REPORT TITLE:
Condominiums; Apartment Owners


DESCRIPTION:
Clarifies the powers of the boards of directors of associations
of apartment owners to enter into purchase agreements with
lessors in order to facilitate and encourage voluntary lease-to-
fee conversions of condominium projects. (SD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 1999                                
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 in order to facilitate and encourage
 
10 voluntary lease-to-fee conversions of condominium projects in an
 
11 efficient and economical manner.
 
12      SECTION 2.  Section 514A-82, Hawaii Revised Statutes, is
 
13 amended by amending subsection (b) to read as follows:
 
14      "(b)  In addition to the requirements of subsection (a), the
 
15 bylaws shall provide for:
 
16      (1)  The method of removal from office of directors; that at
 
17           any regular or special meeting of the apartment owners,
 
18           any one or more members of the board of directors may
 
19           be removed by the apartment owners and successors shall
 

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

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

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

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

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

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

 
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 1           requirements of subsection 514A-82(b)(10).
 
 2     (13)  (A)  The association of apartment owners may purchase
 
 3                the lessor's interest in the condominium project;
 
 4                provided that the declaration of condominium
 
 5                property regime shall either contain or be amended
 
 6                to include a provision authorizing the board of
 
 7                directors to effectuate such a purchase.  If the
 
 8                lessor is also a condominium unit lessee, the
 
 9                lessor's lessee interest shall be disregarded in
 
10                the computation of the percentage of apartment
 
11                owners needed to achieve the vote or written
 
12                consent required in order to amend the declaration
 
13                of condominium property regime.
 
14           (B)  If the association of apartment owners purchases
 
15                the lessor's interest pursuant to this section,
 
16                the following powers, in addition to any other
 
17                powers, shall be conferred upon the association of
 
18                apartment owners:
 
19                (i)  To purchase or otherwise acquire, own,
 
20                     improve, use, and otherwise deal in and with
 
21                     the leased fee interest to the land or any or
 
22                     all undivided interests therein;
 
23               (ii)  To incur liabilities, borrow money, and
 

 
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 1                     secure any of its obligations by mortgage or
 
 2                     pledge of all or any portion of its property,
 
 3                     assessments, and funds;
 
 4              (iii)  To assess, as a common expense, the apartment
 
 5                     owners for the expenses incurred in acquiring
 
 6                     the leased fee interest to the land, or to
 
 7                     service any debt associated therewith; and
 
 8               (iv)  To sell the leased fee interest appurtenant
 
 9                     to a condominium unit to any condominium unit
 
10                     lessee or subsequent purchaser of such unit.
 
11                No condominium lessee shall be compelled to
 
12                purchase the portion of the leased fee interest of
 
13                the property appurtenant to the lessee's
 
14                apartment, but may instead pay lease rent to the
 
15                association of owners together with the lessee's
 
16                share of the common expenses incurred in acquiring
 
17                the leased fee interest to the land, or including
 
18                any debt associated therewith.
 
19           (C)  As used in this paragraph, "lessor" means any or
 
20                all of the fee simple owners and other persons
 
21                having legal or equitable ownership interests in
 
22                the leased fee interest appurtenant to the various
 
23                apartments in the condominium project and in the
 

 
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 1                various apartment and ground leases including, but
 
 2                not limited to, any sublessor, but shall not
 
 3                include the apartment lessees or sublessees.
 
 4 The provisions of this subsection shall be deemed incorporated
 
 5 into the bylaws of all condominium projects existing as of
 
 6 January 1, 1988, and all condominium projects created after that
 
 7 date."
 
 8      SECTION 3.  No purchase or conveyance of the leased fee
 
 9 interest made prior to the effective date of this Act to or by an
 
10 association of owners in a good faith belief that the purchase or
 
11 conveyance was valid, and no borrowing, mortgage, or pledge by an
 
12 association of owners in connection therewith shall be invalid
 
13 because it was without capacity or power to do such an act or to
 
14 make or receive such conveyance, transfer, or loan, nor shall any
 
15 apartment owner be excused from paying such owner's share of the
 
16 common expenses incurred in acquiring the leased fee interest to
 
17 the land, or to service any debt associated therewith on account
 
18 of any such lack of capacity of power.
 
19      SECTION 4.  New statutory material is underscored.
 
20      SECTION 5.  This Act shall take effect upon its approval.