STAND. COM. REP. NO. 3260

                                   Honolulu, Hawaii
                                                     , 2000

                                   RE:  H.B. No. 2846
                                        H.D. 1




Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Sir:

     Your Committee on Commerce and Consumer Protection, to which
was referred H.B. No. 2846, H.D. 1, entitled: 

     "A BILL FOR AN ACT RELATING TO CONDOMINIUM PROPERTY
     REGIMES,"

begs leave to report as follows:

     The purpose of this measure is to clarify the
responsibilities and obligations of associations of apartment
owners (AOAOs) and lessees in lease rent renegotiations. 

     Testimony on the measure was received from the Hawaii
Council of Associations of Apartment Owners, Hawaii Leaseholders
Equity Coalition, Monarch Properties, Inc., Anderson and Neeley,
and an individual. 

     In 1993, the Legislature authorized the sale of leased fee
interests to individual lessees owning units in a condominium or
cooperative project.  Subsequently, some condominium units
underwent a lease-to-fee conversion, while others did not,
resulting in condominium projects with mixed ownership.

     The problem presented by mixed ownership in a building
arises when association members with a leasehold interest must
renegotiate their lease rents.  For many projects, neither the
lease documents nor the condominium documents specify who is
responsible for conducting or paying for the lease
renegotiations.  Association members who have converted their
lease interest to fee object to the use of association funds to

 
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                                   STAND. COM. REP. NO. 3260
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pay for renegotiation when the process only benefits those
association members with a leasehold interest, and the
conflicting interests of association members have resulted in
litigation.

     This measure addresses these unresolved issues arising out
of the lease-to-fee conversion law by requiring that AOAOs
represent apartment owners in lease rent negotiations and that
the costs of renegotiation be assessed against the lessees only,
and not against AOAO members who own their fee.  Designating the
AOAO as the lessees' representative will result in more efficient
and equitable negotiations, place the lessees in a more favorable
bargaining position, and should result in the lowest negotiation
costs to lessees on a per unit basis.  Further, by requiring an
assessment against lessee members for the costs of renegotiation,
this measure protects the interests of non-lessee members in
association funds.

     Your Committee finds that the proposed law should not apply
where the lessees are able to organize all of the lessees subject
to lease renegotiation and can raise the funds to cover the costs
of renegotiation.  Your Committee further finds that lessees
should be included in the group appointed by the AOAO board to
conduct the lease renegotiation, and that AOAO bylaws permit a
board to levy additional assessments for interest, penalties, and
late charges against those lessee members who fail to pay their
assessments to cover the costs of renegotiation.

     As affirmed by the record of votes of the members of your
Committee on Commerce and Consumer Protection that is attached to
this report, your Committee is in accord with the intent and
purpose of H.B. No. 2846, H.D. 1, and recommends that it pass
Third Reading.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Commerce and
                                   Consumer Protection,



                                   ______________________________
                                   BRIAN KANNO, Co-Chair



                                   ______________________________
                                   BRIAN T. TANIGUCHI, Co-Chair

 
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