REPORT TITLE:
Condominiums; Apartment Owners


DESCRIPTION:
Facilitates voluntary, bulk lease-to-fee conversions of
condominiums by condominium associations on behalf of their
members, by clarifying the applicable procedures as well as the
powers of condominium boards of directors to directly negotiate
agreements to purchase the leased fee interest.  (SB285 HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 1999                                H.D. 1
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO CONDOMINIUM PROPERTY REGIMES. 


BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  The legislature finds that condominium lessees
 
 2 are often able to acquire the leased fee interest appurtenant to
 
 3 their apartments at more affordable prices when the association
 
 4 of apartment owners negotiates directly with the project's lessor
 
 5 for a bulk purchase of all of the lessor's interests by the
 
 6 association and its members.  The legislature further finds that
 
 7 it is necessary to clarify the powers of the boards of directors
 
 8 of associations of apartment owners to enter into purchase
 
 9 agreements with lessors to facilitate and encourage voluntary
 
10 lease to fee conversions of condominium projects in an efficient
 
11 and economical manner.
 
12      SECTION 2.  Chapter 514C, Hawaii Revised Statutes, is
 
13 amended by adding a new part to be appropriately designated and
 
14 to read as follows:
 
15                 "PART   .  VOLUNTARY CONVERSIONS
 
16      §514C-      Definitions.  As used in this part unless the
 
17 context requires otherwise:
 
18      ""Lessor" means any or all of the fee simple owners and
 
19 other persons having legal or equitable ownership interests in
 
20 the leased fee interest appurtenant to the various condominiums
 

 
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 1 in the condominium project and in the various apartment and
 
 2 ground leases including, but not limited to, any sublessor.  The
 
 3 definition of "lessor" in section 514C-1 shall not apply to this
 
 4 part.
 
 5      §514C-   Power of association of apartment owners to
 
 6 negotiate, purchase, and sell lessor's interest.(a)  The
 
 7 association of apartment owners may purchase the lessor's
 
 8 interest in the condominium project; provided that the
 
 9 declaration of condominium property regime shall either contain
 
10 or be amended to include a provision authorizing the board of
 
11 directors to effectuate such a purchase.  If the lessor is also a
 
12 condominium unit lessee, the lessor's lessee interest shall be
 
13 disregarded in the computation of the percentage of condominium
 
14 unit lessees needed to achieve the vote or written consent
 
15 required to amend the declaration of condominium property regime.
 
16      (b)  If the association of apartment owners is authorized to
 
17 purchase the lessor's interest pursuant to this section, the
 
18 following powers, in addition to any other existing powers, shall
 
19 be conferred upon the association of apartment owners:
 
20      (1)  To purchase or otherwise acquire, own, improve, use,
 
21           and otherwise deal in and with the lessor's interest or
 
22           any or all undivided interests therein;
 

 
 
 
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 1      (2)  To incur liabilities, borrow money, and secure any of
 
 2           its obligations by mortgage or pledge all or any
 
 3           portion of its property, assessments, and funds to
 
 4           effectuate acquisition of the lessor's interest;
 
 5      (3)  To assess, as a common expense, the condominium unit
 
 6           lessees for the expenses incurred in acquiring the
 
 7           lessor's interest, or to service any debt associated
 
 8           therewith; and
 
 9      (4)  To sell the fee interest appurtenant to a condominium
 
10           unit and acquired from the lessor by the association of
 
11           apartment owners, to any condominium unit lessee or
 
12           subsequent purchaser of such unit.
 
13      (c)  No condominium unit lessee shall be compelled to
 
14 purchase the portion of the fee interest of the property
 
15 appurtenant to the lessee's condominium and acquired from the
 
16 lessor by the association of apartment owners, but may instead
 
17 pay lease rent to the association of apartment owners together
 
18 with the lessee's share of the common expenses incurred in
 
19 acquiring the fee interest to the land, or including any debt
 
20 associated therewith."
 
