 Hello, it's Kondo Insider Time. It's Thursday at three o'clock. We have an exciting discussion today regarding what's going on, and I have the smartest and greatest co-host with me today, Jane Sugimura, who has been involved in our industry and lobbying and things forever. Welcome to the show again. Thank you for having me. One of my favorite people to do this show with, you do a great job as a co-host, and we share these responsibilities together. I know you're the president of the Hawaii Council of Community Associations. Just tell everybody who they are and how to join. Yes. Well, they can contact Hawaii Council. We have a website, hcca.com, and we are a nonprofit, and what we do is we advocate for condominiums and community associations with the state legislature and city council, and we have educational seminars to inform board members and unit owners about the condo law and issues that relate to condominiums. We do sponsor this show as well. Well, let's check the website, but remember, it's a nominal cost, like $10 for an individual to join the hcca for a year. So if they want to be informed of what's going on and also help a really great organization fight for their rights, because there's times in the past when they've tried to put an excise tax on maintenance fees, for example, there's been a lot of previous bad legislation that we've been out there advocating for the condominium owner, the homeowner or association owner, to protect them from bad legislation. Right. And right now the issue is sprinklers, retrofitting sprinklers, but that's a whole other issue for another day. Well, let me just say that, as you may know in our constitution, our legislature went into session in 2018 on January 17th. We are what they call bicameral body, which means we have a House and a Senate, but those who don't know, we have a total of 51 representatives and 25 senators, of which 46 are Democrats and five are Republicans. And that's kind of the group. Well, once the legislature goes into session, there's actually a very structured process when things get done. And the first thing is the introduction of bills. And so bills had to be introduced by Wednesday, January 24th, or they couldn't be introduced. So you're only dealing with that pot of bills as of January 24th. And I remember correctly, each legislature has a quota on how many they can submit and there's a whole bunch of rules and that whole thing. It's interesting to note, just for reference purposes, that because we're bicameral, that means it starts on the odd year that the bills introduced in 2017, nothing happened, are technically still alive in 2018. Although history would say, very rarely do they come back up to the surface. But technically speaking, those bills are still alive in 2018 until the clock would reset in 2019 and everything starts all over again. As an update, we had nine carryover bills from last year. We had 27 new bills affecting condo associations introduced in 2018. However, they're introduced either in the House or the Senate and there's something called a companion bill, which means the same languages in both bills, the House and the Senate. So it's being approached from two angles. Well, the 27 new bills, 16 were companion bills, which means there are eight subjects or eight issues that were being addressed simultaneously by the House and representatives. So in the end, we have 19 new issues to deal with this year, which versus 2017, we had about 150. So it's a great improvement, you know. Well, this year is an election year. It's an election year. So you have to be really careful about the types of bills and the legislators have to introduce them. And if you introduce them, you have to, you know, you bear some responsibility. And being an election year, nobody wants to advocate for stuff that's going to cost the state money, you know, or anything that's super controversial because they get labeled with it, whether they even, whether they introduce it by request or something that they really, really want and they just save it for a non-election year. So they'll just save it for next year. And that may be why there aren't as many bills this year. Well, maybe we should change the constitution to get elected every year. And our life would be a lot easier because last year was a busy year. I think nothing, in my opinion, there's a lot of good stuff that came out of it. But at the end of the day, we spent an awful lot of time and energy on things which, frankly to me, didn't make any sense and was going to hurt our constituents out there who lived in associations. So let's start off and just, I want to disclose to everybody today, there's, as I said, there's 19 new issues. We can't deal with all those in 28 minutes, so we're going to bundle them in certain categories and discuss them in general terms. And depending whether they get hearings or not, we'll look at having other shows that talk about specific issues. So this is a broad brush approach to what we see as of now. Let's talk about what I call a number one issue. Because of Marco Polo, fire safety, tax credit issues. So what's out there? OK, there are various bills, and they're in the House and the Senate. But what the crux of those bills are, are they're trying to give financial assistance to either the unit owners or to the associations to pay for the cost of retrofitting. Because right now, the language in the city council bill process contains a provision that sprinklers are going to be mandatory. The original bill said all buildings have to put sprinklers in their units and in the hallways and whatnot. The one that's pending now in the city council that isn't quite final is only calling for sprinklers in the common areas, which is the hallways and the common areas. But even if it's partial sprinklers, it costs money. You're talking about infrastructure, putting pipes on every floor, and there's asbestos in the ceiling so you've got to remediate it so that makes it even more expensive. And we were told that in order to service these sprinklers, you have to put a 10 by 10 room to house the pumps to get the water to go up into the building. So we're not talking about a cheap repair. We're talking maybe millions of dollars that people don't have. No condominium has it in their budget. And so the problem is, how do we pay for it? Well, the three or four bills I've seen try to summarize them in the legislative side, not the city council side. Number one, I think one of them said that if you're buying sprinter type equipment for your system, you won't be charged general access tax. Theoretically, it's giving you a 4.712% savings because with a safety retrofit, you wouldn't pay a general access tax. Right. And that same bill also allows for interest-free loans up to $250,000 to the association, which would probably offset some of the costs. And it won't pay for the partial sprinklers. I mean, $250,000 is probably a fraction of what it would cost. And you're talking about a million-dollar job. But still, $250,000 is, you know, is. Well, I'm going to say the difference between the bank interest and the free interest, for lack of a better word, does create some problems with regard to priority of the loan. And they're going to subordinate the state loan to the bank's loan. It creates a whole bunch of baggage. And the one I saw particularly had reference to that it was only good for the 2018, 2019 legislative budget. I don't think you can go out and get the thing designed, built, bid in a year. Right. And we may not even know what the law is going to be because it's still in flux. And then there's the state tax credit, income tax credit. And that only allows for $1,000 per year. And it's only good for five years. So at the max, you get a $5,000 credit against something that, as a unit owner, your share is going to be thousands of dollars. And so that may not. I mean, that may be of very little help. And that bill, it has these income brackets, which I don't think anybody is going to qualify for. So I don't know if that one's going to be of any help. And then there's this third bill. There is a provision in the condo law that allows associations to borrow money. But you have to have at least 50% of your ownership interest to prove the loan. And so the bill says that if there's a legislative mandate, which is the city council bill, that requires installation of a health and safety equipment, which are fire sprinklers, that buildings that have 20% of their unit owners who live outside of the United States, in that situation, the 50% is waived. And it would only be the board who can approve the loan without the 50% ownership interest. And this will help those buildings in the Waikiki downtown area that have a whole lot of out of country foreign ownership. It seems to me, before we could go on to another bill, but it seems to me that it could be complex. You don't have the money. You've got all this big expense. How are you going to comply with the law? And there's no penalties if you don't comply with the law. The board would be forced to look at like the old famous Winchester House. We're going to do 20 feet a year. And we're going to take 200 years to put the sprinkler, but they could never argue that they didn't start the process to comply with the law. But for budgetary reasons, they're doing 20 feet a year, which isn't going to solve the fire safety problem. But I do thank the legislature for their good faith efforts trying to find ways to help. Still in the discussion period, we'll see where it rolls out. The other thing that we saw is a whole bunch of amendments basically trying to reduce the voting approval of homeowners to amend the bylaws. It's basically 67% of the 514B, the declaration, and the bylaws. So they want to reduce it to like 67% of who's there. Or a majority of the unit owners. And my feeling is that the reason why you have such a high percentage is because the things that get changed in the declaration and in the bylaws affect everybody in the building. And you want to make sure you have a super majority because everybody has to live with it. And some of the things that get changed would be you change a no pets building to a pets building. Or you say, we're not going to allow smoking. Now to me, that one is a real hard one because a home is one of the most expensive things a person has, their assets. And if they buy and they're a smoker and they live there for a number of years, and then you get a minority who says, well, we don't want smokers living in the building. Let's pass a declaration change and we will eliminate smokers. I think that deprives that unit owner who is a smoker who's abided by all the rules. It deprives him of his property interest. And I don't think it's fair. And so if you're going to change it, it's got to be a super majority. Well, the other problem I see is that if you go to a much lower threshold in any given year, whatever the balance of power is, you could go back and forth where pets were no pets where pets were no pets. I mean, when you let a very small group of the control. The tyranny of the minority. That's right. You can end up with backwards and forwards and no standard or cornerstone to your association. And I've been on the board, and I've been on two boards for more than 20 years. I know what it's like to do a declaration amendment or a bylaw amendment. And that means going door to door and campaigning and talking to people on the phone and persuading them. And I know it's not easy, but the thing of it is when you get that 67% of the ownership, you know that they were well informed and they agreed. And therefore, it should be upheld. Let's do this. Before I take the breaks about a minute, I want to just briefly discuss Hospital 2630, which is electronic voting. There's a bill to allow associations for voting to use instead of a secret ballot, an electronic voting device. Because technology has changed. We've seen it everywhere. There's now little mini-pads. They're only about $20 a piece. You could be there and have a program to your percentage of common interest. And if you have cumulative voting, you hit the A button. There'd be like A button three times B button three. So you could pick and comply where you get instantaneous results. Because sometimes these big associations, people sit there for an hour, hour and a half while they count these votes with cumulative voting and percentage of common interest. And remember, maybe this is a bill that, basically, because of the secret ballot requirement, today you could argue that technology can't be used. So the purpose of this bill is to provide the right to use electronic voting mechanisms. Provided there's a very strong audit and the safety check procedure that all the things you would get through straight ballot voting, you would know how many submitted and what the quorum was. All these things would be auditable and traceable to the extent not how you voted, but that it actually complied with the registration by owners. And I agree with you because I've looked at the bill and it doesn't say that. And I know I was concerned because it's a very thin bill. It doesn't have a whole lot of requirements in it. So to me, I want to learn more about what is entails. The CAI Community Association Institute legislative actually looked at it. They basically said, if it gets heard, we need to put more amendments in it for safeguard protection. But the world is changing technology and technology. I understand that, and I agree. And we should prepare for that in the future. On that note, we're going to take a short one minute break and come back with Jane and talk about a few more bills that are out there as we begin the 2018 legislature. Sad? All the better to see you with my dear. What are you doing? OK. Research says reading from birth accelerates the baby's brain development. And you're doing that now? Oh, yeah. This is the starting line. Push. Read aloud 15 minutes. Every child, every parent, every day. I just walked by and I said, what's happening, guys? They told me they were making music. Welcome back to Kondo Insider. We're talking about the bills that were introduced in the 2018 legislature. And with Jane Sugimura, the president of the White Council Community Association, Kondo lawyer. I call her the godmother of our industry because she's been doing this on a good side for us for so many years. Let's talk about one of my favorites. The criminalization of alleged falsifying of records by somebody. Would it be a board member or management company or whoever where it's criminalized if you intentionally falsified records? But on top of that, they want the voting documents, the proxy, the ballot to retain for five years. What's up? Well, when I saw that, I couldn't believe it. I think that was overreach. I mean, for one thing, these elections happen every year. And so why would you require the association to keep the used ballots for five years? That makes no sense at all. Right now, it's 30 days. If they want to increase it to 60 days, I can see that as a reasonable change. Because people go on vacation, and maybe they're not around, and you can't protest it in 30 days. But 60 days, I think, there's got to be an end. And even with national elections, there is a cutoff for the period for you to challenge the results of an election. And the federal government doesn't allow five years for you to challenge that. And so I don't think allowing it for associations is reasonable. And it's expensive. Who's going to pay for the storage of all these records? Well, I think it's interesting to that, is that if you look at Robert's rules, which we're governed by, so I'll make this up. Let's say you found a voting error three years ago. Well, like you said, they voted for new people. It's moot because of the fact you've had another election after that point in time. Even under Robert's rules, mathematical errors caught later are moot unless you raise an objection at the meeting. The exception is that if you found that there was a miscount of votes in an annual meeting, they can call a special meeting. They can ask for permission from the owners at their meeting to allow the recount to be reopened. Then they can recount it. And then, in fact, come up with new results if they found an error within that 30 or 68 period you talked about. But you know, I remember a meeting recently where this argument was made that there was actually made at the meeting where a major proxy holder got so much into talking story and forgot to vote as proxies. And it was a huge number. And the balloting was closed. The accountant, when he went to announce the results, he said, wait a minute, I forgot to vote. And so they asked the owners if they could reopen the accounting so he could vote. They voted no. So all those proxies were lost. So it's really an owner decision. I'm not sure what the five years they can do for us. Any comments about the criminalization of? I think that's also over the top, mainly because the board is a volunteer organization. And people volunteer. I mean, if you start criminalizing their conduct, nobody's going to volunteer. And as it is, I mean, they are held civilly liable. If they don't follow the business judgment rule or if they do stuff under a conflict of interest, I mean, that's a breach of fiduciary duty. If it results in harm to a person, they can be sued and not covered by insurance. So there is a way to hold these people accountable without criminalizing their activity. I think the big problem there is the way that Bill has written it's so vague. It just opens up the attorneys and all these arguments and everything else because what is intentional falsifying of a record? I mean, I can see so many examples where an honest mistake was made that someone's going to argue, well, you didn't intentionally know I didn't. Right. And that's the hardest thing to prove, intentional conduct. I'm not so sure why people would serve on boards that they're going to have criminal opportunity. They will not. Opportunity. Another one is, which I call the control of association by the minority, they want to reduce the threshold to call a special meeting from 25% to 10%. And to me, that is