 Welcome to another episode of Condo Insider. My name is Jane Sugimura, and I'm your host for today's show. Excuse me. And my guest today is my good friend and colleague, Richard Emory. He's a vice president of Associate Hawaii. And he's been a longtime property management manager in FERC condominiums in the state of Hawaii. Thank you, Richard, for joining me today. Well, I always enjoy saying you and talking about our industry. Right. And today, I think you and I wrote an article. We did a joint article on self-governance under attack. And I think that's a good topic for us to discuss today in Condo Insider. Well, it's certainly a hot topic in what we see in the past legislative session. So I think it's a good topic to get people understanding what's really at stake here, because some of these initiatives that people put forth will only harm the industry and increase maintenance fees. Right. And we keep getting these bills every year. And this session was no exception. I mean, we got bills on proxies. And what the idea was, I guess, was they really wanted to take the discretion away from the board. And they only wanted the people who attended the annual meetings to be able to vote on issues. And so that would preclude a lot of investor owners and people who couldn't make the annual meeting from participating because they couldn't have the use of proxies. And those proxy bills are just kind of like perennial. But this year, I mean, it just seemed like there were so many of the proxy bills. Why don't we talk about, first of all, for people who don't know a whole lot about condominiums? Why don't we talk about what is a condominium? Well, I think that's a good place to start, because when you look at the basics of governance, a condominium is simply an organization that's been created by statute. It really becomes a condominium by statute upon filing the declaration. It's no different than a nonprofit or a for-profit corporation. And it's an organization that by statute, it is created. And within that statute, it preserves and protects members, in the case of condo and owner, their rights and privileges as a part of that organization. I've always argued that to try to change and take away a person's right to be representative by taking away their proxies is unconstitutional, because you're now taking away a person's right to be represented in an organization we say own and interest in, in the case of a condominium being an apartment. So a condominium is simply an organization. And Robert's Rules establishes the four basis of governance, which is authority, duty, equity, and protection of the minority. But it's just another organization that when you buy into it, you've agreed to obey, abide by, and follow the governance procedures that were defined. Well, why don't you explain to our viewers, what do we mean by self-governance? Because I mean, the topic of this show is self-governance under attack. Well, when you look at the formation of an organization in the case of a condo, I'll just focus on condos, you have the declaration and the bylaws, which defines governance. In those cases, it's managed by the board of directors this condominium with certain obligations requiring owner approval or owner participation. But in general terms, self-governance means the organization itself, not the government, runs this association and makes the decision on behalf of the owners, and they're elected by the owners independently. So you should understand one thing about self-governance. I was the CAI legislative liaison for the United States, meaning I worked with all the states in my CAI capacity. Every state in America is based on self-governance for condominiums, every single one. Because if you think about all the condominiums in Hawaii would be high-rise, low-rise, agricultural, assisted living, they're all going to have their own unique character building ownership. And who is better prepared to make the decisions on behalf of that organization than the people who live there or the elected members of the board who own there? And really, the whole concept of self-governance means that whoever is part of that condominium, they're the ones who elect the board members. So that's what they mean by self-governance. In other words, the rules and regulations that affect the people who live in that condominium are not dictated by the state of Hawaii or the city and county of Honolulu, except to the point where we're talking about health and safety regulations. But the way it's managed is determined by the people who live in that building, right? That's correct. We know the condominium statute provides a lot of consumer protection. They have to open board meetings. You can remove directors by a vote. There's all sorts of consumer protection built in the statute today. But what happens is the members, the owners, elect their representatives who have a now a fiduciary duty to do what's right for the association and they represent the owners that make the business decisions. And those basic decisions on that project are made by that board and not by government. And there is this small vocal minority and you're aware of who they are who have been coming to the legislature recently and asking for these laws on proxies which would limit the participation of certain members of the association. Why do you think they're doing this? I think they're, well, I don't think they can get elected to their board and they can't make their, well, they think the industry should be run, they can't affect these changes. I mean, the simplest thing I would say to a person who lived in a condominium, you don't wanna have the proxies this way or you don't wanna do this that way, we'll go amend your own bylaws and documents, get all your owners to support you. You don't have to go to the legislature to make it one size fits all for everybody. If this is such a good idea, why doesn't the condominium where they live adopt it? So I think they go to the legislature because they can't get any traction with the condominium they live themselves. And you know, the people, the legislators, you know, who have to listen to the bills and make decisions about whether the bills are gonna get hearings in over the years. And the condo statute has been in effect since what, the 1960s. You know, so they've