CAI Legislative Update 2023

WELCOME TO THE 2022 CAI LEGISLATIVE UPDATE REPORT

T h a n k y o u f o r p a r t i c i p a t i n g i n t o d a y ’s r e v i e w o f t h e 2 0 2 3 l e g i s l a t i v e s e s s i o n . Yo u r i n t e r e s t i s appreciated

T h e l e g i s l a t u r e w a s , o n c e a g a i n , p r e s e n t e d w i t h s t a r k l y d i ff e r i n g p e r s p e c t i v e s o n a s s o c i a t i o n s e l fg o v e r n a n c e , a n d p e r s i s t e n t a d v o c a c y b y p r o p o n e n t s o f m i n o r i t y r u l e f i n a l l y s u c c e e d e d s o f a r a s t o p e r s u a d e t h e l e g i s l a t u r e t o f o r m w o r k i n g g r o u p s t o r e c o n s i d e r c o n d o m i n i u m l a w a n d p l a n n e d community association law

Thus, it is possible that association law may change, in potentially dramatic ways.

Those who seek the end of self-governance, in favor of minority rule and granular operational control of associations by government, have relentlessly painted a dark vision of life in associations. A media outlet has published stories seemingly in sympathy with their efforts

Lest it be imagined that the threat is not serious, please note that SB 1202, which fortunately did not p a s s , e x p r e s s l y p r o p o s e d t o e n

provision:

A quorum shall not be required to hold the election; provided that the election shall not be valid unless at least twenty per cent of the eligible unit owners cast ballots.

(Bold added) The goal is to enable candidates lacking majority support to take control of associations through activism.

There is this and much more to cover. Please refer to the table of contents in the written materials to keep track

Several members of, and consultants to, the CAI Legislative Action Committee, known as LAC, will present today Members John Morris and Elaine Panlilio will each speak on aspects of the 2023 legislative session. Consultants Richard Emery and Phil Nerney will join them.

As always, please note that today’s program is for general information and does not constitute legal advice Action in relation to anything presented here should follow consultation with counsel.

Finally, we are grateful for the support of our advertisers LAC members volunteer their time A professional lobbyist retained by LAC is paid, of course, and funds raised by this webinar help to pay her. Donations by associations, companies and individuals are always welcome

ASSOCIATION-RELATED BILLS THAT PASSED THE LEGISLATURE

NOTE: With a significant exception addressed below, these materials are written before the Governor has decided whether to allow bills passed by the 2023 legislature to become law.

SB 729 SD1 HD2 CD1

The powers and duties of the Real Estate Commission (“Commission”) have been amended. The Commission now shall: “Develop a curriculum for leadership training for condominium boards of directors, including pertinent provisions of chapter 514B, association governing documents, and the fiduciary duties of board members[.]”

This bill addresses stated concerns that some board members may lack sufficient background to effectively discharge their fiduciary duties. Directors are legally obligated to perform to a standard set forth in law.

Section 514B-106(a), of the Hawaii Revised Statutes (“HRS”) provides, in relevant part, that: “In the performance of their duties, officers and members of the board shall owe the association a fiduciary duty and exercise the degree of care and loyalty required of an officer or director of a corporation organized under chapter 414D.”

A director shall discharge the director's duties as a director, including the director's duties as a member of a committee:

(1) In good faith;

(2) In a manner that is consistent with the director's duty of loyalty to the corporation;

(3) With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and

(4) In a manner the director reasonably believes to be in the best interests of the corporation

The curriculum to be developed by the Commission will detail the significance of these duties and other matters relevant to condominium operation and governance

HB 1509 HD2 SD1 CD1

Two task forces are established by this bill. The first task force will be to determine the feasibility of extending statutory rights that are afforded to condominium owners to the owners of property within planned community associations. The second task force will be to conduct an assessment of the alternative dispute resolution systems established for condominium owners

Section 1 of the bill sets forth the findings of the legislature:

SECTION 1 The legislature finds that common-interest developments are the fastest growing form of housing in the world and a significant form of land development in the State Common-interest developments exist in a variety of forms in the State, including condominium property regimes, planned communities, and cooperative housing corporations. In these developments, individuals own property within the development, share ownership and use of common property with all other owners, and participate in a system of self-governance through an association or corporation of the owners within the development.

The legislature further finds that the governance documents of the association or corporation provide the manner for resolving any disputes that may arise within the development. However, while owners within condominium associations may also request the department of commerce and consumer affairs, including the real estate commission and regulated industries complaints office, to facilitate in the resolution of or intervene in a dispute, the owners in other developments are unable to request such support Instead, the owners in those developments must privately resolve their disputes through their internal processes or the judicial process Such a resort may be costly to the owner in comparison to the gravity of the dispute and an alternative mechanism for oversight should be examined

Accordingly, the purpose of this Act is to:

(1) Establish a planned community association oversight task force to examine the rights afforded to owners in a condominium property regime governed by chapter 514B, Hawaii Revised Statutes, and determine the feasibility of extending any of those rights to members of planned community associations governed by chapter 421J, Hawaii Revised Statutes; and

(2) Establish a condominium property regime task force to examine and evaluate issues regarding condominium property regimes governed by chapter 514B, Hawaii Revised Statutes, and conduct an assessment of the alternative dispute resolution systems that were established by the legislature.

The task forces are to submit an interim report prior to the 2024 legislative session, and a final report prior to the 2025 legislative session

This may be significant because the Supreme Court of Hawaii has also specified that: “Generally, the declaration and bylaws of a condominium serve as a contract between the condominium owners and the association, establishing the rules governing the condominium ” Harrison v Casa De Emdeko, Incorporated, 418 P.3d 559, 567 (2018). Changes the task forces might consider will be subject to Contract Clause analysis.

The Supreme Court of Hawaii has recognized that condominiums are different from planned community associations, in a case where an effort was made to apply condominium law to a planned community association:

Appellees' argument, however, ignores a fundamental distinction between condominium property regimes and planned community associations that condominium property regimes are creatures of statute, whereas planned community associations are primarily creatures of common law

Lee v. Puamana Community Association, 128 P.3d 874, 888 (Haw. 2006). It is hoped that the planned community association task force will be mindful of the difference

The condominium task force may also wish to consider that, correctly or not, a federal court judge in Hawaii found a 2019 legislative act affecting condominium law to be: “unconstitutional because it violates Plaintiffs’ rights under the Contracts Clause of the United States Constitution.” Galima v. AOAO of Palm Court, Case 1:16-cv-00023-LEK-RT. That judge stated: “The Contracts Clause restricts the power of States to disrupt contractual arrangements ”

HB 1509 HD2 SD1 CD1 results from persistent critiques about self-governance, by so-called activists who prefer minority rule and government intervention in private disputes. The article, Challenges to Condominium Self-Governance, which was first published in the November 2017 issue of the Hawaii Bar Journal, is reprinted as an appendix to these materials for context and for information about the critiques.

SB 855 SD1 HD2 CD1

The point that condominium budgets must provide for future capital repairs and replacements has been emphasized again this year. Changes imposed in 2022 followed the 2021 collapse of a Florida condominium This year ’s changes further expand upon reserve requirements.

First, there is a requirement to provide a b u d g e t s u m m a r y, a s a n a i d t o u n d e r s t a n d i n g a n d t r a n s p a r e n c y. T h e d e t a i l s t o b e i n c l u d e d i n t h e summary are stated in the following excerpt from the bill:

"§514B-148 Association fiscal matters; budgets and replacement reserves.

