REPORT TITLE:
Condominiums


DESCRIPTION:
Allows associations of apartment owners to collect delinquent
maintenance fees directly from the tenant.  Allows associations
of apartment owners to foreclose liens for unpaid common expenses
by non-judicial or power of sale foreclosure procedures, as an
alternative to legal action.  Specifies when the purchaser of an
apartment at foreclosure becomes liable for common assessments.
Allows associations to terminate services and privileges to
apartments that are delinquent in payment of common assessments.
Specifies where an association of apartment owners may deposit or
hold its funds and how it may invest its funds.  (CD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        36
THE SENATE                              S.B. NO.           S.D. 2
TWENTIETH LEGISLATURE, 1999                                H.D. 1
STATE OF HAWAII                                            C.D. 1
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO CONDOMINIUMS. 


BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
 
 1      SECTION 1.  The legislature finds that associations of
 
 2 apartment owners are increasingly burdened by the costs and
 
 3 expenses connected with the collection of delinquent maintenance
 
 4 and other common expenses.
 
 5      The legislature further finds that the number of
 
 6 foreclosures in this State has greatly increased, and that
 
 7 associations of apartment owners are often required to bear an
 
 8 unfair share of the economic burden when purchasers in
 
 9 foreclosure actions exercise rights of ownership over purchased
 
10 apartments without paying their share of common maintenance fees
 
11 and assessments.
 
12      The legislature further finds that more frequently
 
13 associations of apartment owners are having to increase
 
14 maintenance fee assessments due to increasing delinquencies and
 
15 related enforcement expenses.  This places an unfair burden on
 
16 those non-delinquent apartment owners who must bear an unfair
 
17 share of the common expenses, and is particularly inequitable
 
18 when a delinquent owner is also an occupant who has benefited
 
19 from the common privileges and services.
 

 
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 1      The legislature further finds that there is a need for
 
 2 clarification regarding the authority of associations of
 
 3 apartment owners to use non-judicial and power of sale
 
 4 foreclosure procedures to enforce liens for unpaid common
 
 5 expenses.
 
 6      The legislature further finds that there is a need for
 
 7 clarification as to where associations of apartment owners may
 
 8 deposit or hold their funds, and how they may invest their funds.
 
 9      The purpose of this Act is to:
 
10      (1)  Allow associations of apartment owners to collect
 
11           delinquent maintenance and common expenses directly
 
12           from the tenant of a delinquent owner;
 
13      (2)  Clarify the law by specifying when a purchaser in a
 
14           foreclosure action becomes responsible for assessments
 
15           and maintenance fees;
 
16      (3)  Allow associations of apartment owners the alternative
 
17           remedy for collecting fees and expenses from delinquent
 
18           owner-occupants by withholding common privileges and
 
19           terminate common services to owner-occupied apartments
 
20           until the delinquent sums are paid;
 
21      (4)  Clarify that associations of apartment owners may
 
22           enforce liens for unpaid common expenses by non-
 
23           judicial and power of sale foreclosure procedures, as
 

 
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 1           an alternative to legal action;
 
 2      (5)  Specify where and in what types of investments
 
 3           associations of apartment owners may place their funds.
 
 4      SECTION 2.  Chapter 514A, Hawaii Revised Statutes, is
 
 5 amended by adding a new section to be appropriately designated
 
 6 and to read as follows:
 
 7      "�514A-     Collection from tenants.  (a)  If the owner of
 
 8 an apartment rents or leases the apartment and is in default for
 
 9 thirty days or more in the payment of the apartment's share of
 
10 the common expenses, the board of directors, for as long as the
 
11 default continues, may demand in writing and receive each month
 
12 from any tenant occupying the apartment, an amount sufficient to
 
13 pay all sums due from the apartment owner to the association,
 
14 including interest, if any, but the amount shall not exceed the
 
15 tenant's rent due each month.  The tenant's payment under this
 
16 section shall discharge that amount of payment from the tenant's
 
17 rent obligation, and any contractual provision to the contrary
 
18 shall be void as a matter of law.
 
