 afternoon everyone and happy new year welcome to all 2,022 and a new year and a new bunch of episodes of condo insider and I'm really pleased to say that this is our third year I can't believe we're doing year 3 and this is all because of senator Roslyn Baker who challenged us to come up with some kind of a platform where we could offer education to condo owners and board members and people in the industry that was free and could be seen through any device without going to a meeting. So thank you for joining us and I have as my guest today Tim Apochella who's part of the board of the Hawaii council and we're going to be talking about the year that was and what can we expect this year and what kind of things can we expect this year. So let's start with some legislators stuff. Tim thank you for being my guest today. Oh thank you for having me and it's good to be back on condo insider. I love the show. Well you know the Florida condo collapse I mean that that was a big wake up call for Hawaii but you know luckily we have in place something called a budget and reserves law and I've been told that it's kind of it's it's kind of good and it's better than most of the types of statutes you know on the mainland. The problem with our statute is it really has no discretion. It doesn't say when you will do the reserve study you know how you know how often you have to do it and who has to do it and you know so you know there are some concerns because with the Florida collapse what happened is it was all within the discretion of the board and and somebody dropped the ball and look at what happened right and so I guess the concern is okay we got to do something to make sure that what happened in Florida doesn't happen here and so I'm hearing some stuff and I just want to get your feedback and this is I mean as we speak the legislature just opened up yesterday and there are bills in the hopper and I'm kind of interested to see what's coming out but what this is what I've heard the budget budget and reserves law is chapter 514 b 148 for those of people who want to look it up on the internet and see what it's all about but that ordinance you know requires boards to do a reserve study and when they do their budget on every year which they're supposed to do they got to figure out how much money to sock away for the deferred maintenance right the stuff that doesn't happen every year like the roof the spalling the building painting right so that there's money when it comes time to do those repairs just money so you don't have to special assess the owners and you know the challenge there is that you know a lot of the people who sit on boards they think keeping maintenance fees low is a good thing and that makes them popular you know with all the other owners oh yeah this is a good thing we're not going to raise maintenance fees but what happens in the end you don't have money to spend on repairs and you have a situation like the condo collapse that happened in you know this past year so you know so they're looking at ways to try to address it and one thing uh i uh i heard that trying to do they're going to do is insert language that says who can do the reserve study and it's got to be somebody who's a certified reserve specialist not connected or affiliated with the managing agent because that's a conflict of interest and a lot of what i'm hearing is that there are some management companies out there who somehow have reserve specialists and they provide this service to their associations have you heard that well yeah i've heard that and also there seems to be in my mind um the closing of the loop of responsibility um you know do you did you identify all the the systems that you really need to consider for the next 40 years out uh and did you properly reserve for them and there's a building in my neighborhood and i won't mention the name um i'm sure they feel bad enough as it is but each unit was assessed $108,000 per unit and that was a catastrophic faux pas on the previous boards to not calculate what it's going to cost for a building that has so many glass windows in fact it's really a glass building with some concrete around it rather than a concrete building with glass within it um and so each unit they never set aside for glass in all the 40 years uh 45 years the building's been in existence not a nickel how does that happen yeah well see that's one and that's another change that's going to be made because right now right now the budget and reserve statute says that you will do your a reserve you know you would set up your reserves and you look at a 20 year life uh what is it called a life life expectancy of life is expectancy right yeah and you know what happened because of the 20 years you didn't have pipes included in the reserve study and that's why when you had these buildings where the pipes failed of course pipes were supposed to last 75 years i mean that was what everybody thought we would now we know differently and you know what happened when those pipes failed you had people pointing fingers and say ah it's your fault why didn't you set up a reserve it's because the statute doesn't allow for so now one of the changes that they're going to do is to change that 20 years to make it 30 or longer because now then you know now you're going to have to put in pipes and now a glass you know because that's not a normal item that's on a reserve study and that's what people have to understand is they're going to the reserve study has to be based on their building and what happens is a lot of these reserve studies they're can computer programs right with items on it and and and so the board has to be really cognizant that their their their their equipment and you know their items their reserve study their reserve items are in this can program and if it's not to tell the reserve specialist oh we got this piece of equipment it's not on your can program so you got to add it to your can program and find out what the useful life is and what it's going to cost to replace so that our reserve study is accurate right yeah well let me ask you this um you know florida and and many states