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THE SENATE |
S.B. NO. |
2727 |
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THIRTY-SECOND LEGISLATURE, 2024 |
S.D. 2 |
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STATE OF HAWAII |
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A BILL FOR AN ACT
RELATING TO CONDOMINIUMS.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
Subsequent amendments to the Revised Ordinances of Honolulu by city and county of Honolulu Ordinance Nos. 19-4 and 22-2 offered flexibility in meeting the evaluation requirements and extended the timeframe for compliance. However, since the enactment of the two ordinances, concerns and challenges to the ordinances 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, according to recent reports, among the three hundred three remaining condominium properties that submitted life safety evaluations to comply with city and county of Honolulu Ordinance No. 22-2, two hundred eighty-one properties have not yet obtained passing scores while twenty-two properties have been awarded acceptable scores.
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 No. 22-2, committee report 44, March 16, 2022). At the same time, residential high‑rise property insurance premiums have increased by approximately 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 (2023). These premium increases have 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 within the State commercial property assessed financing, also known as commercial property assessed clean energy and resiliency, or C-PACER financing. C-PACER is an alternative financing option that finances one hundred per cent 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, 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 having units in
a building that is not less than
feet in height, as well as agricultural property."
SECTION 3. Section 196-64.5, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:
"(c)
The authority shall design a commercial property assessed financing
program authorized under this section and section 46-80(b) that addresses
market needs while attracting private capital and that shall, at [a]
minimum, include the following elements:
(1) A commercial property assessed financing lender may enter into a commercial property assessed financing assessment contract to finance or refinance a qualifying improvement only with the recorded owner of the affected commercial property and the authority. Each commercial property assessed financing assessment contract shall be executed by the authority as the administrator of the commercial property assessed financing program. A commercial property assessed financing assessment contract shall require the authority to assign, pledge, and transfer revenues to be derived from commercial property assessed financing assessments to one or more commercial property assessed financing lenders as security for their direct financing of qualifying improvements. The obligation of the authority to transfer the revenues to one or more commercial property assessed financing lenders shall be evidenced by the commercial property assessed financing assessment contract as an instrument of indebtedness in a form as may be prescribed by the authority. No other bonds shall be required to be issued by the State, the authority, any county, or any other public entity in order to cause qualifying improvements to be funded through a commercial property assessed financing assessment contract;
(2) Qualifying improvements shall be affixed to a building or facility or affixed to real property, subject to the commercial property assessed financing assessments;
(3) Before entering into a commercial property assessed financing assessment contract, the commercial property assessed financing lender shall reasonably determine that:
(A) The commercial property owner is able to borrow the amount of the property assessed financing using reasonable commercial underwriting practices;
(B) All property taxes applicable to the commercial property, and any other assessments levied on the same bill as property taxes, are paid; and
(C) There are no involuntary liens
applicable to the commercial property, including [but not limited to]
construction liens, that will not be paid or satisfied upon the closing of the
financing;
(4) The commercial property assessed financing assessment contract shall include the amount of an annual assessment over a fixed term that will appear as a non-ad valorem special tax assessment on the commercial property owner's tax bill or stand-alone bill annually;
(5) The commercial property assessed financing assessment contract, or summary memorandum of the contract, shall be recorded by the commercial property assessed financing lender in the public records of the State or of the county within which the commercial property is located within five days after execution by the parties to the contract. The recorded contract shall provide constructive notice of the levy of, and obligation of the commercial property owner to pay, the commercial property assessed financing assessment. The commercial property assessed financing assessment to be levied on the commercial property shall be a non-ad valorem special tax assessment and a lien against the commercial property on a parity with the lien of general real property taxes and the lien of any other assessments levied under section 46-80, from the date of recordation entered into pursuant to this section until paid or satisfied in accordance with the commercial property assessed financing assessment contract;
(6) Before entering into a commercial property assessed financing assessment contract for any commercial property, the commercial property owner shall provide the authority and the commercial property assessed financing lender with evidence of the written consent of each holder or loan servicer of any mortgage that encumbers or otherwise secures the commercial property, where the consent is in the sole and absolute discretion of each holder or loan servicer of a mortgage on the commercial property, at the time of the execution of the commercial property assessed financing assessment contract by the parties; provided that the consents shall be in a form prescribed by the authority;