19      (b)  Prior to taking any action under this section, the
 
20 board of directors shall give to the delinquent apartment owner
 
21 written notice of its intent to collect the rent owed.  The
 
22 notice shall:
 
23      (1)  Be sent both by first-class and certified mail;
 

 
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 1      (2)  Set forth the exact amount the association claims is
 
 2           due and owing by the apartment owner; and
 
 3      (3)  Indicate the intent of the board of directors to
 
 4           collect such amount from the rent, along with any other
 
 5           amounts that become due and remain unpaid.
 
 6      (c)  The apartment owner shall not take any retaliatory
 
 7 action against the tenant for payments made under this section.
 
 8      (d)  The payment of any portion of the apartment's share of
 
 9 common expenses by the tenant pursuant to a written demand by the
 
10 board is a complete defense, to the extent of the amount demanded
 
11 and paid by the tenant, in an action for nonpayment of rent
 
12 brought by the apartment owner against a tenant.
 
13      (e)  The board may not demand payment from the tenant
 
14 pursuant to this section if:
 
15           (1)  A commissioner or receiver has been appointed to
 
16                take charge of the premises pending a mortgage
 
17                foreclosure;
 
18           (2)  A mortgagee is in possession pending a mortgage
 
19                foreclosure; or
 
20           (3)  The tenant is served with a court order directing
 
21                payment to a third party.
 
22      (f)  In the event of any conflict between this section and
 
23 any provision of chapter 521, the conflict shall be resolved in
 

 
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 1 favor of this section; provided that if the tenant is entitled to
 
 2 an offset of rent under chapter 521, the tenant may deduct the
 
 3 offset from the amount due to the association, up to the limits
 
 4 stated in chapter 521.  Nothing herein precludes the apartment
 
 5 owner or tenant from seeking equitable relief from a court of
 
 6 competent jurisdiction or seeking a judicial determination of the
 
 7 amount owed.
 
 8      (g)  Before the board of directors may take the actions
 
 9 permitted under subsection (a), the board must adopt a written
 
10 policy providing for the actions and have the policy approved by
 
11 a majority vote of the apartment owners at an annual or special
 
12 meeting of the association or by the written consent of a
 
13 majority of the apartment owners."
 
14      SECTION 3.  Section 514A-82, Hawaii Revised Statutes, is
 
15 amended by amending subsection (b) to read as follows:
 
16      "(b)  In addition to the requirements of subsection (a), the
 
17 bylaws shall provide for:
 
18      (1)  The method of removal from office of directors; that at
 
19           any regular or special meeting of the apartment owners,
 
20           any one or more members of the board of directors may
 
21           be removed by the apartment owners and successors shall
 
22           then and there be elected for the remainder of the term
 
23           to fill the vacancies thus created.  The removal and
 

 
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 1           replacement shall be in accordance with all applicable
 
 2           requirements and procedures in the bylaws for the
 
 3           removal and replacement of directors, including, but
 
 4           not limited to, any provisions relating to cumulative
 
 5           voting.  If removal and replacement is to occur at a
 
 6           special association meeting, the call for the meeting
 
 7           shall be by the president or by a petition to the
 
 8           secretary or managing agent signed by not less than
 
 9           twenty-five per cent of the apartment owners as shown
 
10           in the association's record of ownership; and provided
 
11           further that if the secretary or managing agent shall
 
12           fail to send out the notices for the special meeting
 
13           within fourteen days of receipt of the petition, then
 
14           the petitioners shall have the authority to set the
 
15           time, date, and place for the special meeting and to
 
16           send out the notices for the special meeting in
 
17           accordance with the requirements of the bylaws.  Except
 
18           as otherwise provided herein, the meeting for the
 
19           removal and replacement from office of directors shall
 
20           be scheduled, noticed, and conducted in accordance with
 
21           the bylaws of the association.
 