(a) The budget required under section 514B 144(a) shall include a summary with at least the following[:] details:

(1) The estimated revenues and operating expenses of the association;

(2) [Information] Disclosure as to whether the budget has been prepared on a cash or accrual basis;

(3) The estimated costs of fire safety equipment or installations that meet the requirements of a life safety evaluation required by the applicable county for any building located in a county with a population greater than five hundred thousand; provided that the reserve study may forecast a loan or special assessment to fund life safety components or installation;

[(3)] (4) The balance of the total replacement reserves fund of the association as of the date of the budget;

[(4)] (5) The estimated replacement reserves assessments that the association will require to maintain the property based on a reserve study performed by or on behalf of the association; provided that the reserve study, if not prepared by an independent reserve study preparer, shall be reviewed by an independent reserve study preparer[; provided further that the reserve study shall be reviewed or updated at least] not less than every three years; provided further that a managing agent with industry reserve study designations shall not be considered as having a conflict of interest for purposes of this paragraph;

[(5)] (6) A general explanation of how the estimated replacement reserves assessments are computed[;] and detailing:

(A) The identity, qualifications, and potential conflicts of interest of the person or entity performing the reserve study, update, or any review thereof;

(B) Disclosure of any component of association property omitted from the reserve study and the basis for the omission;

(C) Planned increases in the estimated replacement reserve assessments over the thirty-year plan; and

(D) Whether the actual estimated replacement reserves assessments for the prior year as defined in the study was less than the assessments provided for in the reserve study, and, if so, by how much, and explaining the impact of the lesser assessments on future estimated replacement reserves assessments;

[(6)] (7) The amount the association must collect for the fiscal year to fund the estimated replacement reserves[;] assessments; and

[(7)] (8) Information as to whether the amount the association must collect for the fiscal year to fund the estimated replacement reserves assessments was calculated using a per cent funded or cash flow plan. The method or plan shall not circumvent the estimated replacement reserves assessments amount determined by the reserve study pursuant to paragraph [(4) ] (5) ”

The bill also includes the following definition:

"Independent reserve study preparer" means any organization, company, or individual with a reserve study certification from an industry organization. That term was undefined when it was introduced last year

In sum and substance, a good faith effort to adequately budget for the true cost to operate the condominium in both the current year and over several decades is a requirement A director or manager who fails, neglects or refuses to make such a good faith effort acts below the standard of care and

risks being held liable

This is true even if incumbent owners will be burdened economically. Today’s owners are responsible to pay into reserves to fund future capital repairs and replacements

SB 921 (Act 29)

This bill addresses the rare circumstance when a developer maintains control of a condominium association longer than ten years, by amending HRS §514B-141(c):

SECTION 2. Section 514B-141, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

"(c) Any statute of limitation affecting the association's right of action against a developer is tolled until the period of developer control terminates[ ]; provided that, notwithstanding section 657-8, no statute of repose shall affect the association's right of action against a developer sooner than two years after the period of developer

control terminates. A unit owner is not precluded from maintaining an action contemplated by this section because the unit owner is a unit owner or a member or officer of the association. Liens resulting from judgments against the association are governed by section 514B 147."

Now, it is clear that an association will have two years after the period of developer control terminates to bring a claim against a developer, regardless of how long the period of developer control may be.

The Governor vetoed this bill The legislature then voted to override the veto Thus, unlike some other bills, SB 921 is already enacted into law.

OTHER BILLS THAT PASSED THE LEGISLATURE

The following selection of other bills that passed the legislature may be of general interest and/or may affect associations even if not specifically targeted to affect associations.

HB 11 HD2 SD1 CD1

This bill affects time sharing plans It: Clarifies when the disclosure of pertinent provisions of condominium project instruments must occur. Specifies that primary plan documents be listed in the public disclosure statement of a time share plan Clarifies the manner in which the required disclosure of liens, title defects, or encumbrances on the titles of units may be made. Provides that a consultant's review of encumbrances shall be waived upon the certification from the developer that the time share interest is free and clear of blanket liens or that identifies all blanket liens.

HB 192 HD2 SD1 CD1

This bill may be of interest to those who use fluorescent lighting

SECTION 1 The legislature finds that there have been many advances in the energy efficiency of lighting Fluorescent bulbs were promoted in the 1980s because they are up to thirtyfive per cent more energy efficient than the incandescent light fixtures widely in use at that time; however, further advances have been made with light-emitting diodes (LEDs) that are now up to eighty per cent more energy efficient than fluorescent bulbs and can last three to five times longer than fluorescent bulbs and thirty times longer than incandescent bulbs.

The legislature further finds that all fluorescent bulbs contain mercury, a toxic pollutant that bioaccumulates in the environment, can pollute air and water, and causes harm to wildlife and human health. The legislature notes that mercury-free alternatives exist for most of the thousands of products that contain mercury components.

The legislature believes that LEDs are a better alternative because they do not contain any mercury, are more energy efficient, and are the cheaper life-cycle cost lighting option for consumers and businesses. Phasing out the sale of mercurycontaining bulbs in Hawaii will prevent additional toxic pollutants from being brought into the State's ecosystem, reduce energy use, and save consumer dollars

Accordingly, the purpose of this Act is to prohibit the sale of certain fluorescent lamps in the State as a new manufactured product, with certain exemptions

The sale of a screw or bayonet base type compact fluorescent lamp shall be prohibited beginning January 1, 2025. The sale of a pin-base type compact fluorescent land or linear fluorescent lamp shall be prohibited beginning January 1, 2026. Exceptions are made for certain technical uses

HB 217 HD1 SD2 CD1

This bill applies to certain privately owned

one- and two-story residences

SECTION 1 The legislature finds that the costs of housing renovations in Hawaii are extremely high. These costs have further increased due to the impact of the coronavirus disease 2019 pandemic on building materials and supply chains. Hawaii's geographic location also adds to the cost of simple renovations due to shipping and high labor costs

The legislature further finds that making a house accessible, renovating a bathroom, or modernizing a kitchen adds to home renovation costs and requires a licensed professional engineer or architect for the renovation based on certain cost amounts for work on a particular structure The legislature also finds that the cost valuations for work on buildings, which are established by statute, are outdated and have not been updated since 1979

The legislature recognizes that while safeguards for life, health, and property are critical, simple renovations should not require the approval of a licensed professional engineer or licensed architect This work can be done proficiently by a professional draftsperson, engineering technician, or architectural technician Past legislatures recognized the need to exempt certain building projects of lower values from chapter 464, Hawaii Revised Statutes (chapter 464), which regulates the practices of professional engineering, architecture, land surveying, and landscape architecture in the State. The legislature therefore finds that it is necessary to update the statute to reflect current valuation costs for work on buildings to qualify for an exemption from chapter 464

In addition, the legislature finds that chapter 464 does not exempt building permit applicability, although the counties comply with the International Building Code and related codes as adopted by the state building code council The codes include structural, electrical, and plumbing requirements. To help reduce the high costs of living in the State, updating the cost valuations of work on buildings should save homeowners between $2,000 and $6,000 on any given renovation project

The purpose of this Act is to:

(1) Update the cost valuations of work on certain residences for the work to qualify for an exemption from the requirement under chapter 464 for plans and specifications to be prepared by a licensed engineer or architect; and

(2) Clarify work that is not exempt from the requirements of chapter 464

SB 691 SD2 HD2 CD1

This conservation bill allows the chief energy officer of the Hawaii state energy office to enforce minimum efficiency standards for portable electric spas, residential ventilating fans, toilets, urinals and water coolers.

