 And welcome to another edition of Kondo Insider. Hawaii's show about association living is for directors and homeowners alike to understand their obligations living in an association. That being said, today's show is about the 2017 legislature, or I should say about association matters before the 2017 legislature. We'll avoid some of the sensitive topics like rail and just focus on how the legislature did with regard to our industry. I've often been asked, where does your show come from? Who's sponsored your show? And we are sponsored by the Hawaii Council of Community Associations, which is one of Hawaii's oldest industry education and lobbying groups in Hawaii. And we're lucky today to have my co-host and president of HCCA, Jane Sugimura, again welcome to the show. Thank you. And just tell us briefly about HCCA real quick. Well, we're a non-profit, we're a Hawaii non-profit, and we advocate for boards of directors and condominium associations and community associations now, in the state legislature and the city council on any issue that might affect condominium living or community association living. And we do educational seminars on topics that would of interest to board members and to owners and even vendors or people who are in the industry that would help us make living in condos easier and better. I think what's interesting about your organization over many of them is all your revenue to run this program is done through individual membership and through the seminars that we run. We don't take donations from vendors or the Hawaii State real estate education fund. So we're very independent and we watch our position very carefully so we can't be accused of being in one person's favor. Oh yes, yes, yes. We are totally independent. Well, I think the idea behind today's show is that we're going to talk about the legislature and Jane and I work throughout the legislative session together on various bills. So the way we've kind of decided to approach the show is we're going to divide them up. So I'll talk briefly just for a moment about, not specifically, but the bills that did not pass. And then Jane's going to talk about a couple bills and I'm going to talk about a couple bills. And at the end of the show we're both going to give our grade of the legislature again for association matters only and then wrap the show up. So let me begin by just talking about some of the bills that didn't pass. Every year our industry is somewhat, I'm going to call it assaulted by independent small groups of homeowners trying to create a government entity to be responsible for condo association management Hawaii. It's often referred to as an ombudsman. Somewhere a homeowner can go and they're unhappy about something and complain and expecting government to take in and tell the board that you're doing it wrong. You have to change or in some cases it's been suggested they have the right to remove a board member or to make bylaws or declarations a moot. And really it's kind of like government housing versus private housing. We in the industry have always supported self-governance. Every building is kind of different. You know your needs and your budget and that you elect independent people who have the same obligations to pay as a homeowner. And we believe strongly in self-governance and whether our issues with respect to areas we can improve our industry, we're showing welcome and bending the laws. But we think throwing the baby out with the bath water and bringing in a government entity to run associations is not proper. And so that sense the ombudsman bills the second year in a row all died and they did not get continued or they may have been some hearings but in the end they died. The other bills that were died briefly were that because of this argument that boards of directors don't know what they're doing. There was bills that required mandatory education for board members and even in some cases personal financial statements disclosure to a state agency to make sure board members don't have conflicts of interest. Well from an industry perspective these are volunteer jobs and we didn't support that program because of the fact that we think the educational programs that exist today with respect to HCCA and CAI and the state of Hawaii are more than adequate for people and of course we have Condom Insider they can watch 24-7. Another quick bill that didn't pass this year was there was an argument that this was sponsored mostly by health organizations. They wanted to have the law amended that a board of directors could create a house rule to prohibit owners from renting their unit to smokers. So in a way by having a house rule if you owned in your project and you wanted to rent your unit the board could have set up a house rule saying you have to rent out to non-smokers only. Well there's not much equity in that you know so either or already protects you that there's no smoking in the common elements and things can be done to stop smoking on their eyes but we didn't feel that that was appropriate and the non-smoking bills all passed away. And finally the last major bill I just briefly tell you about is what I call the manager licensing all managing agents and of course all associations don't have managing agents. If they have a managing agent the principal of that company has to be a principal broker so all these obligations to have crime insurance and protect your money are in existence currently. But oftentimes the manager who comes to your board meetings is not a real estate licensee but has been probably trained by CAI or HCCA or other organizations, IROM to have certifications in the industry. But the idea was that there would be some better benefit to an association requiring them to have real estate licenses. Well real estate training doesn't meet the needs of what we do in association management. But again we're talking about the bills that died and that bill died and that's kind of primarily the four major thrusts we saw this year and last year where there's a group to continually cry foul that the boards aren't doing a good job. So do you think boards are doing a good job? I think boards are doing a good job and you know I think that's the challenge when we go is the legislators are the ones who get the phone calls from their constituents or have friends or colleagues who get calls from their constituents complaining about boards. And so we have to go and basically address the complaints which I think are being made by a minority of