have a depending on the age of the building a certification process if it's 40 years old it has to pass a certification that it's a viable building that has a life expectancy and there's no major system failures on the horizon um i kind of thought that at one point maybe hawaii would start considering that that kind of provision but you know they're focusing their attention on the finances and the budget uh you know and the research not recertification but the the reserve report and you know that's a good way to go to but i just curious what you thought about um a building certification process well that that there was a there was a time uh where a bill like that was in the legislature in the city council do you remember a couple years ago around christmas time there were some people there were two guys and they were contractor people and they were at the alamuana shopping center and they were fixing something and they they fell against the rail and the rail failed and they fell one was killed one was injured we do remember that yes right because of that there was a bill introduced in the city council called a building envelope um bill which would have called for periodic a building envelope what you would have somebody inspect the outside of a building to make sure it was structured structurally sound and that would include you know with residential buildings you're talking about lanais and the railings right because the railings sit in concrete and if you have sprawling i mean that what what the what the sprawling does is it goes in and it it affects the rebars and you can't see it except that there might be cracks on the lanai but you know you don't know if that railing is secure unless you have somebody actually go up and check it right and so so that so so there was a building envelope bill and you know the uh although we we uh hawai council went in and we uh opposed it dpp opposed it as well they said we don't have the you know this is government you don't have the money we don't have the inspectors you're going to give us more money because if you don't give us more money then then you know we oppose this bill and we didn't want it because we've had it it's going to be more cost for us you know that means we got to go out and hire engineers and we got to do something to submit a report you know just like we do with the fire safety and you know right now based on and we're going to get to the fire safety unintended consequences of you know having you know of the fire safety ordinance and and and now we have a big insurance problem and and you know so i'm i'm i'm very hesitant i'm very hesitant to support new legislation that would make give us another requirement that the buildings have to do because we have an existing law we have the building and reserve and if we tighten that up you know and we can get and we can educate boards with which is what hawai council does which is what cai does the um real estate commission real estate branch of this uh the dcca they do seminars if we all you know get together because we all teach the same thing y'all and we we talk about budget and reserves all the time and now because of the condo collapse they're talking about it even more and you know because you know you take you know rather than passing a new law let's work with the old law and what they're doing what i've heard is they're going to they're they're saying you know saying very specifically who can who should be doing this and saying you got to do it every two or three years and one thing that i suggest it is that if you you know if you haven't done i mean if you're a reserve study now you should you know because all the reserve studies have dates on it you should look at the dates and if it was done before 2020 it's time to get a new one because with the supply chain problem and what is it the the great retirement or the great resignation or whatever they're calling it right your labor costs have gone up the costs have gone up and you know those of us who sit on boards we can't even get estimates for for repair work on our condos because nobody knows for the stuff when when when the parts and the materials are going to get to hawaii because of the supply chain problem and they don't have workers and so you know the cost is going up and so you know it's it's it's a concern you you mentioned one thing i really liked and that is you know those that do the reserve study are a um independent and at arm's length transaction away you know i'm reminded of you know all the bank debacles and all the foreclosures and all the the banks that went under because the appraisers worked for the bank yeah and then you know after after the collapse of 2008 they made a very hard and fast rule that all appraisers must be independent and have no affiliation with the lending institution that made those loans and i think that's a great idea to have certified reserve specialists that are at an arm's length transaction away from the companies that serve those condo associations right because you know you know you got to have somebody who's who's like a third party to be independent so that they you know they can give you a neutral picture of what your building is not somebody who's affiliated with somebody on the board or with management who wants to keep your who purposely wants to you know keep your costs low because that's what happened in Florida i mean people didn't want to spend the money or they were afraid to or they didn't want to take the action and because of the inaction and the delays the building collapses and you know we can't you know deal with that and you know one of the other changes that they're talking about is starting the process earlier you know how developers have to do these public reports for brand new condos insert a requirement in the public reports that they've got to set up you know do a reserve study at the beginning because that way when somebody buys into the building they will know what it's going to cost them deferred maintenance right right now you know how many times do people buy a brand new condo and and the maintenance dues are ridiculously