SB2727

SECTION 1. The legislature finds that city and county of Honolulu Ordinance 18-14 amended the county fire code to require that existing high-rise residential buildings built on Oahu before 1975 without automatic fire sprinkler systems must undergo a building fire and life safety evaluation code assessment, which evaluates building safety features and fire systems in accordance with the city and county of Honolulu's fire code and building code.

Subsequent amendments to the law by city and county of Honolulu Ordinances 19-4 and 22-2 offered flexibility in meeting the life safety evaluation building safety and fire systems requirements and extended the timeframe for compliance. However, since the enactment of those two ordinances, concerns and challenges to the law have been raised by residential high‑rise building unit owners regarding the difficulty of achieving compliance with the fire sprinkler retrofit or alternative life safety evaluation requirements without some form of government financial assistance.

The legislature further finds that in August 2023, among the three hundred three remaining condominium properties that submitted life safety evaluations to comply with Ordinance 22-2, two hundred eighty-one properties have not yet obtained passing scores while twenty-two properties have been awarded acceptable scores, as reported in city department communication 582, August 7, 2023.

Earlier city and county of Honolulu tax credits and financial assistance programs were identified as being too limited to address the degree of financial assistance or public investment needed to retrofit properties for fire sprinklers or install other fire safety upgrades (Ordinance 22-2, committee report 44, March 16, 2022). At the same time, residential high‑rise property insurance premiums have increased by roughly one hundred sixteen per cent between 2020 and 2023 for affected properties, according to the department of commerce and consumer affairs interim report for S.C.R. No. 48, S.D. 1, October 20, 2023, which has made traditional bank financing for normal repairs, maintenance, and other reserve requirements even more difficult to obtain.

The legislature also finds that Act 183, Session Laws of Hawaii 2022, authorized commercial property assessed financing, also known as C-PACER in Hawaii. C-PACER is an alternative financing option that finances one hundred percent of qualified capital improvement costs, with terms matching the useful life of the equipment installed, thereby making payments more affordable than a typical equipment loan. C-PACER financing can help condominium properties finance the installation of fire safety and other energy efficiency, renewable energy, water conservation, and resiliency measures at more attractive rates and terms than may be currently available with conventional financing.

The purpose of this Act is to enable residential high-rise condominium properties, including those subject to county fire safety requirements and those suffering damages from the Maui wildfires, to participate in C-PACER financing and provide more clarity to the definition of a commercial property.

SECTION 2. Section 196-61, Hawaii Revised Statutes, is amended by amending the definition of "commercial property" to read as follows:

""Commercial property" means any existing or new non‑residential real property [~~not defined as a residential property, and shall include~~], including any property where there is a leasehold or possessory interest in the property [~~and~~], any multi-family dwelling or townhouse consisting of five or more units, and any condominium regime consisting of six or more units, as well as agricultural property."

SECTION 3. Section 514B-4, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) If there is any unit owner other than a developer, each unit shall be separately taxed and assessed, and no separate tax or assessment may be rendered against any common elements. The laws relating to home exemptions from state property taxes are applicable to individual units, which shall have the benefit of home exemption in those cases where the owner of a single-family dwelling would qualify. Property taxes assessed by the State or any county shall be assessed and collected on the individual units and not on the property as a whole[.]; provided that commercial property assessed financing program non-ad valorem special assessments, pursuant to section 196-64.5, may be levied upon the project, as described by the project's master deed, declaration, and map pursuant to part III of this chapter. Without limitation of the foregoing, each unit and its appurtenant common interest shall be deemed to be a "parcel" and shall be subject to separate assessment and taxation for all types of taxes authorized by law, including, but not limited to, other non-commercial property assessed financing program special assessments."

SECTION 4. Section 514B-41, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) The common profits of the property shall be distributed among, and the common expenses shall be charged to, the unit owners, including the developer, in proportion to the common interest appurtenant to their respective units, except as otherwise provided in the declaration or bylaws. In a mixed-use project containing units for both residential and nonresidential use, the charges and distributions may be apportioned in a fair and equitable manner as set forth in the declaration. Except as otherwise provided in subsection (c) or the declaration or bylaws, all limited common element costs and expenses, including but not limited to maintenance, repair, replacement, additions, and improvements, including capital improvements financed by commercial property assessed financing, shall be charged to the owner or owners of the unit or units to which the limited common element is appurtenant in an equitable manner as set forth in the declaration."

SECTION 5. Section 514B-105, Hawaii Revised Statutes, is amended as follows:

1. By amending subsection (c) to read:

"(c) Any payments made by or on behalf of a unit owner shall first be applied to outstanding common expenses that are assessed to all unit owners in proportion to the common interest appurtenant to their respective units[.], including commercial property financing assessments. Only after said outstanding common expenses have been paid in full may the payments be applied to other charges owed to the association, including assessed charges to the unit such as ground lease rent, utility sub-metering, storage lockers, parking stalls, boat slips, insurance deductibles, and cable. After these charges are paid, other charges, including unpaid late fees, legal fees, fines, and interest, may be assessed in accordance with an application of payment policy adopted by the board; provided that if a unit owner has designated that any payment is for a specific charge that is not a common expense as described in this subsection, the payment may be applied in accordance with the unit owner's designation even if common expenses remain outstanding."