22      (2)  The bylaws may be amended at any time by the vote or
 
23           written consent of sixty-five per cent of all apartment
 

 
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 1           owners; provided that each one of the particulars set
 
 2           forth in this section shall be embodied in the bylaws
 
 3           always; and provided further that any proposed bylaws
 
 4           with the rationale for the proposal may be submitted by
 
 5           the board of directors or by a volunteer apartment
 
 6           owners' committee.  If submitted by that committee, it
 
 7           shall be accompanied by a petition signed by not less
 
 8           than twenty-five per cent of the apartment owners as
 
 9           shown in the association's record of ownership.  The
 
10           proposed bylaws, rationale, and ballots for voting on
 
11           any proposed bylaw shall be mailed by the board of
 
12           directors to the owners at the expense of the
 
13           association for vote or written consent without change
 
14           within thirty days of the receipt of the petition by
 
15           the board of directors.  The vote or written consent
 
16           required to adopt the proposed bylaw shall not be less
 
17           than sixty-five per cent of all apartment owners;
 
18           provided that the vote or written consent must be
 
19           obtained within one hundred twenty days after mailing.
 
20           In the event that the bylaw is duly adopted, then the
 
21           board shall cause the bylaw amendment to be recorded in
 
22           the bureau of conveyances or filed in the land court,
 
23           as the case may be.  The volunteer apartment owners'
 

 
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 1           committee shall be precluded from submitting a petition
 
 2           for a proposed bylaw that is substantially similar to
 
 3           that which has been previously mailed to the owners
 
 4           within one year after the original petition was
 
 5           submitted to the board.  This subsection shall not
 
 6           preclude any apartment owner or voluntary apartment
 
 7           owners' committee from proposing any bylaw amendment at
 
 8           any annual association meeting.
 
 9      (3)  Notices of association meetings, whether annual or
 
10           special, shall be sent to each member of the
 
11           association of apartment owners at least fourteen days
 
12           prior to the meeting, and shall contain at least:  the
 
13           date, time, and place of the meeting, the items on the
 
14           agenda for the meeting, and a standard proxy form
 
15           authorized by the association, if any.
 
16      (4)  No resident manager or managing agent shall solicit,
 
17           for use by the manager or managing agent, any proxies
 
18           from any apartment owner of the association of owners
 
19           that employs the resident manager or managing agent,
 
20           nor shall the resident manager or managing agent cast
 
21           any proxy vote at any association meeting except for
 
22           the purpose of establishing a quorum.  No member of a
 
23           board of directors who uses association funds to
 

 
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 1           solicit proxies shall cast any of these proxy votes for
 
 2           the election or reelection of board members at any
 
 3           association meeting unless the proxy form specifically
 
 4           authorizes the board member to vote for the election or
 
 5           reelection of board directors and the board first posts
 
 6           notice of its intent to solicit proxies in prominent
 
 7           locations within the project at least thirty days prior
 
 8           to its solicitation of proxies; provided that if the
 
 9           board receives within seven days of the posted notice a
 
10           request by any owner for use of association funds to
 
11           solicit proxies accompanied by a statement, the board
 
12           shall mail to all owners either:
 
13           (A)  A proxy form containing the names of all owners
 
14                who have requested the use of association funds
 
15                for soliciting proxies accompanied by their
 
16                statements; or
 
17           (B)  A proxy form containing no names, but accompanied
 
18                by a list of names of all owners who have
 
19                requested the use of association funds for
 
20                soliciting proxies and their statements.
 
21           The statement shall not exceed one hundred words,
 
22           indicating the owner's qualifications to serve on the
 
23           board and reasons for wanting to receive proxies.
 

 
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 1      (5)  A director who has a conflict of interest on any issue
 
 2           before the board shall disclose the nature of the
 
 3           conflict of interest prior to a vote on that issue at
 
 4           the board meeting, and the minutes of the meeting shall
 
 5           record the fact that a disclosure was made.
 
