HB2282

SECTION 1. The legislature finds that section 514B-83, Hawaii Revised Statutes, requires developers of new condominium projects to issue a public report so that consumers understand what they are buying as well as their obligations. With the increase in the construction and sale of affordable housing projects, this requirement is increasingly important to protect consumers from unanticipated costs. The legislature further finds that there has been a recent trend in which new developments have implemented significant increase in maintenance fees -- as much as seventy per cent -- due to the failure of the developer to include reserve contributions calculated pursuant to Hawaii administrative rules, title 16, chapter 107.

The legislature additionally finds that it is important that consumers know what their financial obligations are when purchasing a home. The changes in this Act provide that the developer, in addition to estimating maintenance fees using the accrual method of accounting, must also estimate the reserve contributions based on a reserve study in conformance with the Hawaii administrative rules. Furthermore, the condominium industry itself provides for a transitional reserve study, named Level IV by some trade associations, specifically for new developments.

Moreover, the legislature further finds that nationally, a cash flow plan for condominiums generally covers a thirty-year period whereas existing Hawaii law covers only twenty years. This difference allows reserve study preparers to eliminate large components in the study for ten years, which reduces current reserve contributions but ultimately results in large reserve contribution increases in future years. This Act changes Hawaii's requirement to thirty years to conform with national practices. This Act also provides fuller disclosure to consumers and results in a more accurate and even rate of reserve contributions.

SECTION 2. Section 514B-83, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) A developer's public report shall contain:

(1) The name and address of the project, and the name, address, telephone number, and electronic mail address, if any, of the developer or the developer's agent;

(2) A statement of the deadline, pursuant to section 514B‑89, for completion of construction or, in the case of a conversion, for the completion of any repairs required to comply with section 514B‑5, and the remedies available to the purchaser, including but not limited to cancellation of the sales contract, if the completion of construction or repairs does not occur on or before the completion deadline;

(3) A breakdown of the annual maintenance fees, which shall include annual reserve contributions based on a reserve study, and the monthly estimated cost for each unit, certified to have been based on generally accepted accounting principles, and a statement regarding when a purchaser shall become obligated to start paying the fees pursuant to section 514B‑41(b);

(4) A description of all warranties for the individual units and the common elements, including the date of initiation and expiration of any such warranties, or a statement that no warranties exist;

(5) A summary of the permitted uses of the units and, if applicable, the number of units planned to be devoted to a particular use;

(6) A description of any development rights reserved to the developer or others;

(7) A declaration, subject to the penalties set forth in section 514B‑69(b), that the project is in compliance with all county zoning and building ordinances and codes, chapter 205, including section 205-4.6 where applicable, and all other county permitting requirements applicable to the project, pursuant to sections 514B‑5 and 514B‑32(a)(13); and

(8) Any other facts, documents, or information that would have a material impact on the use or value of a unit or any appurtenant limited common elements or amenities of the project available for an owner's use, or that may be required by the commission."

SECTION 3. Section 514B-148, Hawaii Revised Statutes, is amended by amending subsection (h) to read as follows:

"(h) As used in this section:

"Capital expenditure" means an expense that results from the purchase or replacement of an asset whose life is greater than one year, or the addition of an asset that extends the life of an existing asset for a period greater than one year.

"Cash flow plan" means a minimum [~~twenty-year~~] thirty-year projection of an association's future income and expense requirements to fund fully its replacement reserves requirements each year during that [~~twenty-year~~] thirty-year period, except in an emergency; provided that it does not include a projection of special assessments or loans during that [~~twenty-year~~] thirty-year period, except in an emergency.

"Emergency situation" means any extraordinary expenses:

(1) Required by an order of a court;

(2) Necessary to repair or maintain any part of the property for which the association is responsible where a threat to personal safety on the property is discovered;

(3) Necessary to repair any part of the property for which the association is responsible that could not have been reasonably foreseen by the board in preparing and distributing the annual operating budget;

(4) Necessary to respond to any legal or administrative proceeding brought against the association that could not have been reasonably foreseen by the board in preparing and distributing the annual operating budget; or

(5) Necessary for the association to obtain adequate insurance for the property which the association must insure.

"Major maintenance" means an expenditure for maintenance or repair that will result in extending the life of an asset for a period greater than one year.

"Replacement reserves" means funds for the upkeep, repair, or replacement of those parts of the property, including but not limited to roofs, walls, decks, paving, and equipment, that the association is obligated to maintain."

SECTION 4. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	2282
THIRTY-FIRST LEGISLATURE, 2022
STATE OF HAWAII