Attorney and President of the Council of Association of Apartment Owners Jane Sugimura joins producer/host Coralie Chun Matayoshi to discuss rights and responsibilities of condominium owners, proxy voting, legal fees charged to owners, maintenance costs and special assessments, and compliance with the City & County of Honolulu’s fire safety ordinance.
With median prices for a single-family home at over $1 million, many homeowners are settling for a condominium at half the price. In fact, one in three Hawaii residents live in community settings like condos, planned developments or co-ops. According to the Hawaii Department of Commerce and Consumer Affairs, there were 1,826 condo associations representing 173,036 units in 2021.
Q. Condo associations are governed by a volunteer Board of Directors. How are they chosen and what is their role?
The Declaration of Condominium Regime creates the condominium (e.g. identifies the land, size, number of units, describes the common elements) and provides that the elected Board of Directors is responsible for the management and administration of the association including the repair, maintenance and replacement of common elements. The Board is usually required to hire a managing agent like Hawaiiana Management, Associa, and Touchstone to handle the day-to-day operations of the condo and the Board sets policy and exercises oversight of the managing agent.
Board members need to remember that they have to act collectively as a body and not separately and they should not be involved in the day-to-day operations of the condominium because that is not a function or a duty of a board member. Any acts or omissions that occur while they are so involved may likely not be covered by the association’s Directors & Officers insurance coverage.
Q. What are some of the most important rights and responsibilities of condo owners?
Owners’ rights: owners elect their own Board members and should vote for people who will work and make decisions for the community as a whole – not someone with a private agenda. Owners should be familiar with their governing documents (i.e., the Declaration, Bylaws and House Rules) to ensure that the Board is doing its job.
Owners’ obligations: a condominium is a collective community and everyone gives up some of their individual rights to live in a condominium community so they need to try to get along. Owners need to pay their maintenance fees and comply with all rules and regulations – and if the rules and regulations are not working, owners need to bring that to the attention of the Board with suggestions on how to change them so that they will be effective and helpful to the community.
Q. There is a standard bylaw provision that allows condo owners to give their proxy votes to the Board as a whole. Some argue that proxy voting favors incumbents and allows the Board to control the election. Legislation to get rid of proxy voting and allow only in-person voting has failed to pass. Why is that?
The bills you are referring to seek to eliminate a standard proxy provision that would prevent an owner from giving his or her proxy to the board as a whole (HB 377, SB 584) and this is viewed by many as an unfair limitation of their choices. Many owners and all Boards believe that an owner should have the choice to give his or her proxy to the Board.
Q. What about the idea of creating an “Ombudsman” within the Department of Commerce and Consumer Affairs (DCCA) to hear and determine condo disputes?
In 2004-05, the Legislature established a Condo Court within the DCCA presided over by a hearings officer. Condo Owners and Association of Apartment Owners (AOAO) boards could raise their concerns before a hearings officer and they would get a response, but the decision was “appealable” to the Circuit Court and many of the decisions were appealed. Condo Court was in effect for 2 years (1-year trial with 1-year extension) but due to general dissatisfaction by all parties, the program was not extended. Under current law, parties are required to mediate their disputes and there is a fund regulated by the DCCA that will subsidize the professional mediators used in mediation.
Sugimura believes that a better solution is for lawmakers to pass a measure requiring association board officers to undergo training, so they understand their responsibilities. Those include not only the duty to be transparent with condo owners but also their fiduciary duties as directors.
Act 149 (SB 149) was signed into law this year which requires the Real Estate Commission to develop a curriculum for leadership training for condo board members.The Commission will be holding hearings and seeking input from stakeholders as to what topics should be included in the curriculum for condo board training. Development of a curriculum for board training will be helpful to Community Associations Institute (CAI), Hawaii Council of Community Associations (HCCA) and the Real Estate Commission who already have annual board training programs for their respective constituent groups and that training can then be focused on the topics in the curriculum that is ultimately developed.
Act 189 (HB1509) was signed into law this year which requires DCCA to establish 2 task forces – one for planned community associations and a second one for condos. These are 2-year task forces. The planned community association task force will be reviewing the condo statute (HRS 514B) and selecting provisions in that statute that they would like to be enacted in the planned community association statute (HRS 421J), for example, subsidized mediation. The condo task force will be reviewing dispute resolution provisions to see how they can be improved.
Q. Concerns have been raised about legal fees charged to owners for notices of violation or for cease-and-desist notices. Can legislation be passed to limit legal fees charged to Owners for notices of violation? Why or why not?
