 Good afternoon, everyone. Thank you for joining us for Kondo Insider. This is a show about association living, a third of the people living in the state of Hawaii, live in condominiums, and we believe that this show is very relevant for those people and for people who have to deal with them. I'm Jane Sugimura. I'm your co-host, and I'm pleased to have today an industry insider, my co-host on this show, Richard Emery. Richard, do you want to tell us about yourself? Well, thank you. This is an interesting experience being on the other side of the questioning here, but I've lived in Hawaii 42 years, and I've been in the industry of association management for about 25 years. I founded my own association management company back in 1997 that grew to be the third largest management company in Hawaii. And during that process, I participated on various educational lobbying platforms, and as I got older, I sold my company and now I'm a lobbyist for the purchaser. Okay, and today we're going to be talking about problems that boards of directors of condominium associations can create. So tell me, based on your experience, how these boards get into trouble. You know, it's interesting. Well, being on this show, we've had several guests talking about running good meetings, what they believe that seven deadly sins are for boards of directors, and my takeaway having been in industry and operations for a long time is that there's really five specific things that boards either unintentionally or don't understand with regard to successfully managing their association. It begins with number one, which I'm going to call somehow when they're elected, they lose their aloha for the people who they represent. You know, one of our prominent legislators told me once that when you're elected as an official, you represent everybody, even the ones you may not like and the ones you may not agree with. And what happens is it becomes we versus they. They don't seem to put enough attention to listening to people and bringing them into the fold because that owner may not just understand. You may not like them, but they certainly are owners and have a right to be heard and have their problems addressed by the board. And for some reason, boards have a tendency to be dismissive of owners and people who come to meetings with their problems. And, you know, with when you're on a board of director, I mean, are you expected to bring some type of expertise to the board? And if so, what is that expertise you're supposed to bring to the board? Well, there's no mandatory educational requirements for the board, although there's been discussions about trying to give them certain basic core classes on ethics and owner's rights and things like that. But today, that doesn't exist in our law. I think they're supposed to bring the common sense to know that when they have an issue, they should investigate it, get advice from experts, not ignore it and try to bring about a resolution as peaceful as they can for the owners and the association. And so basically, I mean, it's a given, right, with the boards of directors that people know, they're first of all, they're volunteers, aren't they? Absolutely. None of them get paid. None. And so they get elected and they become board members. And so they come to the board because they happen to know their building and they know their neighbors, they know how the building runs, whether it's good or bad or ugly. And so that may be their expertise. How does a director learn how to do their job? What happens if an issue comes up and it involves a legal issue or an accounting issue or they have to figure out how to fix the roof and now it's an engineering issue. How do they make their decisions? I mean, what can they do if they don't have the expertise when they come to the board? Well, it's an interesting question because certainly the industry, both our organization, Hawaii Council of Community Associations, Community Association Institute, Condominium Council of Maui, all have educational platform for boards. I mean, CAI has a day long called the ABC course for beginning directors. The problem is, like you said, they're volunteers. A lot of them just don't want to go to the training. So now what does the board do when they have a problem before it? I think they should seek the advice of professionals and experts skilled in that area. And more times than not, it's going to be their lawyer when they have an issue to come up about a rule violation or how to handle a specific issue. More times than not, they just have to understand that they're judged by the business judgment rule and they should be seeking people who are trained in this skill for expert advice. And you know, I've sat on some boards and I know I've been in the room when somebody says, oh, that's a legal issue. Let's call our attorney. And there's another board member says, oh, no, if you do that, it's going to cost us money. Well, what's your response to that? I mean, yes, it's going to cost you money, but there's nobody on the board who's qualified to give a legal opinion. And so if it's a legal issue, I think the board needs to have some sort of assistance. Well, they've been elected to protect the association. That may mean the property or maybe the quiet enjoyment of the people who live there. And so if they don't know the answer and it's not clear, they can't ignore taking action. They actually expose themselves to greater liability if they don't do something about it and potential harm to the association. So they just have to suck it up and