SECTION 1. The legislature finds that the high cost of living in Hawaii adds to the importance of adopting policies that promote and encourage energy efficiency, which can provide relief for families and businesses faced with high utility bills. In 2019, the legislature took the notable step of establishing minimum energy and water efficiency standards for certain products sold, leased, or rented in the State. These standards are estimated to result in $169,700,000 in cumulative utility bill savings for Hawaii over the next fifteen years.

The legislature further finds that water conservation is growing in significance for a variety of reasons, including increasing incidence of drought conditions and the fuel spills at Red Hill that have led to the closure of the Halawa shaft, which previously provided twenty per cent of the water supply for urban Honolulu Water efficiency and energy efficiency are closely linked, because pumping water requires energy, and water conservation leads to energy conservation.

The legislature also finds that expanding the list of products requiring minimum efficiency standards can help Hawaii save millions of dollars on utility bills annually and can offer even more benefits for Hawaii residents, businesses, the environment, and the economy as a whole. Adopting additional minimum efficiency standards, among other benefits, could:

(1) Provide a boost to the local economy as a result of consumers and businesses spending their financial savings on other goods and services in the State;

(2) Protect consumers from manufacturers who would otherwise unload less-efficient appliances that the manufacturers could not sell in other states with heightened efficiency standards;

(3) Ensure that Hawaii residents do not miss out on potential savings while awaiting uncertain progress

regarding standards to be adopted at the federal level;

(4) Conserve and protect the State's precious and vulnerable water resources, the importance of which has recently been underscored by the Red Hill water crisis;

(5) Lower electricity bills for residents and businesses by millions of dollars annually; and

(6) Reduce air pollutants and greenhouse gas emissions, which could result in public health benefits and help the State meet its clean energy and climate change mitigation targets

Numerous states, including California, Colorado, Connecticut, Maine, Maryland, Massachusetts, Nevada, New Jersey, Oregon, Rhode Island, Vermont, and Washington, have adopted robust state energy and water efficiency standards to take advantage of these benefits

The legislature believes that these states can serve as important sources of information for the enforcement and implementation of new or amended energy and water efficiency standards in Hawaii

Furthermore, the legislature finds that most of the products encompassed by this Act are equal in cost to noncompliant products or have a short payback period ranging from zero to seven months.

Accordingly, the purpose of this Act is to:

(1) Authorize the chief energy officer of the Hawaii state energy office, instead of the director of business, economic development, and tourism, to adopt rules to enforce minimum efficiency standards for certain products and adopt or amend minimum efficiency standards in certain situations; and

(2) Regulate the minimum efficiency standards for portable electric spas, residential ventilating fans, toilets, urinals, and water coolers.

SB 799 SD1 HD2 CD1

This bill affects time sharing plans.

For time share plans that use title holding trusts, requires the developer to submit a title report evidencing that the title is vested in the trustee. For time share plans that use a notice of time share plan, requires the recordation of the notice and its submission For time share plans that use alternative arrangements, requires the recordation of any alternative arrangement documents.

SB 989 HD2

This bill establishes the offense of trespass with an unmanned aircraft system as a misdemeanor

SECTION 2 Chapter 711, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§711- Trespass with an unmanned aircraft system. (1) A person commits the offense of trespass with an unmanned aircraft system if the person intentionally causes an unmanned aircraft system to:

(a) Cross the property line of another and come within fifty feet of a dwelling to coerce, intimidate, or harass another person or, after having been given actual notice to desist, for any other reason; or

(b) Take off or land in violation of current Federal Aviation Administration special security instructions or unmanned aircraft systems security sensitive airspace restrictions.

(2) This section shall not apply if:

(a) Consent was given to the entry by any person with legal authority to consent or by any person who is lawfully present on the property; or

(b) The person was authorized by federal regulations to operate an unmanned aircraft system and was operating the system in an otherwise lawful manner and consistent with federal regulations

(3) Trespass with an unmanned aircraft system is a misdemeanor "

SB 1024 SD2 HD1 CD1

This bill provides for working groups to develop plans and recommendations and take steps to help achieve zero-emissions transportation Expect it to affect you.

SECTION 1 The legislature finds that transportation accounts for the majority of Hawaii's greenhouse gas emissions However, Hawaii is ideally suited to serve as a unique incubator for innovative new technologies and services that will help countries around the world achieve zero-emissions transportation

The legislature further finds that Hawaii is an island chain having a population density sufficient to support the electrification of ground transportation. Hawaii does not face the same issues of range anxiety found in larger jurisdictions Hawaii can achieve electric charging saturation much more easily than larger or more sparsely

populated jurisdictions. Hawaii is on track to achieve one hundred per cent clean electricity, which will make it possible to charge a truly clean transportation fleet Further, Hawaii has excellent year-round weather, making it possible to significantly reduce the need for fossil fuel transportation year-round by enabling pedestrian, bicycle, and other mobility for large portions of the population, as has already been achieved successfully in many other nations

The legislature further finds that Hawaii is also ideally suited to serve as an incubator for short-range sea and air travel between the islands Electric ferries of significant commercial scale already operate in coastal areas of Europe, and commercial electric aircraft are now entering markets in regions around the world As vehicles scale up in size and range, Hawaii is a unique regional market of significant population and travel density in which to deploy new technologies and services.

Accordingly, the purpose of this Act is to:

(1) Establish long term goals for zero-emissions transportation in Hawaii and take steps to achieve the reduction and elimination of transportation emissions;

(2) Provide a commitment and support from the State to emerging companies looking to demonstrate and pioneer new technologies and services in the years to come; and

(3) Establish working groups of government agencies and expert stakeholders to develop plans and recommendations and take steps to help achieve zero emissions transportation.

SB 1057 SD2 HD2 CD1

This bill affects employers:

hourly rate or salary range that reasonably reflects the actual expected compensation; and

(2) Prohibiting an employer from discriminating between employees because of any protected category by paying wages to employees in an establishment at a rate less than the rate at which the employer pays wages to other employees in the establishment for substantially similar work

The hourly rate disclosure requirements do not apply to positions with employers having fewer than fifty employees. The discrimination provisions apply to all employers.

SB 1534 SD2 HD3 CD1

This bill is a step towards eventual statewide transition to a per mile road usage charge for all vehicles.

SECTION 1

The legislature finds that requiring employers to include pay or salary as part of a job advertisement helps to increase pay transparency and equal pay for all employees. California, Colorado, and New York City have recently enacted laws requiring job advertisements to include pay, and initial experiences have benefited employers, current employees, and prospective employees Employers and prospective employees spend less time interviewing because prospective employees will not apply to jobs with a pay level that they feel is too low, and current employees have benefitted from seeing the salaries of new employees and have used that information to seek higher wages, thereby helping to reduce pay inequalities.