associations. I think overall you know most associations comply with their laws are pretty fair, they're reasonable and they don't give their unit owners and residents heartburn. And we're talking about maybe a small percentage of, I mean there are thousands of condominium associations in the state of Hawaii. We're talking about a handful, maybe less than 50 I think that might be a fair assessment. And you know every once in a while you know you have issues with residents or other people in the building but you know overall I think you know the boards are doing a good job and are trying their best you know to comply with their obligations. And so it's always a challenge to go to the legislature and try to address you know they're trying to paint us all boards as being dysfunctional, mean spirited and you know retaliatory. And it just seems like you know I don't know where they're getting their information but you know their view of boards of directors is so different from what you know I know from being on two boards. Well as a management company owner previously you know we managed to honor any two associations. I didn't see this widespread problem but more times than not I found it was owners disagreeing with the board's decision. And so therefore there had to be some conspiracy theory and why they made that decision that they were benefiting. Board members pay the same assessments, maintenance fees, everybody else does. They don't get any privilege and they sorry don't want to pay more money than they have to. But we get this continuing barrage of information and they want a government agency and the problem I have with a government agency that comes from the condo education fund or the condo registration fee. And if you look at the state of Nevada it's grown to a complaint center which the state of Nevada admits that 99% they have no statutory authority over. It's just a place for people who are angry that vet their anger. You know and I think that we're better off trying to educate the boards on dispute resolutions with our value of mediation and teach them education how to handle these situations. Recognizing that probably there are occasions when a board doesn't make the best decision but that's business judgment right? And you know I agree with you and I think you know I agree with you and I think a lot of people including some people who are listening today probably don't know about the condo education fund which was set up over 20 years ago because of a lawsuit. And the legislature you know after hearing you know what happened determined and there are people on board who are resigning because they found out that they could be sued and judgments could be entered against them that were not covered by insurance. And so they were resigning in droves and so the legislature decided to set up this condo education fund which means if you live in a condominium every other year you are assessed on a amount. And it started off a dollar and a quarter. I think it's up to three dollars. And so you do the math. The number of condominium units in the state of Hawaii times three dollars every other year. That's several millions of dollars. And the whole purpose of that money was to educate boards to make books available in the public libraries that weren't available before and to set up a you know a fund to fund dispute resolution. And I think that's where the focus should be for the you know that money is you know we don't want people living and doing suing each other or owners suing boards and vice versa. And if there is a dispute it has to be resolved quickly and cheaply. And so that money should be used. People should take advantage of that and you know use those funds to this you know resolve this disputes. Well let's talk about some of the bills that pass. Okay. Let's talk with the beginning with two ninety two. Tell us about two ninety two and what it is. Okay. Well that's an easy one. There are condominium statutes 514A and 514B and 514B was passed in 2004 became effective 2006. And it only applied to condominiums that were in existence at that time. And in the ten years since that bill has that law was passed every time we had to amend the condominium statute we had to amend 514A and 514B. And they had different numbers. I mean even though the contents of both laws are pretty much the same except for some sections provisions in 514B that were different. But then the sections were all different. And so it was very confusing for lawyers for residents for board members to work with these two statutes. So to Senate bill two ninety two repeals chapter 514A. But it doesn't do it right away. The repeal is effective on January one twenty nineteen. And the reason why there's a year and a half is because you know changes have to be made at other statutes. And we want to make sure that if you're going to repeal something that there is a safety net to take care of those issues in 514B. So the changes have to be made and adjustments have to be made so that when 514A goes away forever the parts that are necessary to protect people are still available on 514B. The key issue on that is that 514B came in existence in 2006. We have eleven years now of experience. And to avoid confusion between A and B and what and where for. And it creates a lot of legislative complaints that people don't understand. But this is a simple matter of repeal. Because otherwise you change much. Because B was a reconfiguration of A. And so there are some minor changes but nothing really significant. Because when we passed 514B most of the governance section on part five automatically applied even to 514A condominiums is why people got confused. But the issue is I think it was the developers. And what we heard is that there are some developers who developed their condominiums under 514A. And some of those units are still on the market haven't been sold. But you know the and Senator Baker said it well you know it's been ten years. And so they got to do something so they got a year and a half now to market those units to get them sold. And everybody then would be on the same page with 514B. Okay we're going to take a short break right now and come back in one minute. And we're going to ruffle through the last four bills with you that passed. And we'll be right back on Condo Insider. Welcome back to Condo Insider with Jane Sugimura talking about the 2017 legislature. At the end we're going to give the legislature a grade again for association matters only because we don't