Instead of placing a limitation on legal fees, I suggest legislation that requires the association, through its managing agent, to send the initial notices of violation or cease and desist notices to owners and residents and those letters should include a warning that if the owner/resident does not comply with the warning, the matter will be referred to counsel and they will be then be liable for payment of legal fees. In other words, mandate that the first notice of violation to owners/residents are not sent by an attorney and that that notice include a warning that any further non-compliance will result in the payment of legal fees. This would hopefully avoid or “minimize” the shock of legal fees since the original warning letter tells them that if they do not comply, the matter will be referred to counsel and they will be required to pay any legal fees incurred.
Q. Many people who bought condos are now elderly with fixed incomes, so they have trouble balancing their budgets when maintenance fees go up. Maintaining the property costs money, and that’s why individual condo owners are charged maintenance fees. How are these fees set?
Condos have 2 budgets: operating budget and reserve budget:
- Operating budget is what is takes to operate the condo on an annual basis. Boards are provided with the spreadsheet of all of the costs from the previous year and a list of adjustments (i.e., increases from the Board of Water Supply, HECO, vendors, wages, benefits, insurance coverage).
- Reserve budget is based on a reserve study that provides information on what the condo needs to collect to pay for deferred maintenance to avoid a special assessment and minimize big spikes in maintenance fee increases. The total budget is allocated among the units in the condo to determine the maintenance fee increase necessary to pay the bills for the coming year.
Budget meetings begin in late summer because the Board needs to report to the owners any maintenance fee increase 30 days in advance (i.e.,12/1 for the following year).
Brand new condos – the developer estimates initial maintenance fees, then the condo association Board sets fees once the building is handed over to the owners.
Many board members feel that they need to keep maintenance fees low, so they are affordable. The danger of keeping maintenance fees too low is that when a big, expensive repair is needed, there is no money to pay for it. Given that buildings are getting older, and more things are failing and need to be fixed, keeping maintenance fees too low is not a good thing for the financial future of the building.
Q. Is there a requirement for condos to keep a reserve to help pay for emergency and long-term repairs and replacement costs?
Hawaii law (HRS 514B-146) requires associations to create and follow a budget and establish statutory replacement reserves. Associations must set aside some portion of the monthly maintenance fee for deferred maintenance based on a reserve study that the Board is required to do every 2-3 years. The reserve study lists every maintenance fee component (e.g. roof replacement, equipment replacement, spall repairs, building painting, replacement of pool furniture) and determines the useful life of each component and how much it will cost to replace that component and determines a schedule for the association as to what needs to be collected from each owner so that when it comes time to replace that component, there are funds available to pay for it without charging a “one time” special assessment or increasing maintenance fees
If prudent steps are taken to accumulate funds in a reserve account for deferred maintenance, then the Board would not have to levy a special assessment when big ticket items are anticipated, except in the case of unexpected emergencies. For example, several years ago, Pearlridge Garden and Towers was told by a consultant that its clay pipes were failing. The building was almost 40 years old, and clay pipes were thought to have a useful life of 75 years. There was no money in the reserves for this and it would cost several million dollars to replace the pies. The only way that the Association could fund the repairs was through a special assessment of several thousands of dollars to each unit owner or to get a loan.
Q. Six years ago, 4 people perished in the Marco Polo fire, and as a result, the City & County of Honolulu passed a fire-safety ordinance requiring all high-rise buildings over 10 stories (or 75 ft) with closed interior corridors to install fire sprinklers. Because of the high cost of retrofitting older condos with fire sprinklers, passing a life safety evaluation was deemed an acceptable alternative. What is the status of compliance with this ordinance?
As ofNovember 2022, 302 buildings were evaluated for fire safety under the 2018 law and only 21 met safety standards. As of July 2022, only one condo (the Marco Polo) had installed a sprinkler system and other condos have begun planning a retrofit.
In 2018, the City & County of Honolulu established a $2,000 property tax credit for owners who retrofitted their units. This year, Senate Bill 855/Act 199 became law which requires Oahu condo associations to include estimated costs for mandated fire safety protections in their budget if their building does not pass the safety inspection, and also requires associations to provide loan or special assessment options so that owners can plan for these costs.
The chief concern is the cost of retrofitting a fire-sprinkler system. The cost is in excess of $1 million, which means that the owners will have to pay special assessments. Some AOAO’s believe that upgrading their fire alarm systems, which is cheaper than installing fire sprinklers, is preferable and provides the building with comparable health and safety protection as fire sprinklers.
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Disclaimer: this material is intended for informational purposes only and does not constitute legal advice. The law varies by jurisdiction and is constantly changing. For legal advice, you should consult a lawyer that can apply the appropriate law to the facts in your case.