cheap and then three years later wham you know they're up a hundred percent or better and you know i didn't see that coming so yeah a realistic reserve replacement report on a brand new building would be great that's a great idea so so that's that's something that i heard you know was was already proposed and you know one one other thing is that you know and and this happened in our condo at our condominium every year when the board sits down and does their budget they're given a percentage by the by their management company saying to make to maintain your budget and to make sure that you have enough money for the reserves based on your reserve study we recommend that you raise your maintenance fees 12 15 percent or something like that okay that's the recommendation and so what does our board do our board comes in at six and not notwithstanding you know my protestations and my grumbling it passed at six and so i have to join with the people who are saying we got to put legislation in there that if you're going to deviate from what the expert says you have you have to you you know have to do for maintenance fees it's and then and and if you don't go out and find an expert who's going to back you up on that reduced amount to breach of fiduciary duty right because the business judgment rule says you can rely on an expert opinion and if you deviate from that expert opinion you're on your own no dno coverage you know and things like that and i kind of like that you know uh because you know that way and then that way the board members you know they don't feel guilty i mean they can say well the expert told us we had to raise your maintenance fees 12 percent 15 percent whatever and it's it's not that they're being mean to the owners right it's not like it you know because right now the government the bad guy right it's kind of like you don't want to be the bad guy and owners are grumbling you know well you know you're the bad guy who raised our maintenance fees but you know that's what the owners have to realize that it's being it's getting expensive to maintain and repair buildings it costs money and you know and then when we get to you know the fire safety and talking about insurance i mean you can't have you know five six percent maintenance fee manual increases when your insurance goes up 30 percent yeah i mean do the math i mean it doesn't work you know jane there's one point i i've noticed in my 20 plus year 25 years serving on boards and that is sometimes a board is comprised of those who are retired and i hate to say but i've seen it firsthand where um you know executive members of a board of directors um they don't want to improve the building because they're worried about uh an increase of property tax evaluations which correlates into higher taxes so either purposely or or you know subconsciously they're not improving the building and keeping it viable and safe because they're they're worried about increased valuations except you know my response to that is you know what's happening now because of the condo collapse and the fire safety regulation and everything else the lenders are asking questions they never asked questions before right the insurance companies and the lenders they're sending you know people to look at the building and and they're basically you know with the lenders they want to know how much money have you set aside for reserves and is it 50 percent funded as required by the statute and they want to see the documents and they want to know um if you have fire sprinklers if you don't have fire sprinklers why not or when are you going to do it and it's like excuse me but why are you asking these questions and it's because you know they don't want to lend money or they don't want to lend money to prospective purchasers to buy into a building because what the lenders see is that down the road there's going to be an assessment right right well and that plays to the ordinance that's on the books right now because if the ordinance is on the books then they just say hey we're just following what's already law of the land in hawaii right and you know that's maybe one of the reasons we're here today to talk about that existing law and and whether it's a flawed law or not right and why don't we just segue right into it because you know we have the fire safety ordinance and you know and the whole purpose of the fire safety ordinance was after the Marco Polo fire was to make buildings safer and I think there are a lot of buildings in town who are saying well you know we're not the Marco Polo and you know Marco Polo had all these things wrong with it and we're better than that and how come we have to now comply with this law that says that we have to that mandates fire sprinklers unless we pass a life safety evaluation but you know anymore that's become moot but because of the fire safety the what the unintended consequence of the fire safety ordinance is that the insurance premiums are going up and not only are they going up but if they have these standard you know insurance companies so if you have a fireman's fund or a first insurance or you know the local ones right if you decide to leave them nobody else is going to touch you if you don't have sprinklers you know and and and the ones that you know so the ones that they're called the standard market and the standard market they're asking and they're saying in fact my building my building this year the increase the insurance premiums increased 30% that translates to $44,000 for my association in one year and you know so I don't know how we're going to do that with the old saying give an inch and they'll take a mile but you know that's what they're doing and and you know and we're told that you know the insurance is going to go up every year so long as it's non sprinkler and and so that means even if you decide you know even if you pass the life safety and you don't put in sprinklers your insurance is going to go up you know you and I had a call between a rock and a hard spot yeah and and see I think it's a flawed lot and when you know Mary Codwell came out with I think it was bill 69 shortly after the Marco Polo fire I felt was a flawed lot to begin with because you know to mandate the installation of of sprinklers requires the I call it the confiscation of of airspace each unit my ownership is defined by my airspace from the ceiling down the floor up and the walls in that's my property rights so now you're going to confiscate 12 to 13 inches of pipe and and stanchions and and sprinkler heads in my in each you know each room of my dwelling I'm not sure you get the right to do that without fair and just compensation to the homeowner the unit owner well you know I thought it was a flaw I think it's a flawed lot to begin with to be honest with you right but the problem is and the problem is you know the bill the ordinance passed 54 which is just barely passing right so and and and that's another thing we're coming up to with elections 2022 and I believe there's three three seats that are up for you know because their term limited and unfortunately one of them is Carol Fogunaga who is our champion who's fighting for us all the time so you know for those of you listening and who live in who live in Carol Fogunaga's district you better you know be very asked lots of whoever's running for her seat in 2022 because you want to make sure who's ever taken whoever gets elected into that seat is going to protect her interest like Carol did and you know so so you know that's that's that's a concern and so you know yes if we can get five people on the city council to repeal this law it'll be gone the problem is it's harder to repeal a law than it is to get it passed and so yeah it's going to take a lot of electioneering and and arm twisting but you know we get five people on the city council and that's the election I mean that might be one one way to go but we are looking at I mean that was an unintended consequence well I'm sure that I'm sure that the 360 associations that are affected by this you know this sprinkler law I'm sure not one of them thought that conducting the LSE the life-saving evaluation was going to be more cumbersome and more expensive than the installation of a sprinkler system which is catastrophically expensive I mean it's it's it's a it's a humongous sudden expense that people hadn't reserved for right and and in the Marco Polo it costs 5.4 million dollars yeah 5.4 million dollars it costs them so you know I know the LSE was if you will kind of a good idea for mitigation but as you say it's an unintended consequences and and so let's go to the heart of the matter and that is those buildings that were not mandated to have a sprinkler system what do you do with those buildings and you know spending million in an LSE or spending millions on a sprinkler system that the resident unit owners don't have there's something that has to give there somewhere somewhere along the line well you know Carol Fukunaga is part of bill 37 that's Penny now the city council she is going to set up something called a permitted interaction group it's called a pig a permitted interaction group okay to and and and Hawaii council has done a a survey and we sent it out to to and I think we got maybe over 30 associations who who got it you know who filled it out and sent it back and we turned everything over to this council member and so she's going to be setting up a permitted interaction group so anybody who's interested might want to call her office and and ask to be put on as Carol Fukunaga council member Carol Fukunaga and um and she's going to make like announcements and and and one of the you know one of the things is is to get financing because this is something that the city requires of these people who live in these 360 buildings and and and Carol uh council member Fukunaga you know truly believes that that the government needs to subsidize some portion of the cost because you know it is you know an extremely expensive you know um installation so that's one of the things that is going to be explored and she believes that it's going to be a statewide issue because I told her about the insurance problem and the insurance commissioner is the one who sets rates and that's when we got into the conversation of what if we change the state law like the budget and reserves or something to make certain requirement of the building do certain things that way it will calm the insurance companies down to say oh well look we're tuffling up this you know condo law so now associations you know they have to you know set aside certain money they have to do the reserve study they have to do you know certain inspections on a timely basis and that way the insurance company the insurance commissioner who sets the rates will say well we've taken this action to reduce the risk to the insurance companies so we're not going to allow you to raise your rates 30 percent every year you know that's a great I'm glad to hear that because my alternative thought was well whatever financing is available you still have to pay it back and if it's even if it's an interest-free loan you're still paying principal back and so my thinking was well I hope it's a 30-year amortization because you know we got 7% 8% inflation right now and now you're going to have the the the insurance premiums go up which is directly correlated to your homeowners dues I don't see how people are going to to make it I don't see how they're going to fill the pucas of what they don't have right but you know what what what carol was senator fukinaga wants to do is to do this permitted interaction group and then come up with recommendations to send over to the state because she was in the state government at one time so she kind of knows how it works and she's and and and she says that the insurance the insurance commissioner can set the rates and so if the insurance companies are raising the premiums 30 percent they have to give some rationale and I'm sure that's what they did to the commission this time saying oh well the city has this law that mandates sprinklers and so you have 300 buildings in the sitting county of haulu that don't have sprinklers so we want to raise you know we want to raise the rates and so he's allowing