want to get into all these other hot topics they had in the rest of the session. That being said number one. Bill number 292 SB 292 Senate Bill 292 repealed 514A effective January 1, 2019. Everybody will be under 514B January 1, 2019. I'm now going to just briefly talk about House Bill 1498. This was a common problem we've heard over and over again from some of the state agencies that the current statute provides that owners are entitled to certain documents. However owners were finding they could not get copies of the general manager, site manager, resident manager's employment contract. And of course there are issues raised about privacy. Well this Senate Bill 1498 clearly states that an owner has the right and access to the resident manager, site manager, general manager's contract. Although it specifically defines information that can be redacted. What cannot be redacted is their job description, compensation, bonuses, those types of things. What can be redacted will be their social security number, private cell phone number, health conditions, signature on the contract. In this electronic world these stuff can be stolen. So now associations must provide in reasonable detail, except as defined in the statute, the resident manager, site manager's contract. The other issues it clearly did was very briefly whether if you happen to have one of those rare associations you had mixed use. Like you had classes of directors. For example, a commercial director, a restaurant director, a parking director because the condominium itself had classes of ownership. In those cases it clarified the existing intent of the law that if you're going to have an election or removal, that that election removal is by that class of owners. Therefore if the parking director was elected you couldn't have a removal petition where the residential owners use their voting to remove that director from the position. The third and probably most important thing it also did rare again is that tenants can no longer serve on the board. So if you have a commercial interest that owns a unit and they rent their units out they can use their voting power to elect a tenant to serve on the board of directors. It had to be an officer or some kind of official of the association. And so 1498 is very important because I always have said over and over again that production of documents is a critical right to owners. We have to honor it and now we know the answer on employment contracts for the senior person at the project and must be made available with certain redactions. So tell us quickly about 192 and 239. Okay these two bills are somewhat similar. Well let me talk about House Bill 192 first. That one amends HRS chapter 421 and 421 deals with community associations. And I guess there are some homeowners associations that don't quite fit into a community association. And so this bill includes expands the definition of association to include them. And I know that there is some effort that will you know Senator Baker has indicated that she would like to expand 421 because there aren't a whole lot of provisions in that statute. And the people who live in community associations really want benefits that you know the condo people condo unit owners have in chapter 514. And so there's discussion and thought about expanding 421J to accommodate homeowners. Because you can't take the condo statute and say okay we'll apply it to community associations and we'll just include them because they're like apples and oranges. So they have to have their own piece of legislation. But in both House Bill 192 and House Bill 239 it amends the provisions on proxies. And these are the proxies that you use at the annual meeting. It would be the same for a community association and for a condominium is the proxy has got four boxes. The first one I think is that the proxy goes to the board of directors. The second one goes is that it goes to the members of the board equally. And I think one box is where you can fill a name. You can name your neighbor. You can name your brother. Anybody you want to hold your proxy and vote it. And the fourth box is for corn purposes only. And the legislature was told that with these proxies that were approved by the association that have these four boxes that if there were no boxes checked or if more than one was checked that that proxy went to the board. And so this bill clarifies it and says if you do not mark any boxes or you mark more than one which clearly means that you know there's been no direction to whomever to anybody as to what you should do with the proxy that it goes to corn purposes only doesn't go to the board. That's what that the 192 and 239 do. I think it's all history that proxy as you came about because the original industry proxy said if it's more than one box checked or none it goes to quarmole. Some boards got very clever and substituted language that goes to board of directors for voting which means you're stacking a deck for the board. And so this law basically says you can't do that. It's quarmole so we're going back through and that was very rare. I have to say most boards that the quarmole anyway but there were a few people that didn't do that. So far we've gone through three bills and I'm going to talk about my favorite House Bill 832. And it goes back to some of the shows I've said before that owners have a right to participate in board meetings. In fact I should pull it out here. I have a question that came from our seminar we did today which is very applicable to this that owners should have a right to speak at board meetings. They should have a right to deliberate. The law says they should have a right to participate in deliberations. Well what happens is boards would put rules out that would say you can only talk in the form and you couldn't speak anymore in the meeting which is not the intent of the law. So this bill did several things. Number one it clearly delineated that owners have the right to participate in the deliberation of board meetings. However boards can set reasonable rules. And I didn't get a chance to answer the questions that I actually ran out of time. The best way you can do that is start your meeting with a form and say what do you want to talk about. Maybe there's something to talk about you want to add to the agenda. Well then you go into your meeting and what you do is just say we're going to discuss painting the building blue or pink. And you have your discussion. The rules should be okay the board is going