 Welcome to Inside Hawaii Real Estate, a show dedicated to providing up-to-date information used to Hawaii home buyers, sellers, and investors. I'm Will Tanaka with my co-host, business partner, and wife, Leonie Lam, a realtor with over 20 years' experience in various leadership roles in the Hawaii real estate industry. Thanks, Will. Will is a lawyer. I'm the former head of a Hawaii title and estro company. And now that we're full-time in real estate, we work as a team to bring you the latest in Hawaii real estate. And today we have an awesome guest who are looking forward to talking about important factors that you might want to consider about owning a condominium in Hawaii. We're also going to be learning from an expert about conflict resolution in Hawaii real estate. Can't wait! And the moment has arrived. Here's our special guest, Matthew T. Evans Esquire, a director of a highly-respected law firm in Hawaii, Damien Kee Leon Kupchak-Hastert. And I remember back in our youth, well, my youth, because you're still a young bat, we used to play in the Lawyers' Basketball League. Remember those days? I do remember them. They seem very distant, but I do remember them. And that's the Pacific Business News 40 under 40. And his focus and expertise is on real estate and condo law, of course, business and commercial law, construction law, creditors' rights and litigation and dispute resolution. And did you know Matt is a board of director of Meritas, a worldwide alliance of law firms across 240 global markets? Wow. Welcome, Matt. Welcome, Matt. Thank you guys. Happy to be here. I mean, your enthusiasm is infectious. I'm super excited to be here. And thanks for shouting out that I was 40 under 40 at one point in time, although I'm no longer under 40, unfortunately. But it's all good. Happy to be here. So did you know that as of a couple of years ago, reported data showed that there were over 173,000 condo units on Oahu alone? And right now in the market, there are 1,123 fee-simple condo and townhome units active for sale across the island. And that's in contrast to just 643 single family homes active on the market right now. So Matt, will you please help us to understand what does it mean to own a condo in Hawaii? What is a condo? Sure. And those are interesting stats that I hadn't heard. And it's not surprising, though, I think that to hear those numbers given that in Hawaii, where I grew up anyway, we've always known that there's a finite supply of land available for purchase. And how are you going to own and sell and purchase land? And so that's really what a condo is. And what it comes down to is that it's just another way to own real property in Hawaii and elsewhere. Traditionally, you might think of owning property as you have your parcel of land, you build your home on it, you have your white picket fence, what have you. Condominiums are a creation of laws in relatively recent times as a means to own property whereby you do own a separate portion and that you actually have a D2. It is yours. You own the legal title to that portion of property. But you also share other portions of property, we call them common elements, through an undivided interest with the other condominium owners of your project or your property. And so it's just a different way to own property in Hawaii, where you're sharing portions of it with others. And we do have a statute in Hawaii that which governs and creates allows the creation of condominiums. And that's Hawaii Revised Statues Chapter 514B. We don't need to get into the details, but it's a legal creation. And thankfully, you know, we have the reason we're seeing a lot more, I think condominiums these days is because of the land shortage. And we're seeing a lot more of vertical construction rather than swaths of land being developed and for obvious reasons. But that's what condominium ownership means in a nutshell. Okay, let's unpack that a little bit, because I mean, I just learned so much. So, you know, when we think about condos, we always think about most people think about vertical condos, high riser condos. And then I think you kind of mentioned, you know, in our pre discussion about there's horizontal condominium property regimes or, you know, it could be like almost like a single family home, but still condo. Is that right? Yeah, definitely. And I mean, I think that when people hear the word condominium colloquially, people that are maybe not, don't have a real estate background or aren't lawyers or haven't looked at the actual law creating or governing condominiums, I think that there is a misconception that, oh, condominium equals apartment in a high rise building or a 10 story building, what have you. But condominiums, and they do often look like that in the developments that we're seeing in many portions of, you know, especially the downtown core near Alamoana or in Kakaako, we are seeing those high rise condominiums being developed and sold, but there are all types of condominiums and they can look like single family homes. And if you didn't look at the title to the property or you weren't actively purchasing it, you might never know that something is legally and technically a condominium versus just what people might think of as a normal single family home. And so you can find those all over the island and certain, you know, if a developer owns a big swath of land, and they it's another way for them to package it and sell it without having to go through the subdivision process at the city level. And so when you're looking out, whether you're, you know, if you're going to be purchasing property, you might be looking at buying a condominium, even if you don't