been in effect now for over 60 years. I mean, there's this long tradition of self-governance. In other words, the government doesn't get involved or they shouldn't get involved unless it's an issue that affects all condominiums. And there was a concern where a majority of those, you know, people who live or own in condominiums are being affected like leasehold. Something like, you know, that's where I think, you know, we appreciate the legislature, you know, getting involved and helping us get rid of the leasehold issue. Well, this advocacy group that is pushing all of this basically has three agendas. One is change voting by eliminating proxies and reducing the quorum. Number two, this is not a private organization. It's a public organization. They want all the records of the condominium on a public website that anybody can access. And then number three, they don't like the dispute mechanism that are in the statute today. Because right now there's, besides just going and talking to your board, the statute provides for two types of mediation and one type of what I call condo arbitration where it has certain restrictions on it besides the normal litigation we think of. But this particular group argues that none of this is working, which is just not true. The facts and the data don't support what they say. And you know, so how many people, do you know how many people actually live in condominiums when we're talking about the state of Hawaii? And the population is about a million people or more, right? Right around a million people. Well, I understand when you say living in condos, you're gonna have tenants and you're gonna have investor owners or second homes. But just as of December 31, 2022, there were 2,053 condominium associations in the state of Hawaii, all islands. In that, it's about 148,000 condominium units. Believe it or not, more than 50% of the condominiums are less than 50 units in the state of Hawaii, very small in station. So if you've said that the average family is three people times 140,000, about 30 to 40% of our population live in a condominium. Or say that you can prove that because like I said, you have people who have investor owners or rent them out, whatever, but about a third of our population lives in a condominium. Right, and I think maybe that's what kind of drives what the legislature does. And so I think they have gone out of their way to do like a hands-off unless they get enough people claiming that there is something that the legislature should address. And so I think that the legislature, at least our friends in the legislature, we can seem to count on them to honor the fact that condos are based on self-governance and that they should respect that when they review the bills. And I think most of the legislators are on our side on that issue. I think that's true, but the things they throw out is like the industry, it's bad boards, bad lawyers, bad management companies, everybody is bad but them. And when they have a dispute, they're getting taken advantage of by the bad boards, the bad lawyers and the bad management companies. As you know, the real estate commission has to file a report annually with the legislature. If you look at the number of cases per month that are filed for mediation or arbitration under the condo statute, it's about 30 a month. If you think about that, 30 a month is 360 a year under 140,000 units, it's not that many. If you look at those numbers, more than half of them are resolved just in this mediation arbitration process. And a half of them let's say are not resolved because the owner or the board doesn't wanna agree to whatever the issue is. It's interesting if you were really to look at the real estate commission's quarterly magazine, they list all of the arbitration and mediation proceedings and what the cause was and whether it was instrumented by the owner or by the board. If you look at the issues, they're very mundane issues. They're not the kind of issues that this group argues is a big problem for the legislature. These are issues of interpretation of common elements, issues of who has to pay the insurance deductible. The issue is argument, but they argue we need to have an ombudsman, some government official to make the decision. Well, in 2005, we had the condo court it was called. Oh yes, we had that condo court. And why don't you tell the viewers what the condo court was? Well, the condo court, they had an administrative law judge who could hear certain types of cases and make a ruling. And this group, the group then, I can't say that's the same group, it was arguing they couldn't get a fair hearing, said the condo court was no good because they weren't getting the rulings they want. You know, and so it's sunsetted in the sense that I think we as an industry had extended ones to give it more chance, but it's sunsetted. But if you look at the other states in the United States, they say, well, other states have an ombudsman. Well, they do, but they call it an ombudsman where we have the regulated industry complaint office which satisfies the same purpose of what other states call it an ombudsman. It's not some sweeping condos are that can make these sweeping rulings that ignore the law, the declaration, the bylaws. So it's a very misguided, it's almost scare tactics what they're saying because there's no truth to it whatsoever. And you know, 514B, the condo statute, the condo statute has this provision about documents, right? One, it's 514B 154.5. And that section basically gathers the information from the entire chapter in one section. And it basically says these are the documents that owners are entitled to get. And they are entitled to get them within 30 days. And so to me, and those are some of the issues that the ombudsman on the mainland are tasked to resolve, right, the request for documents. This group proposes that the state set up a public website, meaning it was available to anybody, whether you're an owner of that condo or not. And they propose that all these documents be mandated by law to be put on this public website and available to anybody. So the minutes, the financial statements, the contracts, of course, I guess you don't care if your vendors can see what another vendor is charging you in your contract. But one of the requirements I'll never forget