(7) At or before the time a purchaser executes a contract for the sale and purchase of any commercial property for which a non-ad valorem special tax assessment has been levied under this part and has an unpaid balance due, the seller shall give the prospective purchaser a written disclosure statement notifying the prospective purchaser of the commercial property assessed financing assessment;
(8) The term of the commercial property assessed financing assessment contract shall not exceed the useful life of the qualifying improvement being installed or the weighted average useful life of all qualifying improvements being financed if multiple qualifying improvements are being financed, as determined by the authority; and
(9) Before the execution by the authority
of the first commercial property assessed financing assessment contract in a
county, the authority shall enter into a contract with the county director of
finance or county director of budget and fiscal services to cause the county
director to levy and collect any commercial property assessed financing
assessment approved and certified by the authority to the director for
collection. [The] Except as
provided for commercial property assessed financing assessments in chapter 514B,
the county director shall levy and collect any commercial property assessed
financing assessment approved by the authority.
Each commercial property assessed financing assessment that is approved
for collection shall be a non-ad valorem special tax assessment and shall be
collected in the same manner as general real property taxes are collected and
be subject to the same penalties and same procedure, sale, and lien priority,
subject to this section, in the case of delinquency as is provided by general
law for the default of the payment of real property taxes, unless another
procedure, including stand-alone billing and collection, is agreed upon by the
authority and the county director. The
county director may add to any commercial property assessed financing
assessment reasonable administrative costs as agreed upon by the authority and
the county director. The county director
shall remit any commercial property assessed financing assessments collected,
less any reasonable administrative costs added by the county director, to or on
the direction of the authority, for further application by the authority to pay
each commercial property assessed financing lender and to pay the reasonable
administrative costs of the authority in accordance with each commercial
property assessed financing assessment contract. The county director shall covenant in a
contract or instrument, for the benefit of any commercial property assessed
financing lender or bondholder, to commence and diligently pursue to completion
the foreclosure of delinquent commercial property assessed financing
assessments and any penalty, interest, and costs by advertisement and sale and
with the same effect as provided by general law for sales of real property
pursuant to default in payment of property taxes. The covenant shall specify a deadline for
commencement of the foreclosure sale and any other terms and conditions the
county director of finance or county director of budget and fiscal services
determines reasonable regarding the foreclosure sale. For commercial property assessed financing
assessments levied but not paid when due pursuant to a commercial property
assessed financing assessment contract, the foreclosure of the lien of the
commercial property assessed financing assessment, lien of general real
property taxes or any other assessments levied under section 46-80, or any
other lien foreclosed, shall not accelerate or extinguish the remaining term of
the commercial property assessed financing assessment as approved in the
commercial property assessed financing assessment contract."
SECTION 4. 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 tax
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 5. 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 6. 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] the foregoing
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[.],
and other assessed charges to the unit.
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 valorem special tax
assessments levied upon the project under commercial property assessed
financing, pursuant to section 196-64.5 and due from the association, the cost
of the commercial property assessed financing, including all principal,
interest, commitment fees, servicing fees, and other expenses payable with
respect to this borrowing or the enforcement of the obligations under the
borrowing, shall be a common expense of the project and the 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 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 7. 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 tax 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] before
the recordation of a notice of a lien by the association, and costs and
expenses including attorneys' fees provided in [such] the
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] before
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] rent 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 8. 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] the 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] the
person or persons by the association."
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, 2024.
Report Title:
Condominiums;
Conservation and Resources; Commercial Property; C-PACER
Description:
Allows
high-rise residential condominium properties to be eligible for commercial
property assessed financing. (SD2)
The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.