 Welcome again to another edition of Condo Insider. We have this show every Thursday from 3 to 3.30 to talk about association living. And one of the things that came up last year was whether condominium association managers should be licensed and regulated by the state of Hawaii. But before I introduce our guest, James Sugumura, on that topic, I just want to take a short moment as a special tribute to our congressman, Mark Takai, who passed away July 20th of this year at the age of 49 from pancreatic cancer. Those of you who know Mark's professional career would know that he served in Iraqi freedom with a colonel in the National Guard, served in our state legislature for 20 years, was a student body president at University of Hawaii, and was elected to Congress in 2015 to represent the state of Hawaii in Washington, D.C. He had a fabulous record, was well known there in Washington being a consensus builder. My point is, I knew Mark personally for many years. I can tell you things that others may not know. First of all, he was his board of director president for over 10 years and ran one of the best associations in Hawaii from my experience in management. But he also was a fabulous husband to his wife, Sammy, great father to his kids, Matthew and Kyla, and frankly, was a great friend of mine, enjoyed his company, my beer buddy, somebody who I found fascinating, but the one thing I can tell you about Mark, he always had the best interest of Hawaii in his heart, and he will be sorely missed. So our thoughts and prayers should be to Mark and his family. Anyway, I want to go back and introduce Jane Sugimura, prominent lawyer in our industry, condo industry here in Hawaii. Welcome, Jane, and just briefly refresh us again about your background. Okay, well, thank you very much, Richard. And I want to add my two cents to Mark, because I've known him ever since he was a legislator. I've been active, I mean, he's from my area, I live in IA Pro Ridge, I've been on the IA neighborhood board for almost 20 years, and so I've known Mark all those many years. And I agree with everything you say, said about him, and he was a great friend and asset to the community. He will be sorely missed by the community. But anyway, my background, I'm an attorney, I'm a real estate attorney, the name of my firm is Bended Fidel Sugimura. And I don't do condo issues a whole lot, mainly because I'm very active in a nonprofit called Hawaii Council of Community Associations. And so the focus of HCCA is to educate boards of directors and to advocate for bills, a legislation that will benefit condo associations and condo residents and sponsoring this show is one of the things that we like to do, because we want to, it's part of our educational service that we're offering the community. Because semantics are sometimes important. When you say advocate for boards of directors, you're actually advocating for the owners and the association as a whole on good judgment and good law and good issues. Yes, and we try to, one of the purposes is to educate boards of directors so that they can serve their communities better. I know in last year's legislature, and really last year was the first year I've seen it really come in such a strength, there was a group of homeowners and others advocating that boards of directors are out of control, there's a conspiracy theory, and as such, the community association manager, the management company's representative at the board meeting needed to have a real estate broker's license. So let me just ask one question to start out. It's my understanding that, correct me if I'm wrong, that to be a managing agent, which is the term in the law, you have to be a real estate broker. Is that right or? No, the management companies have a licensed broker, and my understanding is the reason for that is so that they can get the fidelity bond because the managing agents manage the monies for the community associations that they manage, but the employees of the management companies are not licensed. Yeah, well, I think we're saying is that the management company itself has to be a broker, a real estate broker, which requires them to have a principal broker, and the primary notice in the law, which is Hawaii 514B 132, yes, 132, says it's kind of written around the fidelity bond because that management company controls or holds the funds and trust of the client association, and this gives them some protection by having a licensed broker and also them having to have a fidelity bond in case something were to go awry. Right, and we're talking about millions of dollars, and if you look at some of the management companies, and they manage hundreds of projects, and so you're talking about a substantial amount of money, and so that's why it's important to make sure that there is a way for the association's funds to be protected, but what that does is it does not require the employees of that management company to be licensed, and right now as a practical matter, they're not licensed. We'll come back to that in a minute, I can say you clearly, because I was the president of a management company, or one of the larger ones, not the largest one, and I know that we held and trust and managed or protected over $100 million in money between the reserve fund and the operating account for the 182 projects that the company I worked for managed, so it is a big responsibility, but the law does say, just for everybody's knowledge, that not only does the management company have to have this fidelity bond, the association also must have a fidelity bond, so there's now another level of protection against the board than the employees of the association, and in essence they add as additional insured each other, so you have this cross insurance for lack of a better technical word, and by doing that, then in the real estate recovery fund, if at the end the insurance doesn't pay for it that the association could apply for it, so in general terms it's pretty protected. And that's only as to the funds that belong to the association. Right, but as you said, and that's the area when I get into, is that the condominium is community association manager, when there is a management company, is not licensed, the person who goes to the meeting, and some people, a minority I would say, have advocated that they should have a real estate broker's license. What's your reaction to that? I think that what it does is it demonstrates a level of frustration because these are, I understand to be owners who own units and they might, I know they're unhappy about some of the