The purpose of this Act is to reduce pay inequalities by:

(1) Requiring certain job listings to disclose the

SECTION 1. The legislature finds that, as fuel tax revenues decrease, the department of transportation has recommended the adoption of a per-mile road usage charge to provide fair and sustainable funding for the State's road infrastructure The legislature further finds that with its existing vehicle inspection program, Hawaii is well-positioned to transition to a per-mile road usage charge system with low administrative costs. In 2019, the legislature enacted an annual registration surcharge on electric vehicles to account for their road usage The legislature now finds that replacing the existing annual $50 registration surcharge on electric vehicles with a mileage-based road usage charge for electric vehicles is a first step in the eventual statewide transition to a permile road usage charge for all vehicles, which will serve as a replacement of the state motor fuel tax with all vehicles paying the per-mile road usage charge With the increase in public support for fuel-efficient electric and alternative fuel vehicles, the shift to a charge based on road usage is fair to all drivers within the State and ensures that the owners of all vehicles, including alternative fuel vehicles, pay a fair share of Hawaii's roadway maintenance costs To implement a per-mile road usage charge program, the legislature further finds that a long-term implementation plan would aid in the deployment and eventual inclusion of all passenger vehicles and light duty trucks.

The purpose of this Act is to:

(1) Create a mileage-based road usage charge to replace state motor fuel taxes for electric vehicles, to be

developed by the department of transportation;

(2) Eliminate the annual state vehicle registration surcharge for electric vehicles;

(3) Allow electric vehicle owners to pay a registration surcharge or a per-mile road usage charge until June 30, 2028;

(4) Amend certain requirements for motor vehicle registration applications and certificates of inspection; and

(5) Appropriate funds for the initial implementation of the mileage-based road usage charge.

HB 1091 HD2 SD2 CD1

This bill addresses real property disclosures within shoreline areas The legislature continues to identify climate change as the overriding challenge of the twenty-first century. As the findings below indicate, the legislature perceives that there should be “a sea level rise discount” in shoreline valuations.

SECTION l. As reflected in Act 32, Session Laws of Hawaii 2017 (Act 32), the legislature recognizes that not only is climate change real, but it is also the overriding challenge of the twenty first century and one of the priority issues of the legislature Climate change poses immediate and long term threats to the State's economy, sustainability, security, and residents' way of life.

The legislature recognized the existential threat of sea level rise to real property and amended section 508D-15, Hawaii Revised Statutes, to require mandatory seller disclosures in real property transactions to indicate that a parcel of residential real property lies within the sea level rise exposure area Research published by the Intergovernmental Panel on Climate Change and the

National Aeronautics and Space Administration shows that sea levels in Hawaii will continue to rise, but sea level rise has no detectable effect on valuations or sales data on real property. The lack of a sea level rise discount indicates that purchasers may be underprepared for the future challenges and implications of sea level rise and the ancillary effects of coastal erosion, future flooding, inundation, and storm surges

This bill mandates additional seller disclosures in real estate transactions, as follows:

SECTION 2 Section 508D-15, Hawaii Revised Statutes, is amended to read as follows: ***

(b) When residential real property lies adjacent to the shoreline, the seller shall disclose all permitted and unpermitted erosion control structures on the parcel, expiration dates of any permitted structures, any notices of alleged violation associated with the parcel, and any fines for expired permits or unpermitted structures associated with the parcel

SB 930 SD1 HD2 CD1

This bill affects landlords. The landlordtenant code is amended to address the practice of charging a screening fee to potential tenants. Landlords may charge such a fee, and shall return any amount of that fee not used for the screening purpose.

SECTION 1 Chapter 521, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§521- Application screening fee. (a) When a landlord or the landlord's agent receives a request from an applicant to rent a dwelling unit, the landlord or the

landlord's agent may charge the applicant an application screening fee at the time the application is processed for the dwelling unit to cover the costs of obtaining information about the applicant; provided that a landlord or the landlord's agent shall only charge an application screening fee for an applicant who is eighteen years of age or older or an emancipated minor Information sought by the landlord or the landlord's agent charging the fee may include personal reference checks, tenant reports, criminal background checks, and credit reports produced by any consumer credit reporting agency

(b) Upon request by the applicant, a landlord or the landlord's agent shall provide to the applicant a:

(1) Receipt for payment of the application screening fee; and

(2) Breakdown of costs covered by the application screening fee.

(c) A landlord or the landlord's agent shall return to the applicant any amount of the application screening fee that is not used for the purposes authorized by this section within thirty days after the landlord has submitted screening requests.

(d) For the purposes of this section:

"Consumer credit reporting agency" has the same meaning as in section 489P-2

"Credit report" has the same meaning as in section 489P-2."

Senate Concurrent Resolution 48

The purpose and intent of this resolution is to request the Insurance Division of Hawaii to conduct a study analyzing whether implementation of a captive insurance system in the State that is modeled after Massachusetts' captive insurance system may provide an alternative to traditional condominium property insurance at a time when insurance offered by major Hawaii insurers is increasingly becoming unaffordable for many homeowners and associations

It aims to conduct a survey of the three hundred nine condominium properties that are subject to the requirements of Honolulu Ordinances Nos 194 and 22-2 relating to condominium insurance and fire safety measures requiring the installation of automatic fire sprinkler systems.

The intent to explore alternative insurance programs that could possibly help condominium associations is laudable. However, there may be some challenges in getting the Insurance Captive System set up due to capital requirements

In a traditional insurance program, the insurance company takes on all the risks and retains all the profits.

In contrast, a Captive Insurance System is essentially a form of self-insurance where the insurer is owned by the insureds, in this case the condominium association members. There are pros and cons to that system:

PROS

1. It can solve insurance coverage unavailability.

2. High levels of flexibility.

3 It provides an opportunity to achieve an underwriting profit which can translate to the association group members receiving dividends.

CONS

1 Raising capital is mandatory Where is the capital going to come from? How do you ensure an equitable capital contribution from the condominium association members? Will the condominium association members have enough capital to put up that is separate from their operating capital and reserve funds?

2. Captive insurance is a self-insurance policy. There must be capital available in reserve to pay out claims. The captive insurance members are betting on their own risk management strategies to avoid potential losses or claims. Should the captive insurer underestimate their protection level, there may not be enough funds available to pay out claims The capital level must be sufficient to absorb losses or claim payments, investment, and operational risks to avoid bankruptcy.

3 The captive insurer will need to select a program administrator to handle the daily operations and responsibilities of policy administration, underwriting and claims handling

4 Increased risk and volatility To further distribute risk, the captive insurer has the option to work with a reinsurer to pool premiums with other captive insurers which may mitigate some of these risks However, the reinsurance market acts more swiftly than the traditional insurance market in the event of adverse experience. Since the reinsurance market tends to be experience rated (premiums closely reflect the loss history of the insured), a reinsured risk of a captive insurer might face premium increases sooner than a traditionally insured risk.

BILLS THAT DID NOT PASS

Bills referenced in this section reflect persistent lobbying by people dedicated to bringing about the end of association self-governance. The task forces created pursuant to HB 1509 HD2 SD1 CD1 are the result of their efforts

Those advocates want minority rule and government control of private housing. Most of all, they want power that eludes them through a democratic process

Their strategy is to repeat a narrative. The narrative is that boards elected by owners are incompetent and corrupt. In this view, property managers and attorneys who serve associations place self-interest above client interests This narrative is repeated year after year, by essentially the same people.

Never mind that scientifically valid surveys conducted by CAI demonstrate that only a small, hard-core, minority of owners view associations in that negative light. As CAI notes:

The results are in!

For the eighth time in 15 years, Americans living in homeowners associations, condominiums, and housing cooperatives say they’re overwhelmingly satisfied in their communities:

89% of residents rate their overall community association experience as very good or good (70%) or neutral (19%) *

89% say members of their elected governing board “absolutely” or “for the most part” serve the best interests of their communities *

74% say their community managers provide value and support to residents and their associations.