say, you know, I don't like to spend money any more than anyone else likes to spend money. But the only way we can resolve this issue is someone who's professionally trained and skilled who can give us the best advice without putting the association in harm's way. So they just have to suck it up and go hire the lawyer. And there's a rule for this. There's something called the business judgment role, isn't it? That's correct. And it's in the statute. That's correct. And so basically the statute that 514B basically says if you don't know, and we assume you don't know because you're a volunteer director, and if you follow the business judgment rule, and even if you're wrong, nobody can hold you liable. Well, I think that's the important message because if they follow the expert's advice, they're going to be free and clear and protected and have no liability. But the business judgment rule says you're supposed to use common sense. Just like you, I would never go and try to fix the electrical in my home because I know nothing about electricity. Well, when you have a problem in association, you have all sorts of laws for subject to federal and state laws, all sorts of potential harm. Plus, you have an obligation to take care of the people who live there. And you have to just say, we need to have professional advice from someone who's handled this before to resolve the problem and protect the association from further harm. They just have to hire them. Well, you know, you mentioned, too, something about not paying attention to the owner's concerns. I had a call from an apartment owner, and I always get called. I don't know why people refer me as the person that they should call, but I got a call from a unit owner, and his concern was a noise problem. And he lives in a condominium. He and his wife are in their 80s. And there's a couple next door with small children, and it's 24-7. And it's a very serious situation. They went to their... And their building has got a noise violation house rule. And it's touted there are posters in the hallway saying, you know, please be considerate of your neighbors. This is our noise violation house rule. Please comply. When they went to their board, their board didn't take any action and basically said, oh, it's children. It involves children. It involves noise. We can't do anything because the Civil Rights Commission will come down and sue us and beat us up. And so we can't do anything. First of all, what is your reaction to that? Well, I don't agree with that in the sense that, you know, all people have a right to quiet and enjoy their home. When you look at noise, whether it's a child or an adult or whoever, making the noise, that disrupts the quiet and enjoyment of the residents there. And considering it's not just a one-time, two-minute event that someone yelled or something, it's a constant problem. The board has an obligation under its rules to notify the owner. And if there's a tenant, notify the owner of the tenant's violations and take action to correct the problem. And the way to stay away from harm's way is not to put it on the children. If you say it's the children, you know, because you have the alternate argument, well, it's a brand new baby that's crying. How do you handle that? That's not what you can do. And those are usually intermittent type situations. We have constant noise, 24-7, of a family focus on the noise issue and notify the owner that they're in violation of the rules and or their tenant is in violation of the rules and they have to take action to resolve the matter. And what about the issue about the Civil Rights Commission? Why would the Civil Rights Commission get involved in a noise violation claim? Well, they probably wouldn't. But if in fact you misworded your claim, this is going back to the attorney to make sure you've got this done properly. And if you made the claim, it's only the children causing the problem. And granted, maybe the children are part of the problem because maybe the family is yelling at them, you know, and they're yelling back, right? But the issue is we focus on just a clear concept that associations have a right to regulate their community and noise is certainly a problem when you're living close quarters. When you move in a condo, you give up certain personal rights and you have to be respectful of living close quarters to others. And you focus on the noise is the problem. To me, it's doubtful the Civil Rights Commission would get involved. But there are situations where they do get involved? Well, they are, but I have not seen one on noise issues with respect to preconditions. I've seen all sorts of issues where it's been alleged that when they restrict the parking stalls, the stalls end up smaller and the person was disabled who had the original stall and they're now missing six inches. And I've seen these kinds of arguments, you know, even with employees of associations when there's alleged discrimination or workplace environment issues. But I've not seen one for noise by the Civil Rights Commission. But in the event of a discrimination, it's not the board that should be telling the unit owner that we can't do this because we're going to get in trouble with the civil rights. No. The first thing they should do is I would interview the owner to make sure the problem exists and maybe the resident manager or other neighbors. Once I've determined the problem exists, I would be, as a board, writing the owner, asking them to not do this anymore. And I always suggest in the beginning, you write politely and treat them