to discuss it first and before we take a vote we're going to let owners make any comments. So you go back and forth paint the blue paint the building pink okay we're going to take a vote now. The name of the owners here like to make a comment because other than the law the board has the right to set limits. But all you want to do is be able to give them a chance to express their opinions and feelings. There's nothing wrong with that. And this question I had at the seminar today was that they have a very formal process of approving the agenda. And they stick to the agenda. And they don't let owners speak at the rest of the agenda. Are they going to be breaking the law? And I'm not a lawyer but I'd say yes. The idea behind this is you would have your agenda recognized that Robert Rose allows you to amend the agenda anytime during the meeting anyway. But you go to the agenda and you simply say to the owners before you take a vote would anybody like to make any comments about this? And if you're talking too long and say look we have to limit this to two minutes so would you please wrap it up we appreciate your being here in your comments. Then you make your vote or you defer to whatever you're going to do. So that bill clarifies that owners have a right to participate in the meetings. And you can't cut them off by saying the form only. And you certainly can have reasonable rules. What else it did though is two little things maybe three of the little things. Well two little things one big thing. The two little things are is when you publish your board notice at the project typically three days or more before the meeting. You now have to put on that notice the expected items to be on the agenda. Expected items it doesn't prohibit you from adding items to leading items or changing things. But it's to give the idea general take of what you expect to discuss at the meeting. So that now has to be on the notice of the meeting. Then number two after the meeting you must have available to the owners upon request within 30 days a draft of the unapproved minutes. Granted when they're approved they might change whatever but you still have to have a draft set of minutes available to the owners upon request within 30 days of the meeting. But the big ticket item the big change they made was as we've talked previously getting boards and their owners to arbitration or mediation under the current statute. That arbitration is a de novo kind of a non binding squirrely kind of different kind of arbitration but it's there. The biggest problem we've had dispute resolution is people don't want to go. So what this statute says that for you board members it may be a breach of your fiduciary duty if you fail to go to mediation or arbitration upon request. That means depending on what the circumstances are you may not be protected by your director of national liability insurance. And it's very easy to cure this problem. You can first of all vote for going to mediation or arbitration which is kind of a safe harbor provision. So if the others don't you're safe. Or you can simply look at it simply this way. It's our obligation to go to mediation or arbitration. We can avoid being a breach of duty by simply going. And so that's in the statute under 832. And it's a good thing. You know we believe it's a proper thing to do because we have found that success in this evaluation mediation has been very high. And this encourages almost demands boards to honor their obligation under the statute which currently says shall go to mediation. It doesn't say optional. So this is what 832 does. I think it's a good bill. And I think the one that didn't get through is I should say still alive going into the next session is 1499. And we have about two or three minutes left. So try to give us a short summary of that. Okay 1499 it talks about this priority of payments. In other words when the unit owner makes a payment and if they have late fees and penalties how do the payments get applied. And so there are changes that are contemplated that are being made to that because a lot it's very confusing to unit owners ends up in default and sometimes foreclosure. Another thing that the bill does is you talked about arbitration. There's another type of arbitration and this is voluntary binding arbitration. And here the parties can do it and this way this arbitration has no de novo provision and it would be subsidized by the real estate commission. So that means if you do this type of arbitration you pay the initial fee and then the board subsidizes it and it expands who can participate in mediation. Yeah now it's kind of still alive because our sessions last two years but in summary we have 514B is going to be the rule of the land in 2019. Certain associations most of the big island are kind of orphans and aren't under any law are going to be under 421J. We're going to have proxies that can only be used for a quorum only if they're mismarked. 832 more open board meetings some requirements to be more disclosure what's going to be done at the meeting and make sure violations of fiduciary duty are limited to not going to mediation arbitration. Giving a resident manager's contract and this one is still outstanding 1499. So what is your report carpet legislature this year remembering that we're talking about association issues only. I give them an A minus daily for what they didn't do and because of the bills that they passed about mediation arbitration. Yeah I would give them a B plus and I think that from our industry we're finding that the legislature is learning more about our industry. They're more in tune with what's really going on. I think so. We're really trying to work on ways to improve the flaws in the law to protect owners rights without going to the necessity of government housing with a government agency to run condominiums. Right and I agree and I think they recognize too that boards are trying to do their jobs and they've given them some guidance with some of these bills. So to wrap up the show I just want to say we owe a lot of credit to Hawaii Council Community Association. They put a great deal of work in running great educational seminars and also lobbying at the legislature for meaningful legislation. Owners and board members alike are welcome to come to any of these seminars. You can check us out online and sign up. We do I don't know seven or eight a year if I remember correctly and so we hope you enjoyed the show today and thank you for watching Condo Insider. Hello.