94% say their association’s rules protect and enhance property values (71%) or have a neutral effect (23%); only 4% say the rules harm property values.*

Results from almost identical national surveys conducted in 2005, 2007, 2009, 2012, 2014, 2016, 2018, and 2020 are strikingly consistent, except 2020 saw an increase in three areas compared to 2018: overall experience, the role of the board, and perception of rules. Other results rarely vary a standard margin of error for national, demographically representative surveys.

SB 1202 demonstrated the game. It provided, with respect to condominium elections, that:

(e) A quorum shall not be required to hold the election; provided that the election shall not be valid unless at least twenty per cent of the

eligible unit owners cast ballots

(Bold added) Minority rule is the express goal of those who seek to dismantle the entire framework of association governance that exists in the contracts that govern every association An essential component of the effort to alter established structures of governance is to prohibit owners from proxy voting. At least five bills in 2023 would have prohibited or restricted proxy voting: (HB 176, HB 377, HB 1298, SB 584 and SB 1512)

The effort to create government control of private housing has had various iterations over the years The so-called “condo court” failed to deliver useful results A bill to create a “condominium czar” did not pass in 2016. A bill to create the same thing, but called the “complaints and enforcement officer,” did not pass in 2017. A similar concept this year is reflected in two bills (HB 178 and HB 1501) to create an ombudsman

The point is simply that it is essential for you to inform your legislators if you support association self-governance, because the right to elect your own representatives and to make decisions without government interference may be lost if you do not. A variety of other bills that were introduced did not pass.

For example, SB 988 would have required condominiums to purchase earthquake insurance. It did not get a hearing; but it illustrates that ideas for spending condominium owners’ money are often presented during legislative sessions Those ideas sometimes exist in tension with the sometimesexpressed legislative desire that maintenance fees be kept low.

IT IS EASY TO SUBMIT TESTIMONY

Questions about what are decisions to be made by owners versus what decisions are to be made for owners by legislators arise on a more or less annual basis All the more reason to let your elected representatives know your views.

The way to find contact information for your legislators is through this link:

https://www capitol hawaii gov/fyl/

The way to testify on legislation is to register online through this link:

https://www.capitol.hawaii.gov/account/register.asp x The required information is your name, email address and a password you create to access the account.

If easier, simply type “Hawaii Legislature” into a search engine. The website is easy to navigate

Click “Submit Testimony” under the “Participate” heading. Enter a bill number on the next page.

Testimony can be as simple as clicking “Support” or “Oppose” on the testimony page.

If desired, comments can be provided in a dialog box. The option to upload a pdf file of testimony is also available

Legislators take testimony into account, so minimal effort can pay significant dividends. Please testify.

CLOSING

In closing, thank you for taking the time to consider the information and perspectives shared today. We hope it has been useful to you

Please take note of the advertisers who support LAC’s mission. We are grateful for their participation and ask that you keep them in mind.

Challenges to Condominium Self-Governance

This article was first published in the November 2017 issue of the Hawaii Bar Journal

Condominiums have traditionally been selfgoverning. Recently, however, there have been legislative efforts to subject condominiums to direct operational control by government.

Advocates for executive branch control promoted substantially identical bills in 2016 (HB 1802) and 2017 (HB 35) The “Office of Self-Governance Oversight” was proposed in 2016 The office was to be headed by the “condominium czar ”

The same concept was repackaged as the “Office of Condominium Complaints and Enforcement” in 2017 The office was to be headed by the “complaints and enforcement officer ”

Those bills did not become law Still, the interest in having a government employee regulate the specific functions of condominiums is significant

Both bills were premised on essentially the same proposed “finding.” As framed in HB 35:

The legislature finds that while condominium selfgovernance has been successful in the State, there have been abuses as evidenced by the actions of certain condominium boards The legislature also finds that a central enforcement body is needed to address the problems faced by many condominium owners who sometimes fear retribution from certain board members when challenging their governance.

There were 160,854 condominium units (aka apartments) within 1,693 registered condominium associations as of June 30, 2015;1 so it is possible to imagine that abuses have occurred. The more interesting question is whether direct governmental control of approximately 29 percent of the housing units in the state2 would be appropriate Condominium units are private (and not public) housing

Nonetheless, “condominiums are creatures of statute.”3 As noted in the Real Estate Commission’s (“Commission”) 2003 Final Report to the Legislature

(“Final Report”) concerning recodification of condominium law, “condominium property regimes law is essentially an enabling law,” that: 1) allows the condominium form of ownership, 2) protects purchasers through adequate disclosures; and 3) allows for management of the ongoing affairs of the condominium community.4

The first Hawaii statute enabling the condominium form of ownership was passed in 1961, more than half a century ago.5 A premise of that form of ownership is that each condominium unit is a separate parcel of real estate that is separately taxed 6

“Condominium” means real estate, portions of which are designated for separate ownership and the remainder of which is designated for common ownership solely by the owners of those portions. Real estate is not a condominium unless the undivided interests in the common elements are vested in the unit owners.7

Condominium projects entering the market must be registered with the Commission 8 Disclosures about the project are part of the registration process 9

Purchasers, therefore, have an opportunity to understand that they are purchasing something quite different from a single-family dwelling An u n d e r s t a n

I. The structure of condominium governance

Condominium governance is structured by statute That structure begins with unit owners The owners of all the units form an association 10 The prime function of the association is to elect a board of directors (“Board”), and certain major decisions set forth in statute and in the association’s governing documents are also reserved to the association. 11 The governing documents are the declaration of condominium property regime (“Declaration”), the condominium map, By-laws and house rules. A condominium is created by the recordation of a Declaration. The land and improvements comprising the condominium are described in the condominium map. By-laws and house rules add operational detail to the governance structure.

The powers and duties of the Board are substantial.

§514B-106 Board; powers and duties. (a) Except as provided in the declaration, the bylaws, subsection (b), or other provisions of this chapter, the board may act in all instances on behalf of the association In the performance of their duties, officers and members of the board shall owe the association a fiduciary duty

and exercise the degree of care and loyalty required of an officer or director of a corporation organized under chapter 414D

Board power is limited by statute, by provisions of the governing documents, and by the owners ’ power to remove directors who perform poorly. Otherwise, the Board governs the association.

Legal and political restraints on director behavior are significant. Some owners consider such restraints to be inadequate though due to the financial and personal impacts that can result from the exercise of Board power.

Questions of power and control are at the heart of the differing perspectives regarding the sufficiency of existing condominium governance structures There is no doubt that personal autonomy is burdened in the condominium setting; so those valuing personal autonomy over the benefits of condominium living

It appears to us that inherent in the condominium concept is the principle that to promote the health, happiness, and peace of mind of the majority of the unit owners since they are living in such close proximity and using facilities in common, each unit owner must give up a certain degree of freedom of choice which he might otherwise enjoy in separate, privately owned property. Condominium unit owners comprise a little democratic sub society of necessity more restrictive as it pertains to use of condominium property than may be existent outside the condominium organization.

Hidden Harbour Estates, Inc. v. Norman, 309 So.2d 180, 182 (Fla. App. 1975). The premise of majority rule is recognized in that often-cited formulation. Legislation passed in 2000 resulted in a comprehensive review of Hawaii condominium law. R e v i e w w a s i n d i c a t e d b e c a u s e t h e l e g i s l a t u r e f o u n d t h a t :

Those who live and work with the law report that the condominium property regimes law is unorganized, inconsistent, and obsolete in some areas, and micromanages condominium associations

The law is also overly regulatory, hinders development, and ignores technological changes and the present-day development process However, the desire to modernize the law must be balanced by the need to protect the public and to allow the condominium community to govern itself

Act 213 (2000). The review task was performed by an appointed committee of stakeholders with competing interests The resulting Final Report was accompanied by proposed draft legislation.