 6      (6)  The apartment owners shall have the irrevocable right,
 
 7           to be exercised by the board of directors, to have
 
 8           access to each apartment from time to time during
 
 9           reasonable hours as may be necessary for the operation
 
10           of the property or for making emergency repairs therein
 
11           necessary to prevent damage to the common elements or
 
12           to another apartment or apartments.
 
13      (7)  An owner shall not act as an officer of an association
 
14           and an employee of the managing agent employed by the
 
15           association.
 
16      (8)  An association's employees shall not engage in selling
 
17           or renting apartments in the condominium in which they
 
18           are employed except association-owned units, unless
 
19           such activity is approved by an affirmative vote of
 
20           sixty-five per cent of the membership.
 
21      (9)  The board of directors shall meet at least once a year.
 
22           Whenever practicable, notice of all board meetings
 
23           shall be posted by the resident manager or a member of
 

 
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 1           the board in prominent locations within the project
 
 2           seventy-two hours prior to the meeting or
 
 3           simultaneously with notice to the board of directors.
 
 4     (10)  Directors shall not expend association funds for their
 
 5           travel, directors' fees, and per diem, unless owners
 
 6           are informed and a majority approve of these expenses.
 
 7     (11)  Associations at their own expense shall provide all
 
 8           board members with a current copy of the association's
 
 9           declaration, bylaws, house rules, and, annually, a copy
 
10           of this chapter with amendments.
 
11     (12)  The directors may expend association funds, which shall
 
12           not be deemed to be compensation to the directors, to
 
13           educate and train themselves in subject areas directly
 
14           related to their duties and responsibilities as
 
15           directors; provided that the approved annual operating
 
16           budget include these expenses as separate line items.
 
17           These expenses may include registration fees, books,
 
18           videos, tapes, other educational materials, and economy
 
19           travel expenses.  Except for economy travel expenses
 
20           within the State, all other travel expenses incurred
 
21           under this subsection shall be subject to the
 
22           requirements of subsection 514A-82(b)(10).
 
23     (13)  A lien created pursuant to section 514A-90 may be
 

 
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 1           enforced by the association in any manner permitted by
 
 2           law, including non-judicial or power of sale
 
 3           foreclosure procedures authorized by chapter 667, as
 
 4           that chapter may be amended from time to time.
 
 5 The provisions of this subsection shall be deemed incorporated
 
 6 into the bylaws of all condominium projects existing as of
 
 7 January 1, 1988, and all condominium projects created after that
 
 8 date."
 
 9      SECTION 4.  Section 514A-90, Hawaii Revised Statutes, is
 
10 amended to read as follows:
 
11      "�514A-90  Priority of lien.(a)  All sums assessed by the
 
12 association of apartment owners but unpaid for the share of the
 
13 common expenses chargeable to any apartment constitute a lien on
 
14 the apartment prior to all other liens, except:
 
15      (1)  [liens] Liens for taxes and assessments lawfully
 
16           imposed by governmental authority against the
 
17           apartment[,]; and
 
18      (2)  [all] All sums unpaid on any mortgage of record[which]
 
19           that was recorded prior to the recordation of a notice
 
20           of a lien by the association of apartment owners, and
 
21           costs and expenses including attorneys' fees provided
 
22           in such mortgages. 
 
23 The lien of the association of apartment owners may be foreclosed
 

 
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 1 by action or by non-judicial or power of sale foreclosure
 
 2 procedures set forth in chapter 667, by the [manager] managing
 
 3 agent or board of directors, acting on behalf of the association
 
 4 of apartment owners, in like manner as a mortgage of real
 
 5 property.  In any such foreclosure the apartment owner shall be
 
 6 required to pay a reasonable rental for the apartment, if so
 
 7 provided in the bylaws, and the plaintiff in the foreclosure
 
 8 shall be entitled to the appointment of a receiver to collect the
 
 9 [same.] rental owed.  The [manager] managing agent or board of
 
10 directors, acting on behalf of the association of apartment
 
11 owners, [may,] unless prohibited by the declaration, may bid on
 
12 the apartment at foreclosure sale, and acquire and hold, lease,
 
13 mortgage, and convey the[same.] apartment.  Action to recover a
 
14 money judgment for unpaid common expenses shall be maintainable
 
15 without foreclosing or waiving the lien securing the[same.]
 