decisions that their boards make, and what we're seeing is there are a lot of decisions now dealing with special assessments. And it's the board who makes the decision that a repair has to be made and there's not enough money, and therefore they have to specially assess the owners in order to do those repairs, which is something that they're required by their governing documents and the statute to do. And because the owners are unhappy about the special assessment, their first reaction is, well, somebody's gotta pay for this. Somebody's, this is a bad decision and we want to blame somebody. And so they want to blame, and so I think they're looking at the property management companies to say, well, how come you didn't instruct the board to do this and that so that we wouldn't have this special assessment? But I think that kind of begs the question because you have to figure out, well, why is this special assessment happening? And I don't think you can blame the property management company because it's the board who's basically charged by their governing documents and the state law to make these decisions on behalf of the owners of the association. One of my little side jobs is I teach continuing education which is required for real estate licensees. So I go to the train the trainer course, which this year the primary emphasis is on the condo statute 514B. So we had all the brokers and the trainers there in the room and this topic came up. It was interesting from listening to the realtors on this topic, the common thread was that the owners don't understand the difference between a real estate agent and a managing agent. A real estate agent is working with a particular client on a specific piece of property and it has certain obligations and certain training that is required to do that. A managing agent is more of a company which has a much broader scope of work with the association because your law that was presented to the legislature last year basically said any employee of the management company had to be a real estate broker which would mean that the receptionist who answered the phone would have to be a real estate broker. The owner called a clerk and said, hey, why do I have a late fee here? Can you send me a copy of my new ledger? That person couldn't speak to the owner unless they had a real estate brokers license where in essence our scope of work is much fuller in some cases than what a real estate licensee would do. And so it makes it much more complex that the considered licensing for an association. Right, and I don't think too the owners, the unit owners realize that the different industries like residential condominiums, there's an organization called CAI that has training and classes and issues certification for people who go through the training and take the test and reach a certain level of experience and knowledge. And there's another organization called IROM that does the same thing for shopping centers and for commercial warehouses and people in that industry. And so there are trade organizations out there that, and these are national organizations. And so they do training, they do certifications for their specific industry regarding training of property managers. And the owners of the condominiums need to know that this is happening. And I think it's like any other thing when you go out and you buy a service, you have to go and ask questions. What kind of certifications do you have? That's how they choose property managers. I mean, if I was a condominium association, and I'd wanna know if I was entering into an agreement with the managing aging, what kind of the community managers, the community associate managers that you assign to our group, what are their certifications? What are their training? I would be very interested in that because that means that we have a person with some expertise, some knowledge that is gonna be of assistance to the board to help them make their decisions. And that's what the owners don't understand. It's the board that makes the decisions. It's up to the board to go out and get people to help them make those decisions. And the managing agent is only just one of those people, those resources that they should be using to make their decisions. And furthermore, the Supreme Court of Hawaii ruled that only lawyers can practice law. So managing agents have only so much ability to advise the board. They can advise the board to talk to their lawyer or their architect, whoever it may be. They don't really have the ability to really act as a lawyer and define those things or suppose we refer that to a licensed lawyer in those respects. But what I see as interesting and complicated on this issue is people seem to think of their home, their residential condo. When you look at condos in Hawaii, you have commercial condos, industrial condos, agricultural condos, senior living condos, assisted living condos, parking condos, storage condos, spatial condos, that list goes on and then you take within that you have two-unit condos, 20-unit condos, 1,000-unit condos. Self-managed condos. Self-managed condos. You know, the scope of work varies so much within that perspective to take one law like 514B, which covers basic transparency-type issues and protections for the homeowners or the owners of the condo. Really, to try to legislate some grand-scale educational theme would be really difficult to do. And like I said before, there are other organizations out there already doing the training and the certifications. So why would you require the state of Hawaii to now take over and duplicate those efforts? And I was involved, you know, three or four years ago, I think, in the licensing of security guards that affected condominiums. We're still working on CLE, which is a continuing education requirements for that licensing scheme. And you know, so I know that the state of Hawaii would be very reluctant to take on the task of licensing condominium or community association management people, because you'd have to come up with a criteria of, you know, what kinds of things, you know, do they have to have expertise in, what kind of training, and you know, so it's something that the state is probably doesn't have the resources to do and they don't have the inclination to do it because there are other groups out there who are already doing it. Well, this is fascinating. We're going to take a short break for a minute. We'll be right back with Condom Insider. I'm Jay Fidel, and I'm the host of Research in Minoa, Mondays from 12 to 1, on thinktecawaii.com. Take a look at us and learn