as an adult and not have a traffic cop mentality with the first letter out of the box is you've been fined $100 because they have a right to do process as well. That owner could come and say, I disagree with you and the board should hear them as well. But I think what they've got to do is they've got to, at that point in time, talk to the lawyer and they've got to address the complaint. So it goes away one way or another. And they write the owner a letter about the rule violation. So in a situation like this, the first thing the board has to do, basically, is to notify the unit owner. Correct. And if there is a legal problem, the person who's doing the complaining would get a letter from the association's attorney if it's a legal issue. Yeah, I think that the board has to measure whether they have enough expertise to make a decision. Because, you know, we send violation letters all the time for parking. You know, they're in the fire zone and that's both the park here and we just write the standard form letter you're violating. We don't violate any parking rules. So certain types of rules, you probably could just send a letter, right? But if you're endowed as a board, back to the business judgment rule, they should check with their lawyer, do some investigation with regard to the resident manager and the others in the area, determine if the problem exists, and then say we have to resolve this one way or another. Okay, well, we're going to take a break right now and when we come back, we'll see what happens if you can't resolve it amicably. What alternatives are left to the complaining unit owner? Okay. Hi, I'm Chris Lethem here with Think Tech Hawaii and I invite you to watch my show, The Economy and You, each Wednesday at three o'clock here in Hawaii on OC 16. We look forward to seeing you. Aloha. Hello, I'm Marianne Sasaki. Welcome to Think Tech Hawaii, where some of the most interesting conversations in Honolulu go on. I have a show on Wednesdays from one to two called Life in the Law, where we discuss legal issues, politics, governmental topics, and a whole host of issues. I hope you'll join me. Hi, I'm Tyler Sabota and I was actually a guest host on Carl Kompani's Think Tech Hawaii show, Movers, Shakers, and Reformers. And I think you should tune in every Wednesday to find out more about what it is. That's all. Take care. Hello, this is Martin de Speng. I want to get you excited about my new show, which is Humane Architecture for Hawaii and Beyond. We're going to broadcast on Tuesdays, 5 p.m. here on Think Tech Hawaii. Well, welcome back. We are talking to Richard Emery about problems that the board is creating. And we were talking about, the example I used was a unit owner complaining about noise and what the board, how the board should deal with that, what steps the board should take. And one was to write a letter to the unit owner. And then if that didn't work, then they should consult with their attorney about what their choices are. In a situation where the, in this situation, there was a rental agent. And it appears that in my fact situation, the board is dealing with the rental agent. What is your response to that? Well, I don't think it's improper for them to notify the rental agent. But if they're not getting satisfaction, they need to write the ultimate responsible person, which is the homeowner. And they need to put that homeowner on notice that they have a rules violation issue. They can invite them to come in and talk about it. They can sort of take advantage of certain statutory provisions where we have this Act 187, which is an evaluative mediation. But, you know, my experience is that generally works the evaluative mediation. However, there are people who are stubborn where it doesn't work. And you may have to take some type of litigation to resolve this dispute. But you can't, because of money, say I'm going to ignore the problem and that it's just fester. You know, as I said in the beginning, there's five things I think boards do wrong. And in this discussion, we kind of picked on three of them. You know, number one, they're dismissive of the owner. They just say, well, we can't do anything. So they just don't do anything. Number two, they fail to communicate. They fail to tell that owner, okay, we're going to do the following. We're going to write the owner, we've turned it to our attorney. They fail to communicate. So that owner just sits there hearing the noise every night, thinking everybody's ignoring him and doing nothing about it. Because candidly, the wheels of justice do move slowly once in a while. And then number three, there are alternate dispute mechanisms. Decide the lawyer writing a letter. You can file for evaluative mediation. You can file for non-binding arbitration. There are methods, but it all gets back to the board accepting responsibility that they have an obligation for quite enjoyment of the home in this case, noise, and to do something about it. They don't know what to do about it. They need to ask a professional under the business judgment rule to tell them what they can do and how to do it. And in a case like this where you have a tenant that is causing the problem, and you have a unit owner who is told that their tenant is causing the problem but does not appear to do anything, is there anything the association can do in that case? Well, I've had that problem before. What we basically have done with advice of attorney is notify the homeowner that their owner is violating the rules. Their tenant? Yeah, their tenant. And it certainly is helpful