Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committee on Consumer Protection and Commerce, to which was referred H.B. No. 161 entitled:

begs leave to report as follows:

The purpose of this bill is to remove duplicative regulation from the short-term apartment rental industry by providing that the sale of condominium rental management contracts by licensed real estate brokers or salespersons, regardless of whether an apartment is to be sold, is a securities transaction that is exempt from the securities registration and filing requirements of the Hawaii Uniform Securities Act (Securities Act).

Testimony in support of this bill was submitted by Outrigger Hotels and the law offices of Chun, Kerr, Dodd, Beaman & Wong. The Department of Commerce and Consumer Affairs commented.

Your Committee finds that the current securities law provides an exemption that relieves a condominium developer and hotel or rental pool operator from burdensome Securities Act registration and filing requirements. The current exemption applies to transactions involving the offer or sale of both a condominium apartment and a rental management contract, which is conducted by a licensed real estate salesperson or broker. Oversight of the transaction is accomplished by regulating the licensed real estate salesperson or broker, and through the Securities Commissioner's ability to enforce the anti-fraud provisions of the Securities Act.

There is considerable debate over what elements of this type of transaction make it a security or a securities transaction. This bill would allow a licensed salesperson's or broker's sale of a rental management arrangement or program without the offer of sale of an apartment, to constitute a securities transaction that falls within the exemption from the registration and filing requirements of the Securities Act. The exemption would cover situations where an apartment owner participates in, and commits the use of the apartment to a rental management program or pool.

Although your Committee recognizes the potential benefits articulated by the bill's supporters, this measure should be more closely examined to determine whether the proposed changes would adversely affect the interest of consumers and investors.

In light of these concerns, your Committee has amended this measure by:

As affirmed by the record of votes of the members of your Committee on Consumer Protection and Commerce that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 161, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 161, H.D. 1, and be placed on the calendar for Third Reading.