The draft legislation was influenced by numerous sources and authorities These include the 1980 Uniform Condominium Act, the 1994 Uniform Common Interest Ownership Act, the Restatement (Third) of Property: Servitudes (Am Law Inst 2000), then-current Hawaii law, the condominium law of other jurisdictions, and public input 12

The legislature thereafter enacted Chapter 514B of the Hawaii Revised Statutes (“Haw. Rev. Stat.”) effective in 2006 Complaints about condominium governance have continued unabated since then

The legislature did not repeal the prior condominium law (Chapter 514A) until 2017 Repeal will become effective on January 1, 2019, leaving certain developers additional time to bring projects approved under prior law to market

Chapter 514B has controlled most aspects of condominium governance since it became effective, and Chapter 514A has largely been a dead letter since then

Some amount of study has nonetheless been necessary to achieve a proper understanding of what law applies in what circumstance.

The simple fact that a condominium home is not a castle is central to the debate over self-governance. Common expectations about the level of autonomy and self-determination that should accompany home ownership may go unmet in the condominium setting. Worse yet, condominium ownership means being involved in a substantial economic enterprise in common with strangers who may come and go at will.

The members of a condominium association form a secondary group, in sociological terms, suggesting one that is largely impersonal and transactional. Regulation of such groups tends to be more formal and structured than in primary groups, which tend to be regulated by deep, enduring interpersonal bonds and shared culture.13

And yet, individual owners want liberty One owner ’ s expression of liberty, though, sometimes sharply conflicts with some other owner ’ s liberty interest One owner ’ s political and/or social values may be abhorrent to another owner. Nonetheless,

condominium owners are stuck together all the same, whether they like it or not.

II. The governance tasks to be performed

Conspicuous governance tasks include budgeting for maintenance and repair, overseeing the use of the condominium project, and general administration Each of these tasks present challenges relevant to the debate over self-governance

A Budgeting for maintenance and repair

As noted above, portions of condominium property, known as common elements, are held in common by unit owners The maintenance and repair of these common elements is an operational aspect of condominium governance The whole association must sustain the building or buildings in which the individually owned units exist and the grounds on which the condominium is located. Owners, by contrast, are individually obligated to maintain and to repair their respective units.

The maintenance and repair of the common elements entails expense. Common expenses are assessed to unit owners through the budgeting process. Owners are each assigned a percentage of the common expense “in proportion to the common interest appurtenant to their respective units, except as otherwise provided in the declaration or bylaws ”14

“‘Common interest’ means the percentage of undivided interest in the common elements appurtenant to each unit, as expressed in the declaration, and any specified percentage of the common interest means such percentage of the undivided interests in the aggregate ”15 The aggregated common interests total 100 percent and the percentages of common interest assigned to specific units correspond to a prescribed scheme such as one based on unit size Owners of larger units typically pay a greater portion of the common expenses than smaller units do, because the percentage of common interest allocated to a larger unit is usually greater than the percentage allocated to a smaller unit.

An operating budget must be adopted at least annually and made available to unit owners.16 Some of the budget components, such as insurance, are prescribed by statute.17 Other budget components may depend on the features and amenities of a given condominium.

Board members owe a fiduciary duty to the association; so they cannot in good faith satisfy the

desire to limit assessments by keeping maintenance fees artificially low The assessment of adequate replacement reserves, for example, is mandated by statute 18

Deferred maintenance can prove to be unwise in all events Many industry professionals can recite examples of how something like the failure to paint a building or to repair concrete spalling at an early stage has led to substantially increased costs when the work is finally performed.

B. Overseeing use of the condominium project

The use of a condominium project affects quality of life issues. The resale value of units may also be affected by how the project is used.

An association’s Declaration and By-laws provide a basic structure for use of the project. House rules can also be adopted to further regulate use of the common elements. The use of house rules to regulate behavior within units is limited by statute 19 In practical effect, that limited power often relates to preventing nuisances

C. General administration

General administration is used herein to signify a broad array of tasks. Maintenance fees must be collected, books and records must be kept, contracts must be negotiated, and there must be a focal point for attending to ordinary and extraordinary events affecting the condominium. The Board performs these tasks

Board officers are chosen by, and serve at the pleasure of, the Board The President, Vice-President, Secretary, and Treasurer have assigned duties Directors who are not officers only have a specific governance role during meetings or as assigned by the Board

Most Boards are aided in governing the condominium by professional managing agents, serving as independent contractors Managing agents add a significant layer of administrative support to a condominium. In particular, some functions of the offices of Secretary and Treasurer are often performed by the managing agent.

“Every managing agent shall be considered a fiduciary with respect to any property managed by that managing agent.”20 Managing agents must be licensed real estate brokers, register with the Commission, and carry a fidelity bond.

Property managers working for the managing agent need not be brokers themselves, but they often hold professional credentials supplied by industry. The Community Associations Institute (“CAI”) enables

property managers to earn various designations, for example, including its top designation of Professional Community Association Manager

Resident managers are employees who provide dayto-day operational support for the condominium Resident managers commonly interact with owners and vendors They may perform or supervise maintenance work and/or attend to other duties. Duties may vary significantly depending on the needs of the condominium.

Much of the administrative load associated with condominium governance is handled by Boards with the support of managing agents. Resident managers round out the administrative team.

III. The fiduciary duty

Board members are fiduciaries. This is stated in Haw. Rev. Stat. § 514B-106(a), and standards applicable to officers and directors of non-profit corporations are incorporated therein by reference Based on Act 87 (2017), condominium directors (see Haw Rev Stat § 414D-149) and officers (see Haw Rev Stat § 414D-155) must discharge their respective duties: 1) in good faith; 2) consistent with the duty of loyalty; 3) with ordinary care; and 4) in the best interests of the condominium association These requirements apply as a matter of condominium law, regardless of whether the condominium association is incorporated, and are consistent with common law requirements

Unpaid volunteer Board members who serve faithfully are protected from personal liability by statute, and grossly negligent Board members are not.21 In addition, condominium By-laws generally provide for the indemnification of Board members. Well-written indemnification provisions grant indemnification except in the events of gross negligence and willful misconduct. Directors’ and officers’ insurance further reduces the risk of service.

Service on a condominium Board entails at least some irreducible legal risk. That risk may not always be appreciated and can come as a surprise Risk sometimes stems from resentment by owners who expect to live in their homes free from external control

IV. The meaning of home

The importance of home to identity is easy to appreciate It has been said that home is where the heart is More philosophically, the establishment of a home has been described as “at the heart of the real ”22 The balance of power in a home, then, may be intensely

felt and meaningful to many

V. The balance of power

Advocates of government control rightly note that there are power imbalances in condominium governance Broad power is vested in the Board, subject to meeting the standard of a fiduciary

The system of electing representatives to govern a broader populace is familiar in America. That system is in effect at the municipal, state, and federal levels.

Elected officials do not, in that larger sphere, always receive the votes of all voters or enact policies favored by all. Elected officials have power all the same.

The power to elect and to remove Board members is held by condominium owners. Choosing wisely and monitoring the performance of Board members enables the reflection of majority preferences in condominium governance.

