SB729 SD1

SECTION 1. Chapter 421I, Hawaii Revised Statutes, is amended by adding four new sections to be appropriately designated and to read as follows:

"§421I-A Cooperative housing corporation education trust fund. (a) The real estate commission shall establish a cooperative housing corporation education trust fund that the commission shall use for educational purposes. Educational purposes shall include financing or promoting:

(1) Education and research in the field of corporation management, corporation project registration, and real estate, for the benefit of the public and those required to be registered under this chapter;

(2) The improvement and more efficient administration of corporations;

(3) Expeditious and inexpensive procedures for resolving corporation disputes;

(4) Support for mediation of corporation related disputes;

(5) Support for voluntary binding arbitration between parties in corporation related disputes, pursuant to section 421I-9; and

(6) The educational requirements for members of a corporation's board of directors pursuant to section 421I-3.

(b) The real estate commission shall use all moneys in the cooperative housing corporation education trust fund for purposes consistent with subsection (a). Any law to the contrary notwithstanding, the real estate commission may make a finding that a fee adjustment is appropriate and adjust the fees paid by corporations to regulate the fund balance to an appropriate level to maintain a reasonable relation between the fees generated and the cost of services rendered by the cooperative housing corporation education trust fund. For the purposes of finding that a fee adjustment is appropriate in order to maintain a reasonable relation between the fees generated and the cost of services rendered by the fund, the real estate commission's review shall include the following:

(1) Frequency and timing of anticipated revenue to the fund;

(2) Identification of a reserve amount based on unanticipated revenue reductions and historical expenditures;

(3) Anticipated expenses paid, including recovery payouts during a biennial budget cycle;

(4) Unanticipated natural disasters or catastrophic weather events that may increase fund payments; and

(5) Any statutory adjustments to fund payout amounts.

The balance of the fund shall not exceed a sum determined by the real estate commission. The sum shall be determined by the real estate commission biennially.

§421I-B Cooperative housing corporation trust fund; payments by corporations and developers. (a) Each project or corporation with more than five units shall pay to the department of commerce and consumer affairs:

(1) A cooperative housing corporation education trust fund fee within one year after the recordation of the purchase of the first dwelling unit or within thirty days of the corporation's first meeting, and thereafter, on or before June 30 of every odd-numbered year, as prescribed by rules adopted pursuant to chapter 91; and

(2) Beginning with the July 1, 2023, biennium registration, an additional annual cooperative housing corporation education trust fund fee in an amount equal to the product of $1.50 times the number of dwelling units included in the registered project or corporation to be dedicated to supporting mediation or voluntary binding arbitration of corporation related disputes. The additional corporation education trust fund fee shall total $3 per unit until the real estate commission adopts rules pursuant to chapter 91. On June 30 of every odd-numbered year, any unexpended additional amounts paid into the cooperative housing corporation education trust fund and initially dedicated to supporting mediation or voluntary binding arbitration of corporation related disputes, as required by this paragraph, shall be used for educational purposes as provided in section 421I-A(a)(1), (2), and (3).

(b) Each developer shall pay to the department of commerce and consumer affairs the cooperative housing corporation education trust fund fee for each dwelling unit in the project, as prescribed by rules adopted by the director of commerce and consumer affairs pursuant to chapter 91. The project shall not be registered and no effective date for a developer's public report shall be issued until the payment has been made.

(c) Payments of any fees required under this section shall be due on or before the registration due date and shall be nonrefundable. Failure to pay the required fee by the due date shall result in a penalty assessment of ten per cent of the amount due and the corporation shall not have standing to bring any action to collect or to foreclose any lien for common expenses or other assessments in any court of this State until the amount due, including any penalty, is paid. Failure of a corporation to pay a fee required under this section shall not impair the validity of any claim of the corporation for common expenses or other assessments, or prevent the corporation from defending any action in any court of this State.

(d) The department of commerce and consumer affairs shall allocate the fees collected under this section to the cooperative housing corporation education trust fund established pursuant to section 421I-A. The fees collected pursuant to this section shall be administratively and fiscally managed together as one cooperative housing corporation education trust fund established by section 421I-A.