know it, but at some point in the process, you'll figure it out. But a good point that condominiums can come in all shapes and sizes. In fact, there are commercial condominium units as well in many of these buildings and properties. I know our focus today is probably residential, but to your point, they can come in many different shapes and sizes. In terms of, you know, people who are looking to condos and some of the benefits of purchasing condos, can you get into that a little bit? You know, and I'll say this from, I have experience as an attorney working with condominium associations, condominium managing agents, and I also have lived in a condominium for many years. So I have multiple hats in terms of that I can wear when I talk about this. But I think generally speaking, from a 30,000 foot level, some of the benefit, the typical benefits that people think about when they own a condominium is that there's a shared maintenance obligation so that people, if you're like me and you're not really interested in cutting your own grass all the time or worrying about the chipping paint on your garage, worrying about, oh, do I have to, you know, upgrade the pipes in my kitchen? If you're not really into the day-to-day maintenance of caring for your own home, then condominium ownership might be for you because there's a shared responsibility and the ability to delegate those types of maintenance functions to a board of directors that's charged with managing the affairs of the association for the condominium, as what we call it, and hiring vendors and people to help you manage the property. Other benefits that you might think of, common benefits, particularly for, you know, like the high-rise condominiums that we're seeing being built in Cacaco and near Alamoana Center, some of them have 24-hour security or front desk services or concierge services even. Sometimes if you buy a condominium unit in some of these newer projects anyway, you have really, really nice amenities that you probably wouldn't find elsewhere if you're buying a single-family home, you know, a pool that's super, super nice, a gym so you don't have to, you know, pay for a separate gym membership. Some of these newer condos are even going to have things like bowling alleys. I mean, the amenity list goes on and on. So it's a way to avail yourself of what might be perceived as luxury-type experiences or amenities that you wouldn't get necessarily with a typical single-family home purchase. And I think the last benefit that people will often think about is that you just get a general sense of community because you're, you know, you could be owning this property with 400 other families and you have a say in the direction of how the property is being used and enjoyed. And to that end, you guys have, you'll have a lot of shared experiences and shared incentives to care for and maintain your property. And so that's attractive to some people, the idea that I'm going to be living in this kind of community with others that are like-minded individuals. How about some reasons that, you know, someone, you know, looking into a condo, they may not like about a condo. Well, like this angle is there's two sides to every coin and there's certainly downsides or perceived downsides. I think the biggest one and the most obvious one that people think about that if you have never owned a condo, you might be surprised that there's something called monthly maintenance fees that you're going to have to pay as a product of ownership of owning a condo. It's the other side of that equation. If you're a person that doesn't like cutting your grass or having to repaint the outside of your house, you got to pay someone to do it. And the way condominium associations accomplish that is by having the unit owners, whether it's 20 of you that make up this condominium association or 400 of you, pay monthly fees into a big pot that is used to fund the operations and maintenance requirements of a condominium property on an ongoing basis. And that entails not just projects that are maintenance issues that need to be addressed now but, you know, planning for the future as well. So those maintenance fees tend to go up year over year and that's something to consider if you're going to be purchasing a condominium. Budgeting for that, it's, even if the best planning can't always anticipate every need that's going to pop up in the next 10, 20, 30 years of condominium ownership. So something to think about and plan for. Another potential, I guess, downside you can call it is that if you're a person that really is interested in, you don't like people telling you what to do, in condominium ownership, you give up some of your rights and your ability to dictate how you would want to make this decision with respect to your property. You know, by agreeing to own a condo, you are also agreeing to abide by the rules that are in place for the use of your property. Those are set forth in governing documents like a condominium's declaration, the bylaws, what's governance for directors, house rules. You are giving up a certain amount of rights. For example, maybe you have to get permission to do a renovation of your unit, which you wouldn't have to do if you just owned a residential single family zoning parcel. So there's give and take. Those are kind of the two big ones I would say. I would also say that if you like your privacy, I think of some people in my own life that were considering owning a condo and these are people that really, really value their privacy, that don't want people looking at them if they're not wearing covered shoes or don't want to have to put on a change out of their pajamas