The power to remove directors is an important check on Board power. The decision to remove a director need not be for cause or even be rational It need only be supported by owners holding more than fifty percent of the common interest.23

The power to amend the governing documents is also held by the owners. Under Chapter 514B, most Declaration and By-laws provisions can be amended with the approval of owners holding at least sixtyseven percent of the common interest.24 Law and public policy seem to supply the only limits on what amendments can be made.25

The nature of condominium governance is further reflected in the fact that Board members owe a fiduciary duty to the association rather than to individual owners The membership of an association consists of unit owners, but the association itself is more than the sum of its parts The association has separate legal existence, regardless of whether it is incorporated or unincorporated 26

External control is a feature of condominium ownership that differs markedly from the ownership of other real property Discrepancies between the expectations of owners and the reality of condominium ownership can lead to conflict in some situations

VI. Conflict in condominiums

The sources of conflict in condominiums are manifold. Some conflict is simply explained, because conflict appears to be endemic to human society

A complaint about condominium governance, therefore, may really be about something else It is important to distinguish between real governance

issues and issues that simply become manifest in the condominium setting.

For example, some conflict is interpersonal

Owner A dislikes owner B

Some conflict is intrapersonal. Financial and/or personal stressors can overwhelm a person ’ s normal coping mechanisms. Also, the National Institute of Mental Health reported for 2015 that 17 9 percent of all U.S. adults experienced a diagnosable mental illness within the previous year.27

Problems of governance can arise when interpersonal or intrapersonal conflicts become manifest in the condominium setting. This is not necessarily because of a clear nexus to some Board power or duty

Some claims of abuse of power stem from dissatisfaction with a Board’s response to an owner ’ s demand That is, a dissatisfied owner may either perceive Board action or inaction to be abusive, in and of itself, or an unsatisfactory experience may become a catalyst for challenging subsequent Board action. There are many points of potential friction in the condominium setting, some of which may be inevitable regardless of what governing authority is in place

VII. The abuse of power

The real thrust of the case against self-governance is the allegation of serious malfeasance reflected in HB 35. In this view, Boards are venal. Board members oppress owners and retaliate against those who exercise their rights. Owners must live in fear.

The HB 35 finding (quoted above) was not the result of study, however The extent of the alleged abuse was unquantified, and that finding was not supported by empirical data.

That is unfortunate, because empirical data is available. CAI has commissioned scientifically valid national surveys of satisfaction with association living in 2005, 2007, 2009, 2012, 2014, and 2016 28 Those surveys have found that: “By large majorities, most residents rate their overall community experience as positive or, at worst, neutral ” 29 The range of those who have reported negative perspectives in those surveys, from 2005 to 2016, was 8 percent to 12 percent This is consistent with CAI survey results for Hawaii. A total of “87% of residents rate their community association experience as positive (65%) or neutral (22%) ”30

CAI issued a Statement of Survey Integrity following what it termed “inaccurate statements” by an entity that developed different findings through an on-line self-report survey. CAI argued that its polling

was conducted scientifically and that the competing findings lacked scientific validity.31

The prevalence of abuse of power by Boards has yet to be established There is an objective basis for suggesting that only a small percentage of owners perceive Boards to be abusive.

There is also a question as to whether abuse of power would be eliminated by appointment of a government official to serve as “condominium czar. ” According to the FBI, “it is estimated that public corruption costs the U.S. government and the public billions of dollars each year.”32

Power might be abused in various ways, by whomever is in charge. For example, money might be stolen. Bribes might be taken. Pet projects might be approved. Elections might be rigged. Mandates contained in law and the governing documents might be ignored.

A. Crime

Theft and bribery are crimes. Criminal law is an available remedy to address alleged crime in condominium governance

The handling and the disbursement of association funds are directed by statute Also, “Any person who embezzles or knowingly misapplies association funds received by a managing agent or association shall be guilty of a class C felony ” 33 When a management company executive stole association funds several years ago, she was prosecuted and the funds were repaid 34

Owners are entitled to receive an annual audited financial statement,35 as an aid to transparency Owners are also entitled to a wide variety of financial, and other, documents of the association 36

Managing agents, being licensed real estate brokers, are subject to discipline by the Regulated Industries Complaints Office Violation of Chapter 514B can subject a licensee to disciplinary action;37 so administrative remedies are also available to facilitate transparency.

B Pet projects

Board approval of someone ’ s pet project means that at least a majority of a quorum of the Board supported the project. If that seems abusive, the political process itself is available to check moves in an unpopular direction, even in the absence of a specific violation of law or of the governing documents.

Owners have input into Board conduct Owners can attend and participate in Board meetings.

Executive sessions are allowed only for prescribed reasons.38

Board conduct that breaches fiduciary duty is an abuse of power. Board conduct that is merely unpopular with a minority of owners is not. The adage that elections have consequences applies to condominiums.

C. Election rigging

“But the election was rigged!” A common complaint is that the election is allegedly rigged because proxy voting is authorized by statute and Boards often hold many owner proxies

Owners choose whether to give a proxy They can choose to ignore the meeting or attend it and vote in person instead Owners also choose the proxy holder if a proxy is given

Standard proxy forms authorized by the association must contain boxes indicating whether the proxy is to be used for quorum purposes only, given to a named individual, or given to the Board Owners giving a proxy to a Board can further choose that the proxy be voted based on the preference of the majority of the directors present at the meeting or, alternatively, voted by each director receiving an equal share of the proxy.39

A Board that intends to use common funds to solicit proxies must post notice of the intent to do so at least 21 days before making the solicitation and must then include the solicitations or statements of owners who timely request to be included. Board members seeking proxies individually are bound by the same limitations as other owners 40 Owners are also free to solicit proxies at personal expense and they are entitled to request a list of owners for the purpose

It is true that political action requires the investment of time, effort and money Owners who want change must mount a campaign

The argument that owners should not be allowed to give proxies to incumbents has been made to, but not adopted by, the legislature Owners are free to consciously support or to passively accept the choices made by incumbents

Some claims of vote rigging, then, merely reflect the frustration of those who have lost elections.

The legitimate question is whether condominium elections have integrity Condominium vote fraud is possible. It is not probable.

Votes are usually tallied in the open by tally clerks employed by the managing agent The tally clerks are usually watched by election tellers who are association

members It is the tellers who certify the election results.

Association members are entitled to examine proxies, tally sheets, ballots, owner check-in lists, and the certificate of election after the meeting at which the election takes place so that challenges can be made.41 Examination requests are not uncommon, particularly at projects that are politically divided.

D General misconduct

There can still be the matter of a Board’s general failure, negligence or refusal to comply with legal or contractual requirements Board members who breach fiduciary duty run risks because Chapter 514B expressly provides that “[a]ny right or obligation declared by this chapter is enforceable by judicial proceeding.”42

VIII. Remedies for the abuse of power

A fundamental aspect of the critique of selfgovernance is that the remedies for the abuse of power are inadequate Boards have money, power, and counsel. Owners must pursue remedies at personal expense and risk.

The condominium czar model would be one in which owners need only complain to government. Government would investigate, advocate for the complainant, and adjudicate outcomes

There is an obvious question about whether government should choose sides in a civil dispute involving privately owned real estate Another obvious question is whether government should both advocate for one side to the dispute and adjudicate the outcome as well

Remedies do exist under current law. In addition to criminal and administrative remedies to vindicate the rights of the public, available private remedies include mediation, arbitration, litigation, and taking political action.

