STAND. COM. REP. NO.3224

Honolulu, Hawaii

, 2002

RE: H.B. No. 2413

H.D. 1

S.D. 1

 

 

Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection and Housing, to which was referred H.B. No. 2413, 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 establish requirements for the bulk purchase of the remaining fee interests in a condominium partially converted to fee simple by an association of apartment owners (AOAO).

Monarch Properties, Inc. supported this measure. The Community Associations Institute (CAI) supported the measure with amendments.

Your Committee finds that among owners of multiple fee interests in a condominium project in which portions of the fee have already been sold by the fee owner to individual condominium owner/lessees, there is a greater interest in selling the remaining leased fee interests in a bulk transaction to the condominium owners association. These transactions enable the fee owner to be totally divested of the owner's interest in the condominium while allowing the AOAO to negotiate a purchase price that includes a bulk sale discount. Therefore, this measure establishes the requirements and conditions for a bulk purchase of the remaining fee interest in a condominium by an AOAO.

Your Committee has amended this measure to incorporate changes proposed by CAI. As amended, this measure:

(1) Allows, but does not require a bulk purchase of the remaining fee interests by an AOAO;

(2) Clarifies that the bulk purchase provisions do not apply when the AOAO has acquired the leased fee interest and then sells it directly to its members;

(3) Allows an AOAO to negotiate for the purchase of some, but not necessarily all of the remaining leased fee interest, to address those situations where the lessor may not be willing to sell the entire leased fee interest;

(4) Replaces the requirement that seventy-five per cent of the remaining lessees give their written consent to the purchase at the time the lessor offers to sell the remaining leased fee interest with the requirement that seventy-five per cent of the remaining lessees approve an amendment to the declaration that authorizes the AOAO's purchase of the remaining fee;

(5) Eliminates the requirement that at least seventy-five per cent of the remaining lessees purchase the fee interest from the AOAO in simultaneous closings, because AOAOs may vary in the number of lessees they are willing or able to carry, and additionally, back-to-back closings may not be feasible;

(6) Provides that, after the purchase of the remaining fee interest by the AOAO, the remaining lessees share in the proceeds and benefits resulting from the purchase, in addition to sharing in the costs and expenses;

(7) Provides that if a lessee declines to purchase the leased fee interest from the AOAO, the association may sell the interest to another party, subject to providing disclosure of its intent to do so to the lessee and including a caveat in its disclosure;

(8) Allows an AOAO to refuse to purchase a lessor's remaining leased fee interest if the purchase would not be financially feasible or would not be in the association's best interest, and requires the association to adopt a resolution containing the reasons for its refusal;

(9) Defines "remaining lessees" as those lessees who have not purchased the leased fee interest in their apartments as of the effective date of the amendment to the declaration authorizing the AOAO's purchase;

(10) Provides that "condominium unit" has the same meaning as "apartment" as that term is defined in section 514A-3, Hawaii Revised Statutes;

(11) Contains a saving clause to avoid any claims that prior purchases, conveyances, mortgages, loans, or allocations are invalid; and

(12) Is effective upon its approval, rather than on July 1, 2050.

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection and Housing that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 2413, H.D. 1, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 2413, H.D. 1, S.D. 1, and be placed on the calendar for Third Reading.

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

____________________________

RON MENOR, Chair