21      SECTION 3.  Chapter 514C, Hawaii Revised Statutes, is
 
22 amended as follows:
 

 
 
 
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 1      1.  By amending its title to read:
 
 2      "[RIGHT OF FIRST REFUSAL] LEASE TO FEE CONVERSIONS FOR 
 
 3        CONDOMINIUMS AND COOPERATIVE HOUSING CORPORATIONS"
 
 4      2.  By designating section 514C-1 as:
 
 5                      "PART I.  DEFINITIONS"
 
 6      3.  By designating sections 514C-2 through 514C-8 as:
 
 7                "PART II.  RIGHT OF FIRST REFUSAL"
 
 8      4.  By amending the definition of "condominium" in section
 
 9 514C-1 to read:
 
10      ""Condominium" means [the ownership of] a single [units,]
 
11 unit, with common elements, located on property within the
 
12 condominium property regime."
 
13      5.  By amending section 514C-3 to read:
 
14      "[[]§514C-3[]]  Improvements.  The right of first refusal to
 
15 purchase the leased fee interest in land created by this
 
16 [chapter] part shall be deemed to include the right to purchase
 
17 the interest of the seller in any and all improvements on such
 
18 land, other than the leasehold interest in any unit as to which
 
19 the seller is the holder of the leasehold interest."
 
20      6.  By amending section 514C-4 to read:
 
21      "[[]§514C-4[]]  Compliance with procedures not required;
 
22 when.  Nothing in this [chapter] part shall prohibit any lessor
 
23 and association of condominium owners or cooperative housing
 

 
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 1 corporation from agreeing to the sale and purchase of the leased
 
 2 fee interest or any part thereof."
 
 3      7.  By amending section 514C-5 to read:
 
 4      "§514C-5 Offer to other prospective purchasers; time limit.
 
 5 No lessor shall sell the leased fee interest in any land under a
 
 6 condominium project or cooperative project containing one or more
 
 7 residential units or any part thereof to any party other than the
 
 8 association of apartment owners or cooperative housing
 
 9 corporation for that project until a right of first refusal for
 
10 the purchase of that interest has been offered as required by
 
11 this [chapter] part and has been rejected in writing by the board
 
12 of directors, except in the case of sales to individual
 
13 condominium unit lessees or cooperative unit lessees, which shall
 
14 be subject to the requirements of section 514C-6.5; provided that
 
15 an offer made pursuant to sections 514C-2, 514C-3, and 514C-6.5
 
16 shall be deemed to be rejected if not accepted in writing by the
 
17 board of directors of the condominium project or the cooperative
 
18 housing corporation within one hundred twenty days of its receipt
 
19 of the written notice from the seller, as evidenced by the return
 
20 receipts, or if the sale, through no fault of the seller, has not
 
21 closed upon the purchase of one hundred per cent of the interest
 
22 being sold within one hundred eighty days of receipt by the board
 
23 of directors of such written notice, as evidenced by the return
 

 
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 1 receipts.  In the event that closing is delayed due to any fault
 
 2 of the seller, the deadline for closing shall be extended for a
 
 3 period of time equal to the delay caused by seller."
 
 4      8.  By amending section 514C-6.5 to read:
 
 5      "[[]§514C-6.5[]]  Sales to individual lessees.
 
 6 Notwithstanding any other [provisions] provision in this
 
 7 [chapter,] part to the contrary, a lessor may sell the leased fee
 
 8 interest in any land under a condominium project or cooperative
 
 9 project or any part thereof to individual condominium unit
 
10 lessees or cooperative unit lessees[,]; provided that the
 
11 following requirements have been complied with:
 
12      (1)  No individual lessee shall be obligated to enter into a
 
13           contract to purchase without having been afforded a
 
14           period of at least ninety days within which to consider
 
15           the offer made by the lessor[,]; provided that the
 
16           individual lessee may enter into a contract to purchase
 
17           before the ninety days expires if the individual lessee
 
18           so desires.  The lessee shall further have the right to
 
19           terminate such contract to purchase without penalty for
 
20           a period of ninety days from the date the contract was
 
21           first entered into;
 
22      (2)  At the time any offer to sell the leased fee interest
 
23           is communicated to the lessee by the lessor, the
 

 
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 1           association of owners or cooperative housing
 