A. Mediation

Condominium law mandates the mediation of most condominium disputes, upon request.43 The cost of professional mediation services is subsidized44 because of an industry-sponsored initiative.

Moreover, subsidized mediation is intended to be evaluative Thus, the mediator can do more than facilitate process The mediator can provide guidance

One complaint about mediation is that Boards bring counsel Fiduciary duty generally obliges a condominium Board to address legal disputes through

counsel Nothing prevents owners from bringing counsel to mediation, apart from the cost of doing so

Mediation is an affordable and available nonbinding alternative dispute resolution mechanism The frankly evaluative nature of subsidized condominium mediation is such that even unrepresented parties may benefit from participation

B. Arbitration

Condominium law also mandates the arbitration of most condominium disputes, upon request.45

Condominium arbitration awards can be rejected in favor of trial de novo, but the party who rejects the award and does not then prevail at trial will be assessed the fees and costs of the trial.46 There is, therefore, a significant incentive to accept the arbitration award.

C Litigation

Grievances can always be presented to the courts

As with the exercise of civil remedies in other contexts, litigating condominium claims requires effort, takes time, and costs money The prevailing party in a condominium dispute is entitled to reasonable attorneys’ fees and costs; so owners with meritorious claims should be able to retain counsel 47 Of course, the owner must be able to afford counsel in the first instance and must bear the risk of loss

D. Political action

The removal of offending directors and the election of new directors can remedy abuses of power. This remedy requires political action.

IX. The missing piece

The piece that is perceived to be missing in the remedial scheme is a remedy that does not entail risk or effort.

That missing piece must be understood to relate solely to the exercise of private civil remedies regarding privately owned real property, because the Commission already has substantial statutory and rulemaking authority to vindicate the public interest 48 Laws of general application can be passed during annual legislative sessions as well

It is the private grievances of individual condominium owners that owners must pursue on their own The justification for government action in favor of one party to a private condominium dispute has yet to be established

X. Recent legislative action

Legislative action in 2017 included targeted responses to several specific complaints about condominium governance The repeal of Chapter 514A has already been noted

Act 190 prohibits retaliation against persons who act lawfully to address, prevent or stop a violation of Chapter 514B or an association’s governing documents. State district courts have jurisdiction over this new cause of action and may enjoin retaliatory conduct, award damages, or grant other relief that the court deems to be appropriate. As defined in Act 190:

“Retaliate” means to take any action that is not made in good faith and is unsupported by the association’s governing documents or applicable law and that is intended to, or has the effect of, being prejudicial in the exercise or enjoyment of any person ’ s substantial rights under this chapter or the association’s governing documents

The cause of action works both ways Board members and others who retaliate against owners are at risk Owners who retaliate against Board members and others are also at risk

Act 81 addresses multiple concerns The concern that some Boards might resist participation in mandatory mediation or arbitration is addressed by providing that such resistance may be deemed to be a breach of fiduciary duty The adoption of owner participation rules for Board meetings is provided for to ensure that owners can participate in deliberations and discussions of Board business. Agendas must now include expected items of business. An affirmative vote, rather than mere “approval,” is required to go into executive session. Draft minutes must be available within thirty rather than sixty days.

Act 71 provides (among other things) for the disclosure of an on-site manager ’ s contract. The redaction of certain personal information is allowed. This resolves tension between the call for disclosure and the employee’s right to privacy.

XI. Democracy versus autocracy

There is a reasonable basis for suggesting that condominium self-governance is viable Hawaii condominiums have governed themselves for more than half a century, and the condominium form of ownership has steadily grown over that period 49

Even so, the number of unhappy condominium owners may increase as more condominiums are built, regardless of whether the percentage of unhappy

owners remains relatively constant The condominium czar proposal is an indication that the mass of unhappy owners has become politically significant

To do the greatest good for the greatest number of people, though, legislators may wish to base policy on objective facts discerned through reasonable and responsible investigation involving all stakeholders in an open process. That is how Chapter 514B was developed. No comparable process has been proposed to undo condominium self-governance.

1 State of Hawaii, Dep’t. of Bus., Econ. Dev. & Tourism, State of Hawaii Data Book 2016 (“Data Book”), Table 21 10, (http://dbedt hawaii gov/economic/databook/)

2 Compare id with Data Book Table 21 20

3 Lee v Puamana Community Association, 109 Hawaii 561, 128 P 3d 874, 888 (2006)

4 Final Report at 5

5 Id at 1

6 Haw. Rev. Stat. § 514B-4.

7 Haw. Rev. Stat. § 514B-3.

8 Haw Rev Stat § 514B-51

9 Haw Rev Stat § 514B-82

10 Haw Rev Stat § 514B-102(b)

11 Haw Rev Stat §§ 514B-105 and 514B-106

12 Final Report at 7-8

13 Jasmine Martirossian, Decision Making in Communities, 3, (Debra H Lewin, ed 2001)

14 Haw. Rev. Stat. § 514B-41(a).

15 Haw. Rev. Stat. § 514B-3.

16 Haw Rev Stat §§ 514B-144(a) and 514B-106(c)

17 Haw Rev Stat § 514B-143

18 Haw Rev Stat § 514B-148

19 Haw Rev Stat § 514B-105

20 Haw Rev Stat § 514B-132(c)

21 See, e g , Haw Rev Stat § 414D-149

22 John Berger, And Our Faces, My Heart, Brief as Photos, 51, (1st Vintage International ed. 1984).

23 Haw. Rev. Stat. § 514B-106(f).

24 Haw Rev Stat § 514B-32 (Declaration) and § 514B-108 (Bylaws)

25 Lee, 128 P 3d at 883-4

26 Haw Rev Stat § 414D-52 and §429-4

27 Any Mental Illness (AMI) Among U S Adults, https://www nimh nih gov/health/statistics/prevalence/anymental-illness-ami-among-us-adults shtml (last visited September 9, 2017).

28 How Sweet HOA: A survey of satisfaction of community association living Statement of Survey Integrity CAI (“Statement of Survey Integrity”)

29 https://foundation caionline org/wpcontent/uploads/2017/06/2016NationalHomeownerSurvey pdf (last visited September 9, 2017)

30 Hawaii Community Associations facts & figures, CAI, https://www caionline org/Advocacy/Resources/Pages/StateFacts-Figures.aspx (last visited September 9, 2017).

31 Statement of Survey Integrity.

32 Public Corruption, https://www fbi gov/investigate/public-

corruption (last visited September 9, 2017).

33 Haw. Rev. Stat. § 514B-149(f).

34 See eCourt Kokua case ID 1PC151000250, http://jimspss1 courts state hi us:8080/eCourt/ECC/CaseSearch iface (last visited September 9, 2017)

35 Haw Rev Stat § 514B-150

36 Haw Rev Stat § 514B-154 5

37 Haw Rev Stat § 467-14

38 Haw Rev Stat § 514B-125

39 Haw. Rev. Stat. § 514B-123.

40 Id.

41 Haw. Rev. Stat. § 514B-154.

42 Haw Rev Stat § 514B-10(c)

43 Haw Rev Stat § 514B-161

44 Haw Rev Stat § 514B-72

45 Haw Rev Stat § 514B-162

46 Haw Rev Stat § 514B-163

47 Haw Rev Stat § 514B-157

48 Haw. Rev. Stat. §§ 514B-65 to 514B-69.

49 Table 21.10, Data Book.