STAND. COM. REP. NO. 1604

                                   Honolulu, Hawaii
                                                     , 1999

                                   RE:  H.B. No. 1276
                                        H.D. 1
                                        S.D. 2




Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 1999
State of Hawaii

Sir:

     Your Committee on Ways and Means, to which was referred H.B.
No. 1276, H.D. 1, S.D. 1, entitled: 

     "A BILL FOR AN ACT RELATING TO CONDOMINIUMS,"

begs leave to report as follows:

     The purposes of this measure are to:

     (1)  Clarify that projects created and established as
          condominium property regimes are subject to county land
          use zoning ordinances and development requirements;

     (2)  Establish a fair market value standard for negotiating
          the value of the leased fee interest to be purchased by
          a lessee; 

     (3)  Clarify the powers of the boards of directors of
          associations of apartment owners to enter into purchase
          agreements with lessors;

     (4)  Add two additional seats to the Real Estate Commission
          who represent the interests of condominium governance
          organizations and prohibit the use of the education
          fund for purposes other than the condominium education
          fund; and

     (5)  Grant condominium associations authority to terminate
          common utilities after establishing policies and

 
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          informing tenants; establish a six-month priority lien
          when maintenance fees have not been paid on a
          condominium; require the mortgage holder to pay
          maintenance fees of a foreclosed condominium; and
          permit condominium associations to invest in
          obligations that have stated maturities of no more than
          one year.

Fair Market Value Standard

     This measure permits leases and subleases entered into
before the effective date of the Act to use a fair market value
standard, and requires it to be used in leases and subleases
entered into on and after the effective date of the Act.  Your
Committee finds that the standard is based on the fair market
value of the property and will ensure fairness in the valuation
process.

Voluntary Lease-Fee Conversion

     This measure requires that bylaws provide that an
association of apartment owners may purchase the lessor's
interest in the condominium project, provided that the
declaration of condominium property regime either contain or be
amended to include a provision authorizing the board of directors
to effectuate such a purchase; and that if the association of
apartment owners purchases the lessor's interest, certain
specified powers shall be conferred upon the association of
apartment owners, including the power to purchase or otherwise
acquire, own, improve, use, and otherwise deal in and with the
leased fee interest to the land or any or all undivided interests
therein.

Condominium Maintenance Fees

     Your Committee finds that maintenance fees are the primary
source of income for condominium associations.  These fees are
needed to maintain, repair, and operate a condominium.

     Your Committee finds that oftentimes a tenant is utilizing
services the association provides, such as electric, water, and
recreational amenities, yet the mortgage holder or foreclosure
receiver or commissioner does not pay the maintenance fees for
the unit.

     Your Committee finds that association losses can run from
$3,500 to $7,000 or more per foreclosure.  In a long foreclosure,
a receiver or commissioner may collect $5,000 or more from a
tenant and none of the money goes to the association.

 
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     Your Committee finds that delinquent maintenance fees are a
continuing problem for the condominium associations and their
respective governing boards are responsible for ensuring the
financial solvency of the associations and the provision of
services guaranteed to the owners and occupants.  Your Committee
further finds that existing law requires associations to maintain
a certain level of revenue in a reserve fund in anticipation of
large expenditures for common-area maintenance and improvements,
which expenses should be borne by all owners.   
 
     Your Committee finds that this measure will provide some
financial relief to condominium owners who are currently
subsidizing the common expenses of units in foreclosure when a
court-appointed receiver or commissioner is collecting the rent
but not paying the current common expenses to the association of
apartment owners.

Condominium Association Funds

     Your Committee finds that currently, condominium
associations are required to deposit their funds in a financial
institution in the State.  However, there is an inadequate number
of financial institutions in the State in which condominium
associations may legally deposit their funds.  Due to the
$100,000 federal insurance limit on accounts, many associations
have uninsured moneys deposited in financial institutions in
Hawaii, which may cause a breach of their fiduciary duty to the
condominium owners.

     Your Committee finds that allowing condominium associations
to deposit funds in out-of-state financial institutions and
credit unions will expand investment opportunities as well as
provide protection to the condominium associations' reserve
funds.

     Your Committee has amended this measure by deleting the
contents in its entirety and replacing it with similar provisions
from S.B. No. 876, S.D. 2, S.B. No. 285, S.D. 1, S.B. No. 112,
S.D. 1, and S.B. No. 36, S.D. 2.  

     The measure, as amended, differs from the measure, as
received as follows:

     (1)  The part subjecting and minimizing to county zoning and
          prohibiting condominiums on agricultural lands was
          deleted;

     (2)  The part relating to condominium maintenance fees was
          amended to:

 
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          (A)  Allow a written notice to be sent to the owner,
               tenant, and mortgagee regarding termination of
               utilities for non-payment of maintenance fees;

          (B)  Change the provision allowing association liens to
               be prior to any mortgages, to allowing association
               liens in an unspecified chronology to mortgages;

          (C)  Change the period of recovery of unpaid
               assessments from six months preceding any legal
               collection action to an unspecified period
               preceding such action;

          (D)  Give judicial foreclosure actions priority over
               actions by the association to make collections;

          (E)  Require the mortgagee of record or other purchaser
               upon transfer of title to pay the apartment's
               share of assessments within an unspecified time
               after the hearing at which the sale is confirmed;
               and

          (F)  Delete the provisions which allow the association
               to collect arrearages from tenants; and

     (3)  Technical, non-substantive changes for the purposes of
          clarity and style were made throughout.

     As affirmed by the record of votes of the members of your
Committee on Ways and Means that is attached to this report, your
Committee is in accord with the intent and purpose of H.B.
No. 1276, H.D. 1, S.D. 1, as amended herein, and recommends that
it pass Third Reading in the form attached hereto as H.B.
No. 1276, H.D. 1, S.D. 2.

                                 Respectfully submitted on behalf
                                 of the members of the Committee
                                 on Ways and Means,



                                 ________________________________
                                 CAROL FUKUNAGA, Co-Chair



                                 ________________________________
                                 ANDREW LEVIN, Co-Chair

 
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