for someone to keep a record of the number of times and the dates and the times so there's some kind of historical record to support it. And we tell the owner, look, you need to get your tenant to follow our rules. Otherwise, we are considering filing an action which is provided for the statute to evict the tenant, and we're going to hold you responsible for all the costs. And you know, believe it or not, my experience has been, of course, interested in the commission and busy as well, and I'm not trying to pick on the rental agent. More times not, the homeowner has a stake there. More times not, they get involved and do something about it. But if they're not put on notice and they aren't told about the serious consequences, it's just going to continue to fester among all the parties and the board's not doing its job. All right. And a lot of times with the unit owner, it's not that they don't want to do anything. A lot of times, you know, most people never get involved in lawsuits in their entire life. So some of them have never dealt with an attorney. So if the board tells them, well, you need to evict this tenant. They probably don't have a clue as to how they do that. That's probably true, and that's why they need the lawyer. But they have to have the resolve to say, we were elected to solve these problems. It may be expensive. You know, these costs will be passed on to the unit owner if it got to that eviction type thing. But they need to look at the fact their job is to provide quiet enjoyment and protect the assets of the building. And that's just what they're elected to do. And they just have to deal with it. And they can't do nothing. And they can't ignore the complaints that come in. Well, that's the problem. That's why it's on my five lists that some boards do, and that's the wrong thing to do. And they're creating not only problems within their community and dissatisfaction. That reputation spreads in the community. It may affect values. You know, I would bet you if someone was selling that unit and there was a problem with the noise, the seller wanted to disclose the noise, they'd have a hard time selling the unit. And a board has an obligation to protect all this, whether they like it or not. Once they ran for office, they agreed to be responsible. And that's one of the things that they have to do is to make sure that the units in the project remain marketable. One of the things, too, what are some of the other things that the boards do to create problems? I kind of covered the first three in the sense that they've got to be responsible, not be dismissive, be polite to the owners, really talk to them, I teach a national course on customer service. I always say, listening is your best first option. Let them get it off their chest, let them vet and talk about it. Once they've done that, then they've got to take responsibility to solve the problem. And they have all these provisions in the law that can mediate, arbitrate, or, if necessary, they can sue. But the other two things that I find that people understand the statute today and their rights and provides to owners. And the number one thing we see RICO complaints on today are, number one, boards trying to prevent owners from speaking at the meeting. The statute is very clear that owners have a right to deliberate in the meeting. That means boards can't say you can talk in the forum only. They can't set rules up. They certainly have a disruptive owner and there are disruptive owners out there. They can put some rules on, whatever it may be, because we have to get our business done. But they can't be dismissive of the owner's rights with respect to a right to be heard in the meeting, provide their opinion, provide their suggestions. And accompanying that is when owners ask for documents, the statute is very clear with documents they have to give. And boards stall, redact, don't give them everything. They hide thinking they're protecting the association. Where truly owners have rights, they own their, they're paying the fees. You should give them the documents unless the attorney advises you otherwise and you should make sure that they are free to speak. And I want to make sure I say one thing. These issues we're talking about are certainly not with every board. We have a lot of great boards out there, a lot of great volunteers. When you look at the problems in the industry, it's a small few that are not listening to what owners' rights are in the statute and avoiding doing what they should do. And those are the exact people who really need to participate in the alternative dispute resolution programs that have been set up under the statute. And that means value of mediation and arbitration. But somehow we can't seem to get those boards into mediation. And why is that? Well, I think the statute doesn't mandate it. And I think that's one of the things our industry is going to try to change this year in the legislature to force them to go to mediation because the new Act 187 provides a form of a value of mediation where the mediator can actually speak. And usually, and influence. And usually they're retired judges with a lot of experience. And it's a lot different when a mediator is saying, oh, the judge doesn't make you pay all the costs and fees. You're not complying with the law. It makes a big difference when you have that level. And what's wonderful about that program is other than the first hour of time, it's paid for the real estate continuing education fund. So we're already paying fees as an association into that fund. We're not going to use the money to resolve disputes by an independent professional. And that program is relatively new, isn't it? It's about a year and a half. I'm going to say it's about a year and a half, two years old. But by the time a law is passed, it gets signed, the rules are written, the negotiations with the mediator organizations is done. You lose about a year, a year and a half of kind of startup time where it really wasn't in place. I know from the last time I looked, almost all the cases that went to a value of mediation were being resolved. Not everyone, but almost all of the work. Okay. And we're going to be trying to address the loophole by going to change the statute to make it either mandatory or to add consequences to the refusal to mediate. Well, I think we should because, you know, we've gone through a whole litany of different approaches. We had what they called the old condo court. All these things never worked. We came forward and said, nationally the most successful program is a value of mediation and the statute got passed. And now it's in its early stages of starting out because of this time, the startup time. We need to give that a good, fair chance, but unless we get people to participate by mandatory participation, we're not really going to know the full results of it until that's done. And so we have to go into the legislature and try to ask them to to put some penalties One of the issues that, you know, we talked about earlier about, you know, the board's, you know, creating problems are boards who have this mentality about their job is to keep the maintenance fees low. Yep, that's number five on my list, you know. Yeah. Certainly no one wants to pay more money than they have to. If we look at the basic concept of doing a budget for association, it's called a zero base budget. You calculate exactly how much money you need for your electricity and your manager and the cost to maintain the property. By statute, you have to save money for the reserves. At the end that adds up, and then you multiply it by your percentage of ownership and that's your maintenance fee. Well, you know, budget is still a tool in a forecast, budget costs may go up, reserve projections may be inaccurate. So you don't have any profit or wiggle room when things aren't right. So if you think about the fact that every year we have some inflation, but some inflation means costs are going up to some level. And so you start looking at the most common thing I can remember is medical insurance to the employees when the Obamacare got passed. Once you have those costs going up and you get better information on your reserve study, you have to deal with that and address it and realize it's your obligation to make sure you have enough money to pay your bills. And that's why you're seeing assessments of things that people kind of say, well, I don't want to be the one to raise the maintenance fees. I'm just going to find a way not to do that. And they're usually underfunded reserves which creates the loans and the special assessments in the future. Talking about underfunding the reserves and special assessments, explain how that happens. Well, they're supposed to do a reserve study by law and as you know, I was the co-author of the part of the reserve law and I have the highest reserve study in the country. First of all, national standards say the reserves are the budgeting tool. So, you know, we're asking to pick inflation, the interest in engineering money, the useful life, how long it's really going to last, what the cost is 17 years from now to replace it. There's a lot of room for error that's naturally going to occur with respect to doing a reserve study. But the board doesn't annually as a part of the budgeting process go through the components of the reserve study. At certain times get expert advice on what the true cost of replacement would be in 2016 standards, for example. And really put some time in it you end up not funding the reserves properly. The second thing is that, and this goes back to 2009 or 10, I believe, when all of a sudden electricity costs went through the roof. So, to pay the electric bill, they didn't have money to fund the reserves. When it comes to next year's budget, they've got to deal with it and say, well, we didn't put the money in reserves, we don't have to raise maintenance fees for that. Basically, boards just come in with the idea, we don't want to raise maintenance fees. Let's make the numbers fit that we don't have to raise maintenance fees versus taking a progressive approach on it. And then when they have to have the money to do a repair that wasn't expected, they just don't have the money. And then that's when the special assessments happen. I know we're running out of time, but I'll try to have three sentences say that the big common problem today is what they call cast iron pipes. They were showing a hundred year life, and we're finding out it's more like 40 years. Well, how would a board project end, so how could you avoid that assessment? Probably unlikely. So, it's not an easy task, but the best thing to do is each year carefully review it, spend some time on it because raising maintenance fees is using necessity. Okay, well, thank you very much for that assessment. And I think we've only kind of scraped the issue, I mean, scraped the surface on this issue, so we're going to have to revisit it. But thank you very much for appearing with us today, and next week we'll have another program with another interesting topic. Yep, I forward to it. Thank you for joining us.