to go get the mail. Maybe condominium ownership is it for you because you're around people quite a bit or you tend to be around others quite a bit. And so I guess if you're a really private person, that's something to consider as well. So, you know, like you're saying that I guess as a condo owner, and you know, you kind of, you have to not mind being told what to do, right? But then that condominium associations have boards, they have to. And so if I was living in a condo and I wanted to get involved, I mean, do you think that would be a good idea to help, you know, to have a voice or is it like a rewarding thing to do? Or is it beneficial? Like what are your thoughts? Yeah, I think that that is, you're right. So condominium is run by its association and the association acts through typically its board of directors and that's set forth under the condo statute. And so, you know, I think that the answer to your question is that it really depends on the type of person you are. I think that if you're considering whether you want to, you know, put your name in the hat to run for a position on your board of directors for your condominium association, you know, you certainly will have more of a direct say about the direction of the property as a whole about how the association is going to be spending those maintenance fees that they've collected from all the unit owners. And so to the extent you want to kind of control your own destiny, sure, that's one way you can do it is by agreeing to serve on the board of directors. Kind of the flip side of that is that it does tend to take a lot of time and also fairly or unfairly when things don't go right or when someone inevitably disagrees with a decision that you might have been a part of, they're likely to voice that. And so if you are a person that does not want the responsibility of having to answer for potentially three or 400 other unit owners, that's something to be cognizant of. You know, I think that you all should need to understand that if you're going to be throwing your name in the hat to be a board of director or a member of the board of directors for your condominium is that you need to be, you need to understand that you in that capacity will be acting as a fiduciary. Now that's just a fancy word that lawyers like to use for describing these duties of care and loyalty that you have in terms of making decisions in a prudent manner for the betterment of the association. You have to put aside your own personal feelings, your own personal inclinations that might be that you might normally make from a selfish perspective and say what's good for the association or for my fellow unit owners. And in exercising and conducting yourself, there are legal requirements that dictate your behavior that if you don't follow them could open you up to potential exposure in terms of liability as well. And so there's a lot to consider to that end anyway whenever someone's looking to join a board of directors, they should also ask themselves, you know, does the association have the right type of insurance coverage in place, namely directors and officers liability coverage and what does that look like? Yes, I'm gonna hear, I'm gonna do my best to make decisions on behalf of the association that I think are smart and are well-reasoned and well thought out. If I happen to get, you know, be on the other side of a claim from someone that thinks or that disagrees with the job I'm doing, is there protection for me and what does that look like? Hey, Matt, you know, just get into the increasing maintenance fees because I remember I used to live in a condo every January or December and I get a notice like, hey, your fees are increasing in January, you know, of the following year. So when it comes to a decision to increase the fees, how does that work? Is there, you know, like, do they have several meetings and then the board are the sole decision maker collectively? You know, are there any other way for the other condo owners to say, you know what, I object. We don't need, you know, we have enough reserves, we don't need to increase the fees. Can you talk a little bit about that process? Sure. You know, every condominium is going to handle it a little differently depending on their yearly cycle and their, whether they operate on a fiscal year or a calendar year, but generally speaking, most times the annual budgeting, it happens annually, the budgeting process and many associations like the ones we're talking about, you know, that are hundreds of units together are going to have a managing agent involved to assist with the annual budgeting process, the planning for what the maintenance fees are going to go to towards in the following year's operating budget versus setting aside and reserve funds for potential future capital improvement projects or repair work that's coming down the pipe. So that does tend to happen on an annual basis. Now, if you are a unit owner that does not have a direct voice as a member of the board of directors, your way to participate in that process is to actively attend the scheduled board meetings, certainly attend your annual association meeting whereby, you know, talk about certain aspects and you vote the board of directors on, but ultimately that decision rests with the board of directors to adopt the budget for the following year. Now, there's nothing that requires, well, there are certain technical requirements about how much money you need to set aside to be considered fully funded for your reserves and there are certain things to look at. But generally speaking, the board of directors has pretty wide discretion to say whether maintenance fees should increase or not. Now, because costs and the costs of operating and maintaining property tend to go up, as you know, as we all know, it's obvious, those maintenance fees are likely to go up as well. And so even if you have, even if things go well, it's very rare to see a situation where maintenance fees are going to be kept flat for even a year, even two years. They're likely to increase even by a small percentage, whether that's 2%, 3% every year. And now every now and then, if you have an unanticipated budgeting expense or let's say something happened, plumbing, a big plumbing issue happened in your high-rise building and they have to replace the plumbing, the pipes throughout. That's a big, you know, capital repair project that's going to cost a lot of bucks. And so sometimes the associations don't have that money set aside. And then what happens is that you might, if you're owning a condo, you might find yourself getting a letter saying, hey, we're going to have to charge you a special assessment, which is basically a special, I don't want to call it a fine, but a charge to say, look, we're going to need, whether it's $5,000, $10,000 from each unit owner, because we have this unbudgeted expense that we weren't anticipating. And so again, you know, I'm not trying to scare people away from condo ownership. There's a lot of upside, but those are things that can happen. And it can be a very divisive issue among unit owners when there's disagreement about, do we need to raise the maintenance fees or not? And, you know, I'm aware of situations where unit owners have been unhappy. And when you're looking at, is this a right condominium project for me, whether that's the high-rise or any other sort of condominium property regime? One of the things to consider is, what does the financial picture look like for this association? Are they well funded? Have they been well managed over the last 10 years? Those are questions you should be asking as part of the purchasing and the transaction, you know, prior to closing, so that you know if you, once you close on this unit, that you can expect to be a part of a well-operated, a well-oiled machine for that particular association. That's super good advice, I think, that anyone should consider, because there's, like anything else, there's pros and cons, right? But as you're talking about some of the other sides to condo ownership, it kind of brings up, you know, segueing over to disputes. In your experience, I mean, you have, what kind of disputes have you seen arise with condo associations or condos in general, condo ownership? Sure. I mean, the disputes can vary like they can with any industry, you know, when you're, when you've agreed basically to share ownership of property with others, especially on some of these larger projects where you might be in an association with several hundreds of members that you're in, you're one of them, inevitably, you know, you've basically chosen a life where you're touching more people, more third-party contractors, your association ends up having employees, whether it's a security guard or people that help you maintain the property. And so a bunch of different types of disputes, you see some of them here on the screen, you'll have disputes between owners about silly, you know, things as trivial as noise complaints, you know, oh, I don't like that the guy upstairs is exercising too loud and jumping up and down and I'm going to make a claim against him and you find yourself in a dispute. Vendors is an example would be, you know, the maintenance company that or the company that maintains the elevators, if they're not doing a good job and we got to get it, you got, we got to hire the association's lawyer to write them a letter. People don't necessarily realize that if you're a member of a larger association, you're likely to have actual employees that are employed by the association, like an employer, and therefore you find yourself having to comply with labor laws and things like, you know, payroll taxes. And then finally, the owner association disputes are kind of are pretty common in the sense that that's kind of what we were talking about, Will, when we're talking about an owner that might not like the direction that the board of directors is taking the property and say, you know, I object or I don't I don't like this and you find yourself embroiled in either a dispute whereby an owner is saying to the board, I think you've done something wrong or I think you've gone beyond your the power that you're delegated under our bylaws but the disputes are are wide ranging. And, you know, I do think it's an important consideration. It's hard for me to sit here and say that just because you live in a condominium versus owning a single family, you know, the zoning parcel that you're you're then likely to have more disputes in your life. So I'm not just saying that necessarily, although I do think that by owning property this way, just because there's more necessary interaction with others is perhaps more likely than not, you know, in another situation. Understood. So you know, in terms of, so let's say that example, noise complaint from your upstairs neighbors, you know, the kids are too loud, the baby's crying or, you know, something or the treadmill is too loud, and you file a complaint with association. So what happens next between owners? Well, it depends on the process that's outlined in that the associations are condominium property regimes, house rules, or they're governing documents. A lot of well written condo declarations or house rules will explain the procedures very clearly about if you need to make a complaint, this