was they wanted 10 years of all the insurance policies put on this public website. Now, if you think the state's going to do this for free, you can bet that's wrong. They're going to somehow charge the owners. But we did a sort of calculation of the 2,000 condos and all these things. And you're talking about more than 5 million documents a year that have to be posted to the website. And for what purpose? If you look at the number of complaints followed with RICO of inability to get documents in the calendar year 2022 and 2023, when it comes to management companies, I only know of two. And the owners got the documents, but the management company was fine for not giving it within 30 days. So I think that's an education process because my advice to management companies is make it easy to get documents. But why should we make it a public website? Why should everybody know what the minutes are? Aren't you exposing yourself to potential liability as something gets into a public website that you didn't filter and vet to make sure that you're not speaking badly of an owner as incorrectly or you're reporting a fair debt thing that they're delinquent and they're made this week? It makes no sense to create this public website because remember this, a condo is a private organization which you're a member of and you're entitled as a member to a certain document. Why would you suggest making a public website and creating all this cost and all this liability? Yeah, I agree with you. And I think a lot of condominiums have their own website and these documents are made available. I don't know if they're available. And I guess they can, the owners who are given access because they are owners. I don't think the renters are given access to these websites. They can download and print them. And I know in my building, we have some issues with owners who want us to deliver the documents to them for free. And I say, no, I mean, that's a cost. Why should the association assume that cost? If you want the documents, you're entitled to them and the statute says that you need to pay a reasonable cost. And even if you say, well, why don't you just email it to me, there's a cost involved because somebody's got to go and find a document, even if it's on a website, and even if it's electronically filed, somebody's got to go and find it. And then you've got to create the email to send it. And yes, maybe it's nominal. Maybe it's only 30 minutes of somebody's time, but it's still, you know, what do you call it? A service that the property management company has to do. And if they have to service hundreds of condominium owners in one building and thousands of condominium owners across the state of Hawaii, I mean, that's a lot of time. And so, you know, people got to understand that they have to pay for it. There's no free lunch. Well, probably there's a percentage of owners who request things that are trying to weaponize this because they want to sue somebody or they're angry. And so what they do is they'll ask for a document. And we have a right to say, it's not an affidavit. You're going to use it for condo purposes. We have a right to charge a fair fee. But as soon as you mention that to them, they get all upset and they say, you know, since you're going to be that way about it, I want you to provide me all the general registers, all the check registers, all the finances there with all the minutes for the last 10 years. And I need you to provide those to me next 30 days. And the easy answer to that is, we'll be happy to provide it to you. However, we have a right to charge. We need you to put a $2,000 deposit with us before we produce these records. The more times than not, I get, I'll give you an example because I had an owner who said, I want you to give me the signature cards for the management company's trust account where all the associations money is kept. And I want to see who's on the signature card. Well, the managing agents on the signature card, that's an insurance issue and how you protect the association from fraud. But we refuse to give them the signature cards because in today's world, you can steal the signatures and do other things with them. The same's true with elections and proxies and things like that, but they weren't happy with that. They found a RICO complaint saying that we weren't providing the documents. Now, in that case, RICO declined to do anything because the board has the right, if the document's not listed in 514b154.5, an owner can request it, but the board doesn't have to provide it. They can answer and say, we're not going to provide it. Most common of all is they want bids for a project. I can't tell you how many projects I've had owners call and say, I want the bids so I can call all those contractors and tell them, if they bid on it, I'm going to sue them. You know, it's not such a clean, everybody's so nice in this industry. We'll get very emotional some of these owners on these issues. Right, and the owners are, I mean, the documents that they're entitled to get are listed in the statute and something like bid proposals. I mean, they're entitled to the final contract after it's been signed, after it's been bided and signed and they are entitled to that contract, but they're not entitled to any preliminary because those are documents that are considered by the board in making their decision. So they're not entitled to any of that stuff until a decision has actually been made. What's fascinating to me, and we touched on it briefly earlier, is the proxy issue. The proxy bill they proposed was that no longer could you use proxies, you had to be there in person, which now takes any of the absentee owners, people who can't be there because they're in the hospital, whatever, you take away their right to representation. I frankly think it's unconstitutional, but that's just me as a non-lawyer saying at that provision. But they wanted to take away, and then the argument was, well, how are you gonna get quorum? And so they said, we're gonna reduce the quorum to 20%. And so on top of that, if you wanna get business done, you only need a majority of the quorum to vote to make it happen. So for 11% of the population, if you didn't, if people didn't know what was going on, you could have all sorts of bad effects happen because of this super low quorum result and trying to take away a person's right under their documents to be representative. Either way, that's fine. And you mentioned before that there are probably hundreds of thousands of condominium owners in the state of Hawaii based on the population. And so they probably, and this is their biggest investment. And this is their biggest investment. So why wouldn't they wanna participate? Why would, what is the purpose in excluding these owners from participating in helping the board make decisions, especially by electing board members? Well, if you look at organizational governance going back to nonprofits and for-profits, they all have members, they all have the right to use proxies. It's a very common thing across the United States because they're right of representation to do that. And so it's not an unusual thing. What's unusual is if you try to steer the end results by eliminating people's rights, because even in general elections in Hawaii, I wanna say it's slightly less than 50% actually vote. There's nothing that says you have to vote or you have to give a proxy to somebody. It's just you're right of free choice by being a member owner in that organization. And so to try to steer it to some super minority and now change the world doesn't seem fair to me. Well, it seems like we may have to deal with this in the future. So what are your recommendations to board members who are facing this in their projects? Well, my recommendation first of all is whether you like it or not and you're on the board, you gotta be aware what's going on in the industry. I think the industry can do a better job notifying boards. We need you to testify or speak up because what happens is you get so few people testifying that no one ever hears from the other 140,000 people or owners. So I think we gotta get a stronger advocacy from the industry to tell boards what's going on and ask for their support and testimony. I would certainly tell any owner or any board that you want to treat your members with equity and fairness. And so try not to have a traffic cop mentality, try to find resolutions to problem within your authority within your governing documents, treat people with respect. I recognize there's a percentage out there that just have their own agenda and are very hard to work with but a board has to ignore that and just do their job in a faithful manner and try to educate people. But I think board members have to be aware of what's going on because this is not gonna go away. And one of the other bills they had was they want a mandatory education for board members. And if you didn't get your education then you couldn't serve on the board. And so how's that gonna work for a four unit condominium or a 12 unit condominium? The industry's so broad with so many points of types that you can't wait to have this one size fits all. Yeah, well, and that's the, I guess, that's the benefit of the self-governance because that means that people who live in a certain condominium have the right to provide input into the decision-making process that's gonna affect their building. Well, I said in the early on, we first started the show, I said, look, if you really believe strongly your governing documents need to be changed. Don't misrepresent things to the legislature. Go to your own condo and say, I'd like to change our documents to be as follows. And you can be one of your own if your documents are gonna be different because that's what self-governance is. The members get to choose, the owners get to choose what the rules of the road are. But in this case, they go to the legislature because they don't get support from their own ownership base. And so I think that's the challenge is to get the word out. Right, and not to be intimidated by, you know, by their claims that, you know, boards are bad and anybody affected with the boards, including the condo board attorneys and the condo board consultants and the management companies. I mean, it's an unfair characterization and it just, you know, it breeds, I think it breeds discontent in these, you know, community. Well, it gives me the biggest heartburn about this is that the facts are not the facts. They're exaggerations of issues, exaggerations of complaint. They're not reality. If you just look at the data that's actually published, it doesn't support anything they said. They just wanna change the world to their way of thinking and they're willing to say, do and anything necessary to try to confuse our legislators. And, you know, Richard, you mentioned too that, you know, as a member of the real estate commission, you've got your staff, you know, maybe asking, making inquiries. And I know the DCCA sent out a letter about insurance to condominium owners. And so I think this is a good thing that the commission is looking into because, you know, they need to get this data so that they can give to the legislature, you know, so when these requests come in, you know, for changes to the condo law, they got data that really helps them make their decisions. Well, yeah, I had gathering data to be my thing and I told the staff, the real estate commission, I said, you just need to focus on gathering more data. You have broad-based data, but you need to dig into the weeds a little bit and get more data. But if documents aren't being produced, what documents are they? That's the only way to complain. It wasn't found to be a valid complaint or an invalid complaint. All of these types of deeper dive into the data would be helpful. Okay, well, we've kind of run out of time. And so, you know, I'm sure we could talk about this for, you know, a much longer time. And so we'll have to continue this conversation at a later date. And I thank you for being on the show today. Yeah, it's always good to see you and always want to help out. Yeah. And so, you know, I want to thank the viewers for joining us for this episode of Condo Insider. And there will be another episode next week. And so we ask you to tune in and listen and hope you learn something. So thank you for joining us today. Mahalo and Aloha. Thank you so much for watching Think Tech Hawaii. If you like what we do, please click the like and subscribe button on YouTube. You can also follow us on Facebook, Instagram, and LinkedIn. Check out our website, ThinkTechHawaii.com. Mahalo.