaround. you for continuing to shop with us! If you problems on their account. City Mill’s Adding or deleting don’t already have a City Mill account you Accounts are the best in town! With our authorized buyers should open one today. Stop by any of City charge accounts there’s no red tape, no call- to your account Mill’s 8 neighborhood locations for a credit ing the mainland!” can be handled application, see any of our Store Managers “I am located at the Nimitz Store, immediately. Your or call me at 529-5808 and I’ll fax one to Administration Office and can help you right authorized buyers Jan Jones, Credit Supervisor you. What could be easier?” City Mill Company, Ltd.