SB253 SD2

SECTION 1. The legislature finds that existing law requires condominium owners to be entitled to disclosure of information about the replacement reserves maintained by an association in which they own a unit. Recent efforts to increase transparency and accuracy include Act 62, Session Laws of Hawaii 2022, which provides for periodic review of a reserve study by an independent reserve study preparer and lengthens the study period to thirty years, and Act 199, Session Laws of Hawaii 2023, which requires that a detailed budget summary be prepared to better inform owners of the financial condition of an association.

Despite these efforts to emphasize the importance of compliance with the disclosure requirements relating to association fiscal matters, further amendments are needed to explicitly state that the defense of good faith compliance shall be unavailable to any association whose board adopts a budget that omits the mandated budget summary. Moreover, clarifications are needed concerning unit owners' standing to enforce compliance and that an association has the burden of proving compliance when violations are alleged.

Accordingly, the purpose of this Act is to:

(1) Require a detailed budget summary as required by section 514B-148, Hawaii Revised Statutes, to contain all required information without referring the reader to other portions of the budget or reserve study;

(2) Exclude the good faith defense for an association whose board adopts a budget that omits a detailed budget summary required by section 514B‑148(a), Hawaii Revised Statutes; and

(3) Clarify a unit owner's standing and the association's burden of proving substantial compliance.

SECTION 2. Section 514B-148, Hawaii Revised Statutes, is amended as follows:

1. By amending subsection (a) to read:

"(a) The budget required under section 514B-144(a) shall include a summary with at least the following details:

(1) The estimated revenues and operating expenses of the association;

(2) Disclosure as to whether the budget has been prepared on a cash or accrual basis;

(3) The estimated costs of fire safety equipment or installations that meet the requirements of a life safety evaluation required by the applicable county for any building located in a county with a population greater than five hundred thousand; provided that the reserve study may forecast a loan or special assessment to fund life safety components or installation;

(4) The balance of the total replacement reserves fund of the association as of the date of the budget;

(5) The estimated replacement reserves assessments that the association will require to maintain the property based on a reserve study performed by or on behalf of the association; provided that the reserve study, if not prepared by an independent reserve study preparer, shall be reviewed by an independent reserve study preparer not less than every three years; provided further that a managing agent with industry reserve study designations shall not be considered as having a conflict of interest for purposes of this paragraph;

(6) A general explanation of how the estimated replacement reserves assessments are computed and detailing:

(A) The identity, qualifications, and potential conflicts of interest of the person or entity performing the reserve study, update, or any review thereof;

(B) Disclosure of any component of association property omitted from the reserve study and the basis for the omission;

(D) Whether the actual estimated replacement reserves assessments for the prior year as defined in the study was less than the assessments provided for in the reserve study, and, if so, by how much, and explaining the impact of the lesser assessments on future estimated replacement reserves assessments;

(7) The amount the association must collect for the fiscal year to fund the estimated replacement reserves assessments; and

(8) Information as to whether the amount the association must collect for the fiscal year to fund the estimated replacement reserves assessments was calculated using a per cent funded or cash flow plan. The method or plan shall not circumvent the estimated replacement reserves assessments amount determined by the reserve study pursuant to paragraph (5).

The summary shall contain all required information without referring the reader to other portions of the budget or reserve study."

2. By amending subsection (d) to read:

"(d) No association or unit owner, director, officer, managing agent, or employee of an association who makes a good faith effort to calculate the estimated replacement reserves assessments for an association shall be liable if the estimate subsequently proves incorrect[.]; provided that this subsection shall not apply to an association if its board adopts a budget that omits the summary required by subsection (a)."

3. By amending subsection (g) to read:

"(g) [~~Subject to the procedures of section 514B‑157 and any rules adopted by the commission, any~~] Any unit owner whose association board fails to substantially comply with this section [~~may~~] shall have standing to bring an action to enforce compliance by the board. In any [~~proceeding~~] action to enforce compliance, a board [~~that has not prepared an annual operating budget and reserve study~~] shall have the burden of proving it has substantially complied with this section."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2050.

THE SENATE	S.B. NO.	253
THIRTY-THIRD LEGISLATURE, 2025		S.D. 2
STATE OF HAWAII