§421I-C Cooperative housing corporation education trust fund; management. (a) The sums received by the commission for deposit in the cooperative housing corporation education trust fund pursuant to section 421I-A shall be held by the real estate commission in trust for carrying out the purpose of the fund.

(b) The commission and the director of commerce and consumer affairs may use moneys in the cooperative housing corporation education trust fund collected pursuant to section 421I-A, and the rules of the commission to employ necessary personnel not subject to chapter 76 for additional staff support, to provide office space, and to purchase equipment, furniture, and supplies required by the commission to carry out its responsibilities under this part.

(c) The moneys in the cooperative housing corporation education trust fund collected pursuant to section 421I-A, and the rules of the commission may be invested and reinvested together with the real estate education fund established under section 467-16 in the same manner as are the funds of the employees' retirement system of the State. The interest and earnings from these investments shall be deposited to the credit of the cooperative housing corporation education trust fund.

(d) The real estate commission shall annually submit to the legislature, no later than twenty days prior to the convening of each regular session:

(1) A summary of the programs funded during the prior fiscal year and the amount of money in the fund, including a statement of which programs were directed specifically at the education of dwelling unit owners; and

(2) A copy of the budget for the current fiscal year, including summary information on programs that were funded or are to be funded and the target audience for each program. The budget shall include a line item reflecting the total amount collected from corporations.

§421I-D Corporation; registration. (a) Each project or corporation having more than five units shall:

(1) Register with the commission through approval of a completed registration application, payment of fees, and submission of any other additional information set forth by the commission. The registration shall be for a biennial period with termination on June 30 of each odd-numbered year. The commission shall prescribe a deadline date prior to the termination date for the submission of a completed reregistration application, payment of fees, and any other additional information set forth by the commission. Any project or corporation that has not met the submission requirements by the deadline date shall be considered a new applicant for registration and be subject to initial registration requirements. Any new project or corporation shall register within thirty days of the corporation's first meeting. If the corporation has not held its first meeting and it is at least one year after the recordation of the purchase of the first unit in the project, the developer or developer's affiliate or the managing agent shall register on behalf of the corporation and shall comply with this section. The public information required to be submitted on any completed application form shall include but not be limited to names and positions of the officers of the corporation, the name of the corporation's managing agent, if any, and the name and current mailing address of a designated officer of the corporation where the officer can be contacted directly;

(2) Pay a nonrefundable application fee and, upon approval, an initial registration fee, a reregistration fee upon reregistration and the cooperative housing corporation education trust fund fee, as provided in rules adopted by the director of commerce and consumer affairs pursuant to chapter 91;

(3) Register or reregister and pay the required fees by the due date. Failure to register or reregister or pay the required fees by the due date shall result in the assessment of a penalty equal to the amount of the registration or reregistration fee; and

(4) Report promptly in writing to the commission any changes to the information contained on the registration or reregistration application or any other documents required by the commission. Failure to do so may result in termination of registration and subject the project or the corporation to initial registration requirements.

(b) The commission may reject or terminate any registration submitted by a project or a corporation that fails to comply with this section. Any corporation that fails to register as required by this section or whose registration is rejected or terminated shall not have standing to maintain any action or proceeding in the courts of this State until it registers. The failure of a corporation to register, or rejection or termination of its registration, shall not impair the validity of any contract or act of the corporation nor prevent the corporation from defending any action or proceeding in any court in this State."

SECTION 2. Chapter 421J, Hawaii Revised Statutes, is amended by adding four new sections to be appropriately designated and to read as follows:

"§421J-A Planned community association education trust fund. (a) The real estate commission shall establish a planned community association education trust fund that the commission shall use for educational purposes. Educational purposes shall include financing or promoting:

(1) Education and research in the field of association management, association project registration, and real estate, for the benefit of the public and those required to be registered under this chapter;

(2) The improvement and more efficient administration of associations;

(3) Expeditious and inexpensive procedures for resolving association disputes;

(4) Support for mediation of association related disputes;

(5) Support for voluntary mediation between parties in association related disputes, pursuant to section 421J-13; and

(6) The educational requirements for members of an association's board of directors pursuant to section 421J-3.

(b) The real estate commission shall use all moneys in the planned community association education trust fund for purposes consistent with subsection (a). Any law to the contrary notwithstanding, the real estate commission may make a finding that a fee adjustment is appropriate and adjust the fees paid by associations to regulate the fund balance to an appropriate level to maintain a reasonable relation between the fees generated and the cost of services rendered by the planned community association education trust fund. For the purposes of finding that a fee adjustment is appropriate to maintain a reasonable relation between the fees generated and the cost of services rendered by the fund, the real estate commission's review shall include the following:

(1) Frequency and timing of anticipated revenue to the fund;

(2) Identification of a reserve amount based on unanticipated revenue reductions and historical expenditures;

(3) Anticipated expenses paid, including recovery payouts during a biennial budget cycle;

(4) Unanticipated natural disasters or catastrophic weather events that may increase fund payments; and

(5) Any statutory adjustments to fund payout amounts.

The balance of the fund shall not exceed a sum determined by the real estate commission. The sum shall be determined by the real estate commission biennially.

§421J-B Planned community association trust fund; payments by associations and developers. (a) Each project or planned community association with more than five units shall pay to the department of commerce and consumer affairs:

(1) A planned community association education trust fund fee within one year after the recordation of the purchase of the first unit or within thirty days of the association's first meeting, and thereafter, on or before June 30 of every odd-numbered year, as prescribed by rules adopted pursuant to chapter 91; and

(2) Beginning with the July 1, 2023, biennium registration, an additional annual planned community association education trust fund fee in an amount equal to the product of $1.50 times the number of dwelling units included in the registered project or association to be dedicated to supporting mediation or voluntary binding arbitration of association related disputes. The additional planned community association education trust fund fee shall total $3 per unit until the real estate commission adopts rules pursuant to chapter 91. On June 30 of every odd-numbered year, any unexpended additional amounts paid into the planned community association education trust fund and initially dedicated to supporting mediation or voluntary binding arbitration of corporation related disputes, as required by this paragraph, shall be used for educational purposes as provided in section 421J-A(a)(1), (2), and (3).

(b) Each developer shall pay to the department of commerce and consumer affairs the planned community association education trust fund fee for each unit in the project, as prescribed by rules adopted by the director of commerce and consumer affairs pursuant to chapter 91. The project shall not be registered and no effective date for a developer's public report shall be issued until the payment has been made.

(c) Payments of any fees required under this section shall be due on or before the registration due date and shall be nonrefundable. Failure to pay the required fee by the due date shall result in a penalty assessment of ten per cent of the amount due and the association shall not have standing to bring any action to collect or to foreclose any lien for common expenses or other assessments in any court of this State until the amount due, including any penalty, is paid. Failure of an association to pay a fee required under this section shall not impair the validity of any claim of the association for common expenses or other assessments, or prevent the association from defending any action in any court of this State.

(d) The department of commerce and consumer affairs shall allocate the fees collected under this section to the planned community association education trust fund established pursuant to section 421J-A. The fees collected pursuant to this section shall be administratively and fiscally managed together as one planned community association education trust fund established by section 42JI-A.

§421I-C Planned community association education trust fund; management. (a) The sums received by the commission for deposit in the planned community association education trust fund pursuant to section 421J-A shall be held by the real estate commission in trust for carrying out the purpose of the fund.

(b) The commission and the director of commerce and consumer affairs may use moneys in the planned community association education trust fund collected pursuant to section 421J-A, and the rules of the commission to employ necessary personnel not subject to chapter 76 for additional staff support, to provide office space, and to purchase equipment, furniture, and supplies required by the commission to carry out its responsibilities under this part.

(c) The moneys in the planned community association education trust fund collected pursuant to section 421J-A, and the rules of the commission may be invested and reinvested together with the real estate education fund established under section 467-16 in the same manner as are the funds of the employees' retirement system of the State. The interest and earnings from these investments shall be deposited to the credit of the planned community association education trust fund.

(d) The real estate commission shall annually submit to the legislature, no later than twenty days prior to the convening of each regular session:

§421J-D Association; registration. (a) Each project or association having more than five units shall:

(1) Register with the commission through approval of a completed registration application, payment of fees, and submission of any other additional information set forth by the commission. The registration shall be for a biennial period with termination on June 30 of each odd-numbered year. The commission shall prescribe a deadline date prior to the termination date for the submission of a completed reregistration application, payment of fees, and any other additional information set forth by the commission. Any project or association that has not met the submission requirements by the deadline date shall be considered a new applicant for registration and be subject to initial registration requirements. Any new project or association shall register within thirty days of the association's first meeting. If the association has not held its first meeting and it is at least one year after the recordation of the purchase of the first unit in the project, the developer or developer's affiliate or the managing agent shall register on behalf of the association and shall comply with this section. The public information required to be submitted on any completed application form shall include but not be limited to names and positions of the officers of the association, the name of the association's managing agent, if any, and the name and current mailing address of a designated officer of the association where the officer can be contacted directly;

(2) Pay a nonrefundable application fee and, upon approval, an initial registration fee, a reregistration fee upon reregistration and the planned community association education trust fund fee, as provided in rules adopted by the director of commerce and consumer affairs pursuant to chapter 91;

(b) The commission may reject or terminate any registration submitted by a project or an association that fails to comply with this section. Any association that fails to register as required by this section or whose registration is rejected or terminated shall not have standing to maintain any action or proceeding in the courts of this State until it registers. The failure of an association to register, or rejection or termination of its registration, shall not impair the validity of any contract or act of the association nor prevent the association from defending any action or proceeding in any court in this State."

SECTION 3. Section 421I-3, Hawaii Revised Statutes, is amended to read as follows:

"[[]§421I-3[]] Board of directors; election. (a) A meeting of the corporation for the purpose of electing the board of directors shall be held not later than one hundred eighty days after the first conveyance of a dwelling unit to a shareholder, if at least forty per cent of the dwelling units have been conveyed by that time. If forty per cent of the dwelling units have not been conveyed within one year after the first conveyance, the meeting of the corporation may be held upon the call of the owners of at least ten per cent of the shares by a petition presented to the secretary of the corporation.

(b) Every member of the board of directors shall be:

(1) A shareholder of the cooperation;

(2) A spouse of a shareholder; or

(3) A trust beneficiary, if the shareholder is a trustee.

(d) Within ninety days after being elected to the board of directors, the member shall certify in writing to the board of directors that the member has received and reviewed a copy of the corporation's articles of incorporation, bylaws, rules and regulations, and chapter 421I; provided that, for any member elected to the board of directors before the effective date of this Act, the member shall provide the written certification to the board of directors within ninety days of the effective date of this Act. The board of directors shall retain the member's written certification for the duration of the member's term.

(e) Within one year after being elected to the board of directors, the member shall obtain a board leader course completion certificate from a course approved by the real estate commission; provided that, for any member elected to the board of directors before the effective date of this Act, the member shall obtain the course completion certificate within one year of the effective date of this Act. The board of directors shall retain the member's course completion certificate for the duration of the member's term.

(f) A member's failure to comply with the requirements of subsections (d) and (e) shall disqualify the member from serving on the board of directors."

SECTION 4. Section 421J-3, Hawaii Revised Statutes, is amended to read as follows:

"[[]§421J-3[]] Board of directors. (a) Every member of the board of directors shall be a member of the association. However, a developer may appoint or elect directors pursuant to any special voting rights or power of appointment reserved to the master developer.

(b) The board of directors shall be composed of the number and group of persons specified in the association documents. There shall not be more than one representative on the board of directors from any one unit that is owned by any person other than the master developer or declarant.

(c) Within ninety days after being elected to the board of directors, the member shall certify in writing to the board of directors that the member has received and reviewed a copy of the corporation's articles of incorporation, bylaws, rules and regulations, and chapter 421J; provided that, for any member elected to the board of directors before the effective date of this Act, the member shall provide the written certification to the board of directors within ninety days of the effective date of this Act. The board of directors shall retain the member's written certification for the duration of the member's term.

(d) Within one year after being elected to the board of directors, the member shall obtain a board leader course completion certificate from a course approved by the real estate commission; provided that, for any member elected to the board of directors before the effective date of this Act, the member shall provide the course completion certificate to the board of directors within one year of the effective date of this Act. The board of directors shall retain the member's course completion certificate for the duration of the member's term.

(e) A member's failure to comply with the requirements of subsections (c) and (d) shall disqualify the member from serving on the board of directors."

SECTION 5. Section 467-4, Hawaii Revised Statutes, is amended to read as follows:

"§467-4 Powers and duties of commission. In addition to any other powers and duties authorized by law, the real estate commission shall:

(1) Grant licenses, registrations, and certificates pursuant to this chapter;

(2) Adopt, amend, or repeal rules as it may deem proper to effectuate this chapter and carry out its purpose, which is the protection of the general public in its real estate transactions. All rules shall be approved by the governor and the director of commerce and consumer affairs, and when adopted pursuant to chapter 91 shall have the force and effect of law. The rules may forbid acts or practices deemed by the commission to be detrimental to the accomplishment of the purpose of this chapter, and the rules may require real estate brokers and salespersons to complete educational courses or to make reports to the commission containing items of information as will better enable the commission to enforce this chapter and the rules, or as will better enable the commission from time to time to amend the rules to more fully effect the purpose of this chapter, and, further, the rules may require real estate brokers and salespersons to furnish reports to their clients containing matters of information as the commission deems necessary to promote the purpose of this chapter. This enumeration of specific matters that may properly be made the subject of rules shall not be construed to limit the commission's broad general power to make all rules necessary to fully effectuate the purpose of this chapter;

(3) Enforce this chapter and rules adopted pursuant thereto;

(4) Suspend, fine, terminate, or revoke any license, registration, or certificate for any cause prescribed by this chapter, or for any violation of the rules, and may also require additional education or reexamination, and refuse to grant any license, registration, or certificate for any cause that would be a ground for suspension, fine, termination, or revocation of a license, registration, or certificate;

(5) Report to the governor and the legislature relevant information that shall include but not be limited to a summary of the programs and financial information about the trust funds, including balances and budgets, through the director of commerce and consumer affairs annually, before the convening of each regular session, and at other times and in other manners as the governor or the legislature may require concerning its activities;

(6) Publish and distribute pamphlets and circulars, produce seminars and workshops, hold meetings in all counties, and require other education regarding any information as is proper to further the accomplishment of the purpose of this chapter;

(7) Enter into contract or contracts with qualified persons to assist the commission in effectuating the purpose of this chapter; [~~and~~]

(8) With input from stakeholders as to the curriculum to be used, approve and administer board leadership courses required for members of boards of directors pursuant to sections 421I-3, 421J-3, and 514B-106; and

[~~(8)~~] (9) Establish standing committees to assist in effectuating this chapter and carry out its purpose, which shall meet not less often than ten times annually, and shall from time to time meet in each of the counties."

SECTION 6. Section 514B-71, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) The commission shall establish a condominium education trust fund that the commission shall use for educational purposes. Educational purposes shall include financing or promoting:

(1) Education and research in the field of condominium management, condominium project registration, and real estate, for the benefit of the public and those required to be registered under this chapter;

(2) The improvement and more efficient administration of associations;

(3) Expeditious and inexpensive procedures for resolving association disputes;

(4) Support for mediation of condominium related disputes; [~~and~~]

(5) Support for voluntary binding arbitration between parties in condominium related disputes, pursuant to section 514B-162.5[.]; and

(6) The educational requirements for members of an association's board of directors pursuant to section 514B-106."

SECTION 7. Section 514B-106, Hawaii Revised Statutes, is amended to read as follows:

"§514B-106 Board; powers and duties. (a) Except as provided in the declaration, the bylaws, subsection (b), or other provisions of this chapter, the board may act in all instances on behalf of the association. In the performance of their duties, officers and members of the board shall owe the association a fiduciary duty and exercise the degree of care and loyalty required of an officer or director of a corporation organized under chapter 414D. Any violation by a board or its officers or members of the mandatory provisions of section 514B-161 or 514B-162 may constitute a violation of the fiduciary duty owed pursuant to this subsection; provided that a board member may avoid liability under this subsection by indicating in writing the board member's disagreement with such board action or rescinding or withdrawing the violating conduct within forty-five days of the occurrence of the initial violation.

(b) The board may not act on behalf of the association to amend the declaration or bylaws (sections 514B‑32(a)(11) and 514B‑108(b)(7)), to remove the condominium from the provisions of this chapter (section 514B‑47), or to elect members of the board or determine the qualifications, powers and duties, or terms of office of board members (subsection (e)); provided that nothing in this subsection shall be construed to prohibit board members from voting proxies (section 514B‑123) to elect members of the board; provided further that notwithstanding anything to the contrary in the declaration or bylaws, the board may only fill vacancies in its membership to serve until the next annual or duly noticed special association meeting. Notice of a special association meeting to fill vacancies shall include notice of the election. Any special association meeting to fill vacancies shall be held on a date that allows sufficient time for owners to declare their intention to run for election and to solicit proxies for that purpose.

(c) Within thirty days after the adoption of any proposed budget for the condominium, the board shall make available a copy of the budget to all the unit owners and shall notify each unit owner that the unit owner may request a copy of the budget.

(d) The declaration may provide for a period of developer control of the association, during which a developer, or persons designated by the developer, may appoint and remove the officers and members of the board. Regardless of the period provided in the declaration, a period of developer control terminates no later than the earlier of:

(1) Sixty days after conveyance of seventy-five per cent of the common interest appurtenant to units that may be created to unit owners other than a developer or affiliate of the developer;

(2) Two years after the developer has ceased to offer units for sale in the ordinary course of business;

(3) Two years after any right to add new units was last exercised; or

(4) The day the developer, after giving written notice to unit owners, records an instrument voluntarily surrendering all rights to control activities of the association.

A developer may voluntarily surrender the right to appoint and remove officers and members of the board before termination of that period, but in that event the developer may require, for the duration of the period of developer control, that specified actions of the association or board, as described in a recorded instrument executed by the developer, be approved by the developer before they become effective.

(e) Not later than the termination of any period of developer control, the unit owners shall elect a board of at least three members; provided that projects created after May 18, 1984, with one hundred or more individual units, shall have an elected board of at least nine members unless the membership has amended the bylaws to reduce the number of directors; and provided further that projects with more than one hundred individual units where at least seventy per cent of the unit owners do not reside at the project may amend the bylaws to reduce the board to as few as five members by the written consent of a majority of the unit owners or the vote of a majority of a quorum at any annual meeting or special meeting called for that purpose. The association may rely on its membership records in determining whether a unit is owner-occupied. A decrease in the number of directors shall not deprive an incumbent director of any remaining term of office.

(f) At any regular or special meeting of the association, any member of the board may be removed and successors shall be elected for the remainder of the term to fill the vacancies thus created. The removal and replacement shall be by a vote of a majority of the unit owners and, otherwise, in accordance with all applicable requirements and procedures in the bylaws for the removal and replacement of directors and, if removal and replacement is to occur at a special meeting, section 514B‑121(c).

(g) Within ninety days after being elected to the board of directors, the member shall certify in writing to the board of directors that the member has received and reviewed a copy of the association's articles of incorporation, bylaws, rules and regulations, and chapter 514B; provided that, for any member elected to the board of directors before the effective date of this Act, the member shall provide the written certification to the board of directors within ninety days of the effective date of this Act. The board of directors shall retain the member's written certification for the duration of the member's term.

(h) Within one year after being elected to the board of directors, the member shall obtain a board leader course completion certificate from a course approved by the real estate commission; provided that, for any member elected to the board of directors before the effective date of this Act, the member shall obtain the course completion certificate within one year of the effective date of this Act. The board of directors shall retain the member's course completion certificate for the duration of the member's term.

(i) A member's failure to comply with the requirements of subsections (g) and (h) shall disqualify the member from serving on the board of directors."

SECTION 8. In codifying the new sections added by sections 1 and 2 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 9. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 10. This Act shall take effect on July 1, 2050.

THE SENATE	S.B. NO.	729
THIRTY-SECOND LEGISLATURE, 2023		S.D. 1
STATE OF HAWAII