2. By amending subsection (e) to read:

"(e) Subject to any approval requirements and spending limits contained in the declaration or bylaws, the association may authorize the board to borrow money for the repair, replacement, maintenance, operation, or administration of the common elements and personal property of the project, or the making of any additions, alterations, and improvements thereto; provided that written notice of the purpose and use of the funds is first sent to all unit owners and owners representing fifty per cent of the common interest vote or give written consent to the borrowing. In connection with the borrowing, including non‑commercial property assessed financing, the board may grant to the lender the right to assess and collect monthly or special assessments from the unit owners and to enforce the payment of the assessments or other sums by statutory lien and foreclosure proceedings. The cost of the borrowing, including, without limitation, all principal, interest, commitment fees, and other expenses payable with respect to the borrowing or the enforcement of the obligations under the borrowing, shall be a common expense of the project.

For non-ad valorum special assessments levied upon the project under a commercial property assessed financing, pursuant to section 196-64.5 and due from the association, the cost of the commercial property assessed financing, including, without limitation, all principal, interest, commitment fees, servicing fees, and other expenses payable with respect to this borrowing or the enforcement of the obligations under such borrowings, shall be a common expense of the project and unit owners proportionate share of the special assessment shall be collected in the same manner as common expenses. The written consent of at least fifty per cent of all unit owners and owners to finance qualifying improvements with commercial property assessed financing shall include an acknowledgement that the annual special assessment required to debt service the commercial property assessed financing shall be included as part of the association's adopted revised budget.

For purposes of this section, the financing of insurance premiums by the association within the policy period shall not be deemed a loan and no lease shall be deemed a loan if it provides that at the end of the lease the association may purchase the leased equipment for its fair market value."

SECTION 6. Section 514B-146, Hawaii Revised Statutes, is amended as follows:

1. By amending subsection (a) to read:

"(a) All sums assessed by the association but unpaid for the share of the common expenses chargeable to any unit shall constitute a lien on the unit with priority over all other liens, except:

(1) Liens for real property taxes and assessments lawfully imposed by governmental authority, including commercial property assessed financing non-ad valorem special assessments, against the unit; and

(2) Except as provided in subsection (j), all sums unpaid on any mortgage of record that was recorded prior to the recordation of a notice of a lien by the association, and costs and expenses including attorneys' fees provided in such mortgages;

provided that a lien recorded by an association for unpaid assessments shall expire six years from the date of recordation unless proceedings to enforce the lien are instituted prior to the expiration of the lien; provided further that the expiration of a recorded lien shall in no way affect the association's automatic lien that arises pursuant to this subsection or the declaration or bylaws. Any proceedings to enforce an association's lien for any assessment shall be instituted within six years after the assessment became due; provided that if the owner of a unit subject to a lien of the association files a petition for relief under the United States Bankruptcy Code (11 U.S.C. §101 et seq.), the period of time for instituting proceedings to enforce the association's lien shall be tolled until thirty days after the automatic stay of proceedings under section 362 of the United States Bankruptcy Code (11 U.S.C. §362) is lifted.

The lien of the association may be foreclosed by action or by nonjudicial or power of sale foreclosure, regardless of the presence or absence of power of sale language in an association's governing documents, by the managing agent or board, acting on behalf of the association and in the name of the association; provided that no association may exercise the nonjudicial or power of sale remedies provided in chapter 667 to foreclose a lien against any unit that arises solely from fines, penalties, legal fees, or late fees, and the foreclosure of any such lien shall be filed in court pursuant to part IA of chapter 667.

In any such foreclosure, the unit owner shall be required to pay a reasonable rental for the unit, if so provided in the bylaws or the law, and the plaintiff in the foreclosure shall be entitled to the appointment of a receiver to collect the rental owed by the unit owner or any tenant of the unit. If the association is the plaintiff, it may request that its managing agent be appointed as receiver to collect the rent from the tenant. The managing agent or board, acting on behalf of the association and in the name of the association, unless prohibited by the declaration, may bid on the unit at foreclosure sale, and acquire and hold, lease, mortgage, and convey the unit. Action to recover a money judgment for unpaid common expenses shall be maintainable without foreclosing or waiving the lien securing the unpaid common expenses owed."

2. By amending subsection (l) to read:

"(l) For purposes of subsections (j) and (k), the following definitions shall apply, unless the context requires otherwise:

"Completion" means:

(1) In a nonjudicial power of sale foreclosure, when the affidavit after public sale is recorded pursuant to section 667-33; and

(2) In a judicial foreclosure, when a purchaser is deemed to acquire title pursuant to subsection (b).

"Regular monthly common assessments" does not include:

(1) Any other special assessment, except for a special assessment imposed on all units as part of a budget adopted pursuant to section 514B‑148[;], including commercial property assessed financing special assessments;

(2) Late charges, fines, or penalties;

(3) Interest assessed by the association;

(4) Any lien arising out of the assessment; or

(5) Any fees or costs related to the collection or enforcement of the assessment, including attorneys' fees and court costs."

SECTION 7. Section 514B-157, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) All costs and expenses, including reasonable attorneys' fees, incurred by or on behalf of the association for:

(1) Collecting any delinquent assessments, including commercial property assessed financing special assessments, against any owner's unit;

(2) Foreclosing any lien thereon; or

(3) Enforcing any provision of the declaration, bylaws, house rules, and this chapter, or the rules of the real estate commission;

against an owner, occupant, tenant, employee of an owner, or any other person who may in any manner use the property, shall be promptly paid on demand to the association by such person or persons; provided that if the claims upon which the association takes any action are not substantiated, all costs and expenses, including reasonable attorneys' fees, incurred by any such person or persons as a result of the action of the association, shall be promptly paid on demand to such person or persons by the association."

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act shall take effect on July 1, 2024.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2727
THIRTY-SECOND LEGISLATURE, 2024
STATE OF HAWAII