the tyranny of the minority. And to me, 25% is not overwhelming. I've seen associations do it. It's not hard to get 25% of the ownership interest to sign a petition. And to hold an annual meeting is not cheap. And the larger the association, the more expensive it gets because that means that you have to have your managing agent prepare the notices, mail out the notices and the agenda. And if you don't have a facility, you may have to go out and rent a hotel. Like some of the larger buildings in Waikiki, they rent rooms at the Alamoana or nearby hotels. So you have to rent a facility to hold the special meeting. So you don't want to make it easy because these special meetings should be for very serious stuff. And if you make it too easy, you're going to have all these special meetings. And it does cost the association money. Well, think of it this way. You have a low threshold. They call it 10%. Nobody wants to deal with it. They don't have a quorum. They spend all this money to go to a meeting and there's no quorum, so there's no meeting. So this group is so angry, they want to do it again because they still want their day in court. So they call a second special meeting or a third special meeting. If you don't have enough of a cornerstone of interest for the special meeting, you're not going to get the attendance. And you're not going to have the quorum. And you're going to spend a whole lot of money with zero results. Right. And it's not the people who are protesting that are spending the money. It's the association. That's what they don't understand. And one of the gripes may be, oh, well, you're spending a whole lot of our money. And one of the reasons is because we have to set up all these special meetings because of this low threshold for calling a special meeting. Yeah, and the other argument is they don't get to 25% because they're not getting support. They still want to have their day in court and spend the association's money. And right now, association is under great economic pressure with all these things between sprinklers and replacing pipes and the spalling and replacing windows. Yeah, so it's easy to spend other people's money, but I'm not sure this is really a good idea. But this other bill, House Bill 1607, comes up. I think this comes up every single year. And the issue is not only as we are required now to maintain the names and addresses, mailing addresses, they want the association to be mandated to get the telephone numbers and email and make that available to other others. And I think that's a serious invasion of privacy. And I know our building and some other buildings. I mean, there are times we vast for email addresses, but we make it voluntary because we have this system in our building for blast emails where the manager has to get out notices. Like we're going to shut down this block because of this water thing or just to keep people notified. And it's a one-way communication. And we tell people, give us your email. And if you want to know, then you will be on the blast email. And we won't give it out. And I do have a serious problem with providing email and phone numbers to the other owners. I mean, they are allowed to get the addresses. And that's public information anyway. Because you can go, because every deed is recorded, your real property taxes are online. And so all that has a street address. Has no email, has no phone number. And so that, to me, is privacy information should not be given to the other owners unless the homeowner consents to it. I agree. They don't want to be harassed. And that's what happens in the emotions of all this. We're down a couple minutes left, so I'm going to deal with one more bill. And in a way, it's our bill resurrected under a new bill number. It was last year's House Bill 1499. And it has to do with priority of payment and expanded arbitration. And I think we support this. But briefly tell everybody what that's about. OK, what it is, is right now, the arbitration that's in the statute. You go through arbitration. And in the end, the losing party can ask for a de novo review, which means that the whole arbitration is kind of like wasted. You've wasted your time and money, because now they want to do an appeal of the decision. And you start from square one. And so this bill allows for voluntary arbitration. And that means that the parties will agree that whatever the arbitrator decides is going to be binding. And the process, the arbitration is paid for out of the condo ed fund. It's subsidized after the first hour. I think it's $3.75 each side pays. And then the condo ed fund is used to subsidize the rest of the process. Let me just summarize it real quick. Because the expanded arbitration right now is pretty much between the board and the unit owner. This will include the managing agent or board member versus board member. And allow, again, to the real estate condominium education fund to allow people to have due process without a cost and a whole lot of money out of their pocket. They each pay $175 towards this. And the rest is subsidized. The second part of the bill has to do with priority of payment, where people are charged fines. We have a pay now dispute later kind of process that owners will be notified that they have a fine. We have pay now dispute later. If they want to contest that fine, they have a right to this mediation. And the reality behind that concept is people get kind of thumb the nose at the association and all of a sudden they find they have big legal fees they're getting foreclosed upon. The idea behind this is to get more notice and due process rights to owners. So they're not caught by surprise at all these things they ignored coming back to hurt them financially. Right. Is that a good summary? We're down to our last 15 seconds. So anyway, you can see we covered a lot of material. I want to thank Jane for being here today. I know we're going to have more discussions during the session as these things come to greater life maybe. And we thank you for watching Condo Insider. We hope you enjoy our show. Aloha.