about geophysics, learn about planetology, learn about the ocean and earth sciences at UH Minoa. You'll really enjoy it. So come around. We'll see you then. Hi, my name is Kim Lau, and I'm the host of Hawaii Rising. You can watch me every other Monday at 4 p.m. Aloha. My name is Carl Campania, and I'm the host of Think Tech Hawaii's Education Movers, Shakers and Reformers. I invite you to come watch our show on thinktecawaii.com. You can also see our shows on YouTube as well. If you can Google search those. I appreciate the time. I hope that you do join us as we learn about education, about the educational system here in Hawaii, what the challenges are, what the benefits are and how much our kids are learning. So thank you. Hope you join us. Welcome back to Kondo Insider. We're talking with Jane Sugimura about whether association managers, the representative of the management company who attends the board meeting should be licensed or not. And we've learned very easily, this is not a simple topic because certainly the last legislation where it was proposed that they be a real estate broker, when you think about it, the real estate broker training, how to buy and sell condos, how to write a deposit receipt, offer acceptance forms, really has no bearing on what's going on with the condominium association manager. And Jane was reflecting on the issues that happened when the state got involved and tried to make a security guards license for condominiums which is still dragging on to this day. So how long does that kind of drag on? I don't know. So it's still working on rules and definitions and so it still goes on. But the first hurdle has been cleared. I mean, there is a law that requires security guards to be licensed and registered, fingerprinted, security checks to be done. So that's all been implemented. Now we're getting into the continuing education part of it. And so if you're an association that employs your own security guard, then you must undertake the same background checks. Yes, you are required by the state law to, and they have programs that are sanctioned by the state. In fact, part of our task when we worked with the DCCA was to set up a program, a curriculum. And then there were different groups that took that curriculum and expanded on it and went out and actually went out and did the education and training for security guards. But the DCCA and the UH were the ones who developed that curriculum. Well, from your experience, what do you feel DCCA's view would be of manager condominium association? I know what their view is going to be. Their view is that there are people out there who are already doing the training and the certification and that the state of Hawaii does not have the funds nor the resources to do that. I think, as I said a little earlier, I think one of the key issues to understand is all types of condos. So one condo needs for a manager in skill levels and experience is going to be totally different than what another condo might need. And then you throw in the size, there's a large number of condos in the state of Hawaii where they don't have a resident or a site manager because they're small. And it's a two or three member, five member board that is self-managed and maybe they just take the scope of work and say, management company, all we want you to do is pay our bills and do the financial statement for us. And so how do you, I mean, how would the state or how would you, I mean, I mean, that's the question they're probably asking too, how would we manage this? Yeah, that's what I think would be the issue. And it comes down to, well, what are you trying to fix? And I think the people, the proponents of this type of legislation who want the management company employees to be licensed, they're looking for someone to basically either be a scapegoat for the decisions made by the board or they want somebody there to tell the board what to do, except that it doesn't work that way. The way the governing documents are set up and 514 A and B, the board is the one that's charged with making the decisions. They have to go out under the business judgment rule and hire people to assist them to make those decisions if they don't know what they're doing. And most of them, because it's a volunteer board, don't know what they're doing. And so they do have to rely on people. So I think with management companies, what the association has to do is to vet the management companies and see what their credentials are and what kind of training and certification. And choose people that are going to be able to assist them, make the decisions for their particular project. If it's a large project, they may want somebody who has the experience of managing large projects with over 100 units or over 200 units. And if it's just a small company, maybe that's overkill to have somebody with that experience. But the management company is the entity that facilitates and assists the board in managing their project. I mean, they're not the ones who are actually calling the shots. And I think that's what the proponents of this type of legislation are confused about. You know, I agree. I think they believe that there should be somebody they can go to to force the board to do a different decision than the board made. Because when I look at a managing agent and I look at the real estate law, as we said, they have to have a broker as the primary person for the fiscal side of this. We owe obedience and loyalty to the client under the law. And so clients can make bad decisions. We can be saying, we recommend you think about this and the board can say, no, we want to do that. And to try to say that because they want something in the law that the boards have to listen to us would be kind of counterproductive to the spirit of self-governance and who's really responsible for this. Right, and you know, based on my experience and I've sat on two boards for many, many, many years and I've been in the room when people have said, oh well, somebody says, oh well, we've got this issue. Why don't we hire an attorney, send it over to the attorney and get a legal opinion. And somebody else will say, oh no, we don't want to pay him. It's like, well, why? We're not experts. And I'm an attorney, I sit on the board but I'm not going to put my insurance on the line. I'm not going to give legal advice to my board. If I'm there and there's some legal issue, I'm the first one to say, let's get a legal opinion. That way we have an attorney's opinion and then the board can make a decision because that's what they're supposed to do. