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THE SENATE |
S.B. NO. |
2727 |
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THIRTY-SECOND LEGISLATURE, 2024 |
S.D. 2 |
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STATE OF HAWAII |
H.D. 2 |
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A BILL FOR AN ACT
RELATING TO CONDOMINIUMS.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
Subsequent amendments to the Revised Ordinances of Honolulu by city and county of Honolulu Ordinance Nos. 19-4 and 22-2 offered flexibility in meeting the evaluation requirements and extended the timeframe for compliance. However, since the enactment of the two ordinances, concerns and challenges to the ordinances have been raised by residential high‑rise building unit owners regarding the difficulty of achieving compliance with the fire sprinkler retrofit or alternative life safety evaluation requirements without some form of government financial assistance.
The legislature further finds that, according to recent reports, among the three hundred three remaining condominium properties that submitted life safety evaluations to comply with city and county of Honolulu Ordinance No. 22-2, two hundred eighty-one properties have not yet obtained passing scores while twenty-two properties have been awarded acceptable scores.
Earlier city and county of Honolulu tax credits and financial assistance programs were identified as being too limited to address the degree of financial assistance or public investment needed to retrofit properties for fire sprinklers or install other fire safety upgrades (Ordinance No. 22-2, committee report 44, March 16, 2022). At the same time, residential high‑rise property insurance premiums have increased by approximately one hundred sixteen per cent between 2020 and 2023 for affected properties, according to the department of commerce and consumer affairs interim report for S.C.R. No. 48, S.D. 1 (2023). These premium increases have made traditional bank financing for normal repairs, maintenance, and other reserve requirements even more difficult to obtain.
The legislature also finds that Act 183, Session Laws of Hawaii 2022, authorized within the State commercial property assessed financing, also known as commercial property assessed clean energy and resiliency, or C-PACER financing. C-PACER is an alternative financing option that finances one hundred per cent of qualified capital improvement costs, with terms matching the useful life of the equipment installed, thereby making payments more affordable than a typical equipment loan. C-PACER financing can help condominium properties finance the installation of fire safety, energy efficiency, renewable energy, water conservation, and resiliency measures at more attractive rates and terms than may be currently available with conventional financing.
The purpose of this Act is to enable residential condominiums, including those subject to county fire safety requirements and those suffering damages from the Maui wildfires, to participate in C-PACER financing and provide more clarity to the definition of a commercial property.
SECTION 2. Section 196-61, Hawaii Revised Statutes, is amended as follows:
1. By adding a new definition to be appropriately inserted and to read:
""Property owner" or "owner" means the owner or owners of record of commercial property, except that in the case of a condominium, "property owner" or "owner" means the condominium association and not the owner or owners of individual residential condominium units."
2. By amending the definition of "commercial property" to read:
""Commercial
property" means [any]:
(1) Any existing or new non‑residential
real property [not defined as a residential property, and shall include any],
including any property where there is a leasehold or possessory interest in
the property [and any];
(2) Any multi-family dwelling or
townhouse consisting of five or more units [as well as agricultural];
(3) Any condominium organized under chapter 514B consisting of six or more units; provided that individual residential condominium units shall not be considered commercial property and shall not be eligible to apply for commercial property assessed financing under this part; or
(4) Agricultural property."
SECTION 3. Section 196-64.5, Hawaii Revised Statutes, is amended by amending subsections (b) and (c) to read as follows:
"(b) The authority, as the administrator of the commercial property assessed financing program, shall coordinate with each county to bill and collect a non-ad valorem special tax assessment on a benefitted commercial property or, in the case of a condominium, an assessment against the condominium association, as a repayment mechanism on the real property tax bill or stand-alone bill. The non-ad valorem special tax assessment on a benefitted commercial property shall not be a generally applicable tax upon the real property but shall be collected in the same manner as real property taxes as a result of a benefit to the commercial property owners for qualifying improvements.
(c) The authority shall design a commercial
property assessed financing program authorized under this section and section
46-80(b) that addresses market needs while attracting private capital and that
shall, at [a] minimum, include the following elements:
(1) A commercial property assessed financing lender may enter into a commercial property assessed financing assessment contract to finance or refinance a qualifying improvement only with the recorded owner of the affected commercial property and the authority. Each commercial property assessed financing assessment contract shall be executed by the authority as the administrator of the commercial property assessed financing program. A commercial property assessed financing assessment contract shall require the authority to assign, pledge, and transfer revenues to be derived from commercial property assessed financing assessments to one or more commercial property assessed financing lenders as security for their direct financing of qualifying improvements. The obligation of the authority to transfer the revenues to one or more commercial property assessed financing lenders shall be evidenced by the commercial property assessed financing assessment contract as an instrument of indebtedness in a form as may be prescribed by the authority. No other bonds shall be required to be issued by the State, the authority, any county, or any other public entity in order to cause qualifying improvements to be funded through a commercial property assessed financing assessment contract;
(2) Qualifying improvements shall be affixed to a building or facility or affixed to real property, subject to the commercial property assessed financing assessments;
(3) Before entering into a commercial property assessed financing assessment contract, the commercial property assessed financing lender shall reasonably determine that:
(A) The commercial property owner is able to borrow the amount of the property assessed financing using reasonable commercial underwriting practices;
(B) All property taxes applicable to the commercial property, and any other assessments levied on the same bill as property taxes, are paid; and
(C) There are no involuntary liens
applicable to the commercial property, including [but not limited to]
construction liens, that will not be paid or satisfied upon the closing of the
financing;
(4) The commercial property assessed financing assessment contract shall include the amount of an annual assessment over a fixed term that will appear as a non-ad valorem special tax assessment on the commercial property owner's tax bill or stand-alone bill annually;
(5) The commercial property assessed financing assessment contract, or summary memorandum of the contract, shall be recorded by the commercial property assessed financing lender in the public records of the State or of the county within which the commercial property is located within five days after execution by the parties to the contract. The recorded contract shall provide constructive notice of the levy of, and obligation of the commercial property owner to pay, the commercial property assessed financing assessment. The commercial property assessed financing assessment to be levied on the commercial property shall be a non-ad valorem special tax assessment and a lien against the commercial property on a parity with the lien of general real property taxes and the lien of any other assessments levied under section 46-80, from the date of recordation entered into pursuant to this section until paid or satisfied in accordance with the commercial property assessed financing assessment contract;
(6) Before entering into a commercial
property assessed financing assessment contract for any commercial property[,
the]:
(A) The commercial property owner shall
provide the authority and the commercial property assessed financing
lender with evidence of the written consent of each holder or loan servicer of
any mortgage that encumbers or otherwise secures the commercial property, where
the consent is in the sole and absolute discretion of each holder or loan
servicer of a mortgage on the commercial property, at the time of the execution
of the commercial property assessed financing assessment contract by the
parties; provided that the consents shall be in a form prescribed by the
authority; or
(B) For a commercial property that is a
condominium organized under chapter 514B or preceding state law governing
condominium property regimes, as an alternative to subparagraph (A), the
condominium association shall provide the authority and the commercial property
assessed financing lender with evidence of the written consent of each creditor
with a valid Uniform Commercial Code financing statement or mortgage recorded
with the bureau of conveyances that encumbers or otherwise secures the
condominium, where the consent is in the sole and absolute discretion of each
creditor, at the time of the execution of the commercial property assessed
financing assessment contract by the parties; provided that the consents shall
be in a form prescribed by the authority;
(7) At or before the time a purchaser executes a contract for the sale and purchase of any commercial property for which a non-ad valorem special tax assessment has been levied under this part and has an unpaid balance due, the seller shall give the prospective purchaser a written disclosure statement notifying the prospective purchaser of the commercial property assessed financing assessment;
(8) The term of the commercial property assessed financing assessment contract shall not exceed the useful life of the qualifying improvement being installed or the weighted average useful life of all qualifying improvements being financed if multiple qualifying improvements are being financed, as determined by the authority; and
(9) Before the execution by the authority
of the first commercial property assessed financing assessment contract in a
county, the authority shall enter into a contract with the county director of
finance or county director of budget and fiscal services to cause the county
director to levy and collect any commercial property assessed financing
assessment approved and certified by the authority to the director for
collection. [The] Except as
provided for commercial property assessed financing special assessments in
chapter 514B, the county director shall levy and collect any
commercial property assessed financing assessment approved by the
authority. Each commercial property
assessed financing assessment that is approved for collection shall be a non-ad
valorem special tax assessment and shall be collected in the same manner as
general real property taxes are collected and be subject to the same penalties
and same procedure, sale, and lien priority, subject to this section, in the
case of delinquency as is provided by general law for the default of the
payment of real property taxes, unless another procedure, including stand-alone
billing and collection, is agreed upon by the authority and the county
director. The county director may add to
any commercial property assessed financing assessment reasonable administrative
costs as agreed upon by the authority and the county director. The county director shall remit any
commercial property assessed financing assessments collected, less any
reasonable administrative costs added by the county director, to or on the
direction of the authority, for further application by the authority to pay
each commercial property assessed financing lender and to pay the reasonable
administrative costs of the authority in accordance with each commercial
property assessed financing assessment contract. The county director shall covenant in a
contract or instrument, for the benefit of any commercial property assessed
financing lender or bondholder, to commence and diligently pursue to completion
the foreclosure of delinquent commercial property assessed financing
assessments and any penalty, interest, and costs by advertisement and sale and
with the same effect as provided by general law for sales of real property
pursuant to default in payment of property taxes. The covenant shall specify a deadline for
commencement of the foreclosure sale and any other terms and conditions the
county director of finance or county director of budget and fiscal services
determines reasonable regarding the foreclosure sale. For commercial property assessed financing
assessments levied but not paid when due pursuant to a commercial property
assessed financing assessment contract, the foreclosure of the lien of the
commercial property assessed financing assessment, lien of general real property
taxes or any other assessments levied under section 46-80, or any other lien
foreclosed, shall not accelerate or extinguish the remaining term of the
commercial property assessed financing assessment as approved in the commercial
property assessed financing assessment contract."
SECTION 4. Section 514B-4, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:
"(b) If
there is any unit owner other than a developer, each unit shall be separately
taxed and assessed, and no separate tax or assessment [may] shall
be rendered against any common elements.
The laws relating to home exemptions from state property taxes are
applicable to individual units, which shall have the benefit of home exemption
in those cases where the owner of a single-family dwelling would qualify. Property taxes assessed by the State or any
county shall be assessed and collected on the individual units and not on the
property as a whole. Commercial
property assessed financing program non-ad valorem special tax assessments,
pursuant to section 196-64.5, may be imposed upon the project, as described by
the project's master deed, declaration, and map pursuant to part III; provided
that a commercial property assessed financing contract is entered into by an association
with an approved commercial property assessed financing lender and the Hawaii
green infrastructure authority.
Without limitation of the foregoing, each unit and its appurtenant
common interest shall be deemed to be a "parcel" and shall be subject
to separate assessment and taxation for all types of taxes authorized by law,
including[,] but not limited to[,] other non-commercial
property assessed financing program special
assessments."
SECTION 5. Section 514B-41, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:
"(a) The common profits of the property shall be
distributed among, and the common expenses shall be charged to, the unit
owners, including the developer, in proportion to the common interest
appurtenant to their respective units, except as otherwise provided in the
declaration or bylaws. In a mixed-use
project containing units for both residential and nonresidential use, the
charges and distributions may be apportioned in a fair and equitable manner as
set forth in the declaration. Except as
otherwise provided in subsection (c) or the declaration or bylaws, all limited
common element costs and expenses, including but not limited to maintenance,
repair, replacement, additions, and improvements, including capital
improvements financed by commercial property assessed financing, shall be
charged to the owner or owners of the unit or units to which the limited common
element is appurtenant in an equitable manner as set forth in the
declaration."
SECTION 6. Section 514B-105, Hawaii Revised Statutes, is amended as follows:
1. By amending subsection (c) to read:
"(c) Any payments made by or on behalf of a unit
owner shall first be applied to outstanding common expenses that are assessed
to all unit owners in proportion to the common interest appurtenant to their
respective units[.], including commercial property assessed financing
special assessments. Only after [said]
the outstanding common expenses have been paid in full may the payments
be applied to other charges owed to the association, including [assessed
charges to the unit such as] ground lease rent, utility sub-metering,
storage lockers, parking stalls, boat slips, insurance deductibles, [and]
cable[.], and other assessed charges to the unit. After these charges are paid, other charges,
including unpaid late fees, legal fees, fines, and interest, may be assessed in
accordance with an application of payment policy adopted by the board; provided
that if a unit owner has designated that any payment is for a specific charge
that is not a common expense as described in this subsection, the payment may
be applied in accordance with the unit owner's designation even if common
expenses remain outstanding."
2. By amending subsection (e) to read:
"(e) Subject to any approval requirements and spending limits contained in the declaration or bylaws, the association may authorize the board to borrow money for the repair, replacement, maintenance, operation, or administration of the common elements and personal property of the project, or the making of any additions, alterations, and improvements thereto; provided that written notice of the purpose and use of the funds is first sent to all unit owners and owners representing fifty per cent of the common interest vote or give written consent to the borrowing. In connection with the borrowing, including non‑commercial property assessed financing, the board may grant to the lender the right to assess and collect monthly or special assessments from the unit owners and to enforce the payment of the assessments or other sums by statutory lien and foreclosure proceedings. The cost of the borrowing, including, without limitation, all principal, interest, commitment fees, and other expenses payable with respect to the borrowing or the enforcement of the obligations under the borrowing, shall be a common expense of the project.
For
non-ad valorem special tax assessments levied upon the project under commercial
property assessed financing, pursuant to section 196-64.5, and due from the
association, the cost of the commercial property assessed financing, including
all principal, interest, commitment fees, servicing fees, and other expenses
payable with respect to this borrowing or the enforcement of the obligations under
the borrowing, shall be a common expense of the project, and the unit owners'
proportionate share of the special assessment shall be collected in the same
manner as common expenses. The written
consent of at least fifty per cent of all unit owners to finance qualifying
improvements with commercial property assessed financing shall include an
acknowledgment that the annual special assessment required to debt service the
commercial property assessed financing shall be included as part of the
association's adopted revised budget.
For
purposes of this section, the financing of insurance premiums by the
association within the policy period shall not be deemed a loan and no lease
shall be deemed a loan if it provides that at the end of the lease the association
may purchase the leased equipment for its fair market value."
SECTION 7. Section 514B-146, Hawaii Revised Statutes, is amended by amending subsection (l) to read as follows:
"(l) For purposes of subsections
(j) and (k), the following definitions shall apply, unless the context requires
otherwise:
"Completion"
means:
(1) In a nonjudicial power of sale foreclosure, when
the affidavit after public sale is recorded pursuant to section 667-33; and
(2) In a judicial foreclosure, when a purchaser is
deemed to acquire title pursuant to subsection (b).
"Regular
monthly common assessments" does not include:
(1) Any other special assessment, except for a
special assessment imposed on all units as part of a budget adopted pursuant to
section 514B‑148[;], including commercial
property assessed financing special assessments;
(2) Late charges, fines, or penalties;
(3) Interest assessed by the association;
(4) Any lien arising out of the assessment; or
(5) Any fees or costs related to the collection or
enforcement of the assessment, including attorneys' fees and court costs."
SECTION 8. Section 514B-157, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:
"(a) All
costs and expenses, including reasonable attorneys' fees, incurred by or on
behalf of the association for:
(1) Collecting any delinquent assessments,
including commercial property assessed financing special assessments, against any owner's unit;
(2) Foreclosing any lien thereon; or
(3) Enforcing any provision of the declaration,
bylaws, house rules, and this chapter, or the rules of the real estate
commission;
against an owner, occupant, tenant, employee of
an owner, or any other person who may in any manner use the property, shall be
promptly paid on demand to the association by [such] the person
or persons; provided that if the claims upon which the association takes any
action are not substantiated, all costs and expenses, including reasonable
attorneys' fees, incurred by any [such] person or persons as a result of
the action of the association, shall be promptly paid on demand to [such]
the person or persons by the association."
SECTION 9. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 10. This Act shall take effect on July 1, 3000.
Report Title:
Condominiums;
Commercial Property; C-PACER; Commercial Property Assessed Clean Energy and
Resiliency
Description:
Allows
condominiums to be eligible for commercial property assessed financing. Effective 7/1/3000. (HD2)
The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.