 2           corporation shall be provided with written notice
 
 3           delivered or mailed by registered or certified mail,
 
 4           return receipt requested, postage prepaid, to any two
 
 5           of the president, vice-president, or managing agent (if
 
 6           any), of the lessor's intent to sell the interest,
 
 7           together with a complete and correct copy of the offer,
 
 8           which offer shall contain the full and complete terms
 
 9           thereof.  Except as provided in paragraph (3), where
 
10           the board of directors of the association of apartment
 
11           owners or cooperative housing corporation has written
 
12           authorization to represent its members, then the
 
13           association or corporation shall have a right of first
 
14           refusal to purchase that leased fee interest for the
 
15           same price as is contained in the written purchase
 
16           offer[,]; provided that the offer shall be deemed to be
 
17           rejected if not accepted in writing by the board of
 
18           directors of the condominium project or the cooperative
 
19           housing corporation within one hundred twenty days of
 
20           its receipt of written notice from the seller, as
 
21           evidenced by the return receipts;
 
22      (3)  Any board of directors of the association of apartment
 
23           owners or cooperative housing corporation may fully or
 

 
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 1           partially waive its right of first refusal at any time
 
 2           with written notice to the lessor[,]; provided[,
 
 3           however,] that it shall waive its right of first
 
 4           refusal with respect to the leased fee interest
 
 5           appurtenant to a lessee's apartment at the written
 
 6           request of the lessee.  The legislature hereby gives
 
 7           the board of directors of the association of apartment
 
 8           owners or cooperative housing corporation the authority
 
 9           to exercise the foregoing waiver without having to
 
10           amend any bylaws, charter, or other governing
 
11           documents;
 
12      (4)  Notwithstanding any provision contained in any bylaws,
 
13           or any amendment thereto or written authorization,
 
14           authorizing the board of directors of the association
 
15           of apartment owners or cooperative housing corporation
 
16           to represent the individual lessees in the lease-to-fee
 
17           conversion, each individual shall have the right to
 
18           represent himself or herself in such lease-to-fee
 
19           conversion by giving written notice of such desire to
 
20           the lessor and the board of directors; and
 
21      (5)  After the lessor (or its agent or representative) has
 
22           been able to hold one meeting with the lessees and has
 
23           been able to provide a written summary of the meeting
 

 
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 1           to the lessees, then for a period of ninety days
 
 2           thereafter, the lessor, its agents, employees, and
 
 3           representatives, shall not initiate communication with
 
 4           the lessees regarding the offer, although such parties
 
 5           may respond to inquiries made by lessees."
 
 6      9.  By amending section 514C-7 to read: 
 
 7      "[[]§514C-7[]]  Violations; voidable sale.  Any sale made
 
 8 that violates this [chapter] part shall be voidable at the option
 
 9 of the association of owners or the cooperative housing
 
10 corporation.  If any sale is so voided, the association of owners
 
11 or cooperative housing corporation shall then have the right to
 
12 buy the interest which had been conveyed by virtue of such sale
 
13 for the same price as pertained to the sale so voided, subject to
 
14 the time restrictions contained in section 514C-5."
 
15      10.  By amending section 514C-8 to read:
 
16      "[[]§514C-8[]]  Exception.  This [chapter] part shall not
 
17 apply if the land under the condominium project or cooperative
 
18 housing corporation subject to a leased fee interest is part of a
 
19 larger tract of land and the lessor will not agree to sell the
 
20 leased fee interest in the land in parts."
 
21      SECTION 4.  No purchase or conveyance of the leased fee
 
22 interest made prior to the effective date of this Act to or by an
 
23 association of owners in a good faith belief that the purchase or
 

 
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 1 conveyance was valid, and no borrowing, mortgage, or pledge by an
 
 2 association of owners in connection therewith shall be invalid
 
 3 because it was without capacity or power to do such an act or to
 
 4 make or receive such conveyance, transfer, or loan.  Nor shall
 
 5 any apartment owner be excused from paying the owner's share of
 
 6 the common expenses incurred in acquiring the leased fee interest
 
 7 to the land, or to service any debt associated therewith on
 
 8 account of any such lack of capacity of power.
 
 9      SECTION 5.  Statutory material to be repealed is bracketed.
 
10 New statutory material is underscored.
 
11      SECTION 6.  This Act shall take effect                    .