is what happens. Now in the condominium statute, there is required or mandatory mediation for certain types of disputes, namely those disputes that involve kind of the interpretation or enforcement of the governing documents, you know, that's what we refer to as the declaration, the bylaws, the house rules. If you're dispute with a unit owner or the board of directors or the properties managing agent has to do with interpreting or enforcing those documents, the applicable statute in Hawaii requires that you first go through mediation. In other words, you wouldn't be you wouldn't be going to filing a formal lawsuit against anybody. You might be starting that process with a complaint to the board of directors, and then you might find yourself in a mandatory mediation setting. Now, what that means, it can take many different forms, but generally speaking, mediation just involves two parties agreeing to have a third party neutral involved to help them see kind of the other side's perspective and see whether we the parties might be able to negotiate towards a resolution that would kind of nip things in the bud, hopefully. And if not, is there a way to negotiate some sort of compromise where both parties can live with, even if it's not their first choice, right? I think that mediation is in mediation, it's important to understand that no party, if mediation is successful, no party is likely to get what they want, because that's antithetical to the idea of compromising. But if both parties are open to the idea of giving a little to accomplish solving a problem, and I'm moving forward, then I think mediation can be really, really useful. And like I said, in certain instances, you're not going to have a choice anyway, you're going to be compelled to do that if you think you have a problem with somebody. So as a parent of multiple children, I can see how I'm a mediator, like on a daily basis, basically. But how does that differ from arbitration? So mediation arbitration are people might hear those words kind of coupled together a lot. And that is because they're both where lawyers talk about being alternative dispute resolution processes, but they are very different. Mediation involves negotiating with a third party in a non-binding manner, whereas arbitration is more like a trial, what you might think of as a trial in a courtroom, except it happens privately, it happens outside of the courtroom. An arbitrator, instead of a judge, listens to your case, listens to the evidence you want to put on, and makes a decision about who's right or wrong and what the remedy might be. And so what's interesting about these types of disputes is that the same type of disputes that are subject to mandatory mediation under Hawaii's condo statute are also subject to mandatory arbitration as well. So if mediation fails and the parties don't reach a resolution, you might be compelled to go through this next step of arbitration as kind of a compelled next step. What's different about the arbitration that's contemplated under Chapter 514b versus other types of binding arbitration is that you do have a statutory right for what lawyers call a trial de novo, which just means if you don't like the outcome of the arbitration, you do have the ability to actually proceed to court and challenge that. There are certain hoops you have to jump through, and there's certain risk associated with that that are probably well beyond the scope of today's discussion. But that's an interesting tidbit, whereas many times in a commercial context or in any number of different contexts, if you submit a dispute to arbitration, that result's going to be binding in a sense that you're not really going to have a right to go to court after, except for a very, very limited basis, whereas under the statute in Hawaii, the condo statute, it does contemplate you being able to request a new trial, basically, and saying, you know what? I don't like how this arbitration went, and I'm going to move forward. Now, hopefully, having gone through mediation and then the arbitration, you would hope that people would find a way to say, this is enough already, and I'm done with it. And I think that's why the statute is set up that way, to save our court system from having a gazillion complaints filed by unhappy unit owners or other aspects of condominium ownership. But there is that ability, anyway, to kind of have a trial de novo if it comes to that. Well, this has been a super educational experience for us, Matt. We so much appreciate it. And if there's any last words for a viewer about dispute resolution, condo ownership, I'm going to put you on the spot. You're still on the basketball court. Any last words for viewers? No, I mean, I would just say this, like, if you're going to be owning a condominium, and if you're going to be, I don't want to plug attorneys necessarily, but seek legal advice about if you're unsure about the implications of owning a condo, what your obligations might be. If you're on a board of directors and you're not sure whether you're exercising your business judgment or fiduciary responsibility correctly, you know, there are attorneys in town that specialize in that area. And I would encourage everyone to contact their lawyer to get some help if needed. And how would they reach you? Oh, me? Oh, there you are. Yeah, thanks for that. Thank you so much, Matt. Yeah, you're welcome. I'm happy to have participated. And, you know, I love your guys logo. It's awesome, like I told you before. And I really appreciate the opportunity. And thanks for having me. We appreciate you so much. Thank you so much, Matt. Okay, thanks, guys. Thank you, Matt. Aloha. Aloha.