them but you know by the same token if we go to the commissioner and say hey commissioner we'll toughen up the condo law so that associations don't have so much discretion they got to you know keep their nose to the grindstone they gotta you know be cognizant of the repairs and maintenance and to make sure there's financing and to do the inspections where they're supposed to be so we don't have things like micro polo fires and a condo collapse and if we do that if the law is changed to make those restrictions tougher on associations make them more accountable then you mr commissioner you got to tell the insurance companies that they can't raise your rates because what we don't want is for the commissioner to say oh you can't raise your rates and then the you know then the insurance companies say well they leave they leave yeah right and right now you know we don't have a whole lot of insurance companies because they you know hawaii's got is has got the most it's got the highest claims in the whole country for dno you know that the claims that are made i'm not surprised um i think there's a lot of board members who just love the title of board member but have not a clue to what their fiduciary duty is to their owners i i'm not surprised at that what you just said no yeah and and susan says we've got the highest number of claims uh per capita than any other state in the country and the claims are higher so if there's a claim on the mainland for 25 in hawaii it's 50 you know so so so that's why we only have a few dno carriers who you know will offer you know coverage and we don't want to be in a situation where we chase away some of the standard insurance companies and by the same token you know so that means that we have to step up to the plate and persuade the carriers that we're going to take steps to make sure that the buildings are going to take care of their structure right so due diligence and everything your your conversation that leads me to just one thing that's confusing is regarding the reserve studies and and maybe the tough toughening of guidelines for the reserve studies who would be the final arbitrator of to say whether this study is an accurate an accurate portrayal of that association's budget well they kind of have to try that's why you know all we can do is set parameters and we want to set very right now there are there are none there's nothing in the statute that says who does your reserve study how often do you have to do it and you know um and if they tell you that it's 12 percent that you have to raise your maintenance fees 12 percent there's nothing in the statute that requires that to happen and so what what we're saying is so maybe we need to start making steps because if you leave it to the discretion of the board you're going to get you know people you're going to get maybe 10 percent of the boards who are educated who go to seminars who read stuff that's online and the the the real estate commission page the real estate branch which is free their website is full of information full of very good information it's free and you know so for for those kinds of boards who educate themselves then you know we we we know that they're going to take care of the buildings and we know that there are lots you know there are lots of buildings that way but for the others and you know boards are volunteer members right you and I know you know who serves on boards and sometimes it's scary it's a nightmare it's scary yeah it's the guy who owns 17 units and wants to keep the maintenance fees low and and and stuff like that or you know people with their own agendas and and you know not thinking about the entire association as they're supposed to do when they do their fiduciary duty that's the scary part and so so what we do is we take away some of their discretion and we do it by legislation and and hopefully that will persuade the insurance companies to keep their premium lower and maybe it will result in safer buildings you know that that will prevent the Marco Polo fire and the floor to collapse I think those are the two the two main issues that are kind of driving the legislation and the education programs that were all involved in I think it's important because if you want to maintain the concept of self-governance for the the concept of condominiums then the wild west has to stop I mean there has to be yeah you hit it right on the nose I mean if if people want to maintain self-governance they got to be responsible they got to step up to the plate they got to do the they got to make the hard decisions for the whole association and and and and and to the extent that's done then I don't think we have a problem the problem is is that we all we all know that there are some associations out there who don't have a clue and they really don't care and and and for those for those associations we've got to make these uh we have to set you know very specific parameters so that there's not a whole lot of wiggle room so it's not like oh well I don't but I don't agree with you so I'm going to do this and that is well no the statute says this is what you have to do I think we have to get to that well and we know from all walks of our lives is that it's always the few that ruin it for the rest of us the responsible parties always have to suffer the consequences of those that have not been responsible and for not taking care of building and and and maintaining safety standards I think that's the ultimate of of irresponsibility and uh we're all going to pay the price and we are paying the price you hire insurance premiums and everything else yeah and you know I I'm looking at you know we were we've run out of time and I know we could you know we had other stuff that we were going to talk about I didn't think we would you know I thought we wouldn't have enough time but it seems like we only talked about two of the four so we're going to have to do this again Tim okay okay and for the viewers who you know tuned in today thank you very much uh for uh sharing your time with us and please join us next week thursday for another episode of condomsider mahalo and aloha