LEGAL
MATTERS |
JANE SUGIMURA
BEATING COVID-19
Condo Living in a Pandemic Legal issues for association boards abound under our new reality.
T
he COVID-19 pandemic that has affected Hawaii since mid-March has created huge challenges for condo residents, association boards of directors and the property management companies that manage the day-to-day operations of their projects. The governor and Neighbor Island mayors have issued their respective “social distancing” requirements or “stay-at-home, work-at-home” emergency orders, which have resulted in statewide school closures and business shutdowns (except for essential services), resulting in more residents staying in their units on a daily basis. Condominium staff and contractors provide “essential services.” The good news is that maintenance of residential condominiums is deemed to be “essential services” under the governor’s emergency orders. This means that condominium resident managers or site managers, condominium staff and contractors providing maintenance and security services to the project can continue to provide management, housekeeping, maintenance, groundskeeping and security services to condominium residents. Property management companies— Hawaiiana Management, Associa Hawaii, Hawaiian Properties, Touchstone—are deemed to be essential businesses, and continue to provide services to condominium boards and residents. Since most residents are staying in their units most of the day due to the emergency orders, the housekeeping and maintenance services are necessary and required to keep the buildings clean and sanitary, and to handle the disposal of increased amounts of rubbish that are accumulating. Most condominiums have closed their amenities—pools, basketball courts, tennis courts, fitness centers/ workout facilities and community meeting rooms—to comply with the governor’s “social distancing” requirements.
I have heard that a small condominium (less than 50 units) has established a registration and queuing system where residents can sign up to use an amenity and sign an indemnity/release in favor of the association. Cancellation of annual meetings and board meetings. The governor’s emergency orders were issued in midMarch—almost at the end of the annual meeting period for condominiums. As a result, many annual meetings were cancelled or rescheduled for a later date. Most condominiums have monthly board of director meetings, but many condos cancelled their March and April board meetings. Some boards continued to have their meetings via telephone conference calls or video conferencing. Maintenance fee delinquencies. As a result of the emergency order that caused the shutdown of many businesses including those in the state’s primary tourism industry, which resulted in thousands of lost jobs, associations were naturally concerned that the job loses would result in late charges and enforcement of late payments (dunning letters from the property managers or demand letters from attorneys), reduce the maintenance fees across the board until the pandemic is over or take a “wait-andsee” position to see how long it will take for the withdrawal of the emergency orders. Condominium associations are being advised to maintain administrative control over their maintenance fee issues and not to negotiate and/or approve payment plans for specific unit owners who are claiming economic distress. Approval of separate, multiple payment plan arrangements do not treat all owners equally, which may be a breach of the board’s fiduciary duty. Richard Emery, a vice president at Associa, says that condominiums should take a proactive approach in
dealing with possible maintenance fee delinquencies. He suggests: • Amend the annual budget to temporarily suspend reserve contributions, which will treat all owners equally and provide enough cash for the association to pay its regular monthly expenses. This immediately reduces maintenance fees for all owners and covers basic operating costs. The budget can be amended again in the future to restore reserve contributions when the economic reality is better understood. • Extend the payment grace period until the 20th of the month. • Borrow from the association’s reserve fund temporarily as permitted under HRS Chapter 514B to fund cash shortfalls. Interest earnings on these funds are low and will go lower. This plan provides immediate cash relief at the lowest cost to the association. • Defer any major capital expenses that can be delayed without damage to the project to preserve cash. • Ask banks to temporarily pay interest only on any loans. • After amending the budget, continue to charge late fees (boards can always waive them later). Otherwise, the associations will be put at the bottom of the owner’s payment list. Relax the period that delinquencies are referred to the attorney for formal collection. Condo associations should not expect the economy to resume at preCOVID-19 levels after the governor’s emergency orders are lifted. It will take time for the economy to recover. Remember that the COVID-19 pandemic is a worldwide phenomenon, and tourists in Asia, Europe and the U.S. Mainland will be in recovery mode to pay their own debts for a while before they will have funds for traveling. ❖ Jane Sugimura is a Honolulu attorney specializing in condo law. Reach her at ysugimura@paclawteam.com.
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