16 unpaid common expenses owed.
 
17      (b)  Where the mortgagee of a mortgage of record or other
 
18 purchaser of an apartment obtains title to the apartment as a
 
19 result of foreclosure of the mortgage, the acquirer of title and
 
20 the acquirer's successors and assigns shall not be liable for the
 
21 share of the common expenses or assessments by the association of
 
22 apartment owners chargeable to the apartment which became due
 
23 prior to the acquisition of title to the apartment by the
 

 
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 1 acquirer.  The unpaid share of common expenses or assessments
 
 2 shall be deemed to be common expenses collectible from all of the
 
 3 apartment owners, including the acquirer and the acquirer's
 
 4 successors and assigns.  The mortgagee of record or other
 
 5 purchaser of the apartment shall be deemed to acquire title and
 
 6 shall be required to pay the apartment's share of common expenses
 
 7 and assessments beginning:
 
 8      (1)  Thirty-six days after the order confirming the sale to
 
 9           the purchaser has been filed with the court;
 
10      (2)  Sixty days after the hearing at which the court grants
 
11           the motion to confirm the sale to the purchaser; or
 
12      (3)  Upon the recording of the deed,
 
13 whichever occurs first.
 
14      (c)  No apartment owner shall withhold any assessment
 
15 claimed by the association.  An apartment owner who disputes the
 
16 amount of an assessment may request a written statement clearly
 
17 indicating:
 
18      (1)  The amount of common expenses included in the
 
19           assessment, including the due date of each amount
 
20           claimed;
 
21      (2)  The amount of any penalty, late fee, lien filing fee,
 
22           and any other charge included in the assessment;
 
23      (3)  The amount of attorneys' fees and costs, if any,
 

 
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 1           included in the assessment;
 
 2      (4)  That under Hawaii law, an apartment owner has no right
 
 3           to withhold assessments for any reason;
 
 4      (5)  That an apartment owner has a right to demand mediation
 
 5           or arbitration to resolve disputes about the amount or
 
 6           validity of an association's assessment, provided the
 
 7           apartment owner immediately pays the assessment in full
 
 8           and keeps assessments current; and
 
 9      (6)  That payment in full of the assessment does not prevent
 
10           the owner from contesting the assessment or receiving a
 
11           refund of amounts not owed.
 
12 Nothing in this section shall limit the rights of an owner to the
 
13 protection of all fair debt collection procedures mandated under
 
14 federal and state law.
 
15      (d)  An apartment owner who pays an association the full
 
16 amount claimed by the association may file in small claims court
 
17 or require the association to mediate to resolve any disputes
 
18 concerning the amount or validity of the association's claim.  If
 
19 the apartment owner and the association are unable to resolve the
 
20 dispute through mediation, either party may file for arbitration
 
21 under part VII [of this chapter]; provided that an apartment
 
22 owner may only file for arbitration if all amounts claimed by the
 
23 association are paid in full on or before the date of filing.  If
 

 
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 1 the apartment owner fails to keep all association assessments
 
 2 current during the arbitration, the association may ask the
 
 3 arbitrator to temporarily suspend the arbitration proceedings.
 
 4 If the apartment owner pays all association assessments within
 
 5 thirty days of the date of suspension, the apartment owner may
 
 6 ask the arbitrator to recommence the arbitration proceedings.  If
 
 7 the owner fails to pay all association assessments by the end of
 
 8 the thirty-day period, the association may ask the arbitrator to
 
 9 dismiss the arbitration proceedings.  The apartment owner shall
 
10 be entitled to a refund of any amounts paid to the association
 
11 which are not owed.
 
12      (e)  As an alternative to foreclosure proceedings under
 
13 subsection (a), where an apartment is owner-occupied, the
 
14 association of apartment owners may authorize its managing agent
 
15 or board of directors to, after sixty days' written notice to the
 
16 apartment owner and to the apartment's first mortgagee of the
 
17 nonpayment of the apartment's share of the common expenses,
 
18 terminate the delinquent apartment's access to the common
 
19 elements and cease supplying a delinquent apartment with any and
 
20 all services normally supplied or paid for by the association of
 
21 apartment owners.  Any terminated services and privileges shall
 
22 be restored upon payment of all delinquent assessments.
 
23      (f)  Before the board of directors or managing agent may
 

 
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 1 take the actions permitted under subsection (e), the board must
 
 2 adopt a written policy providing for such actions and have the
 
 3 policy approved by a majority vote of the apartment owners at an
 
 4 annual or special meeting of the association or by the written
 
 5 consent of a majority of the apartment owners."
 
 6      SECTION 5.  Section 514A-97, Hawaii Revised Statutes, is
 
 7 amended by amending subsection (c) to read as follows:
 
 8      "(c)  All funds collected by an association, or by a
 
 9 managing agent for any association, shall be:
 
10      (1)  Deposited in a financial institution, including a
 
11           federal or community credit union, located in the State
 
12           and whose deposits are insured by an agency of the
 
13           United States government;
 
14      (2)  Held by a corporation authorized to do business under
 
15           article 8 of chapter 412; [or]
 
16      (3)  [Invested in the obligations of the United States
 
17           government.] Held by the United States Treasury; or
 
18      (4)  Purchased in the name of and held for the benefit of
 
19           the association through a securities broker that is
 
20           registered with the Securities and Exchange Commission,
 
21           has an office in the State, and the accounts of which
 
22           are held by member firms of the New York Stock Exchange
 
23           or National Association of Securities Dealers and
 

 
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 1           insured by the Securities Insurance Protection
 
 2           Corporation.
 
 3      All funds collected by an association, or by a managing
 
 4 agent for any association, shall be invested only in:
 
 5      (1)  Demand deposits, investment certificates, and
 
 6           certificates of deposit;
 
 7      (2)  Obligations of the United States government, the State
 
 8           of Hawaii, or their respective agencies; provided that
 
 9           those obligations shall have stated maturity dates no
 
10           more than ten years after the purchase date unless
 
11           approved otherwise by a majority vote of the apartment
 
12           owners at an annual or special meeting of the
 
13           association or by written consent of a majority of the
 
14           apartment owners; or
 
15      (3)  Mutual funds comprised solely of investments in the
 
16           obligations of the United States government, the State
 
17           of Hawaii, or their respective agencies; provided that
 
18           those obligations shall have stated maturity dates no
 
19           more than ten years after the purchase date unless
 
20           approved otherwise by a majority vote of the apartment
 
21           owners at an annual or special meeting of the
 
22           association or by written consent of a majority of the
 
23           apartment owners;
 

 
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 1 provided that before any investment longer than one year is made
 
 2 by an association, the board must approve the action; and
 
 3 provided further that the board must clearly disclose to owners
 
 4 all investments longer than one year at each year's association
 
 5 annual meeting.
 
 6      Records of the deposits and disbursements shall be disclosed
 
 7 to the commission upon request.  All funds collected by an
 
 8 association shall only be disbursed by employees of the
 
 9 association under the supervision of the association's board of
 
10 directors.  All funds collected by a managing agent from an
 
11 association shall be held in a client trust fund account and
 
12 shall be disbursed only by the managing agent or the managing
 
13 agent's employees under the supervision of the association's
 
14 board of directors.  The commission may draft rules governing the
 
15 handling and disbursement of condominium association funds."
 
16      SECTION 6.  Statutory material to be repealed is bracketed.
 
17 New statutory material is underscored.
 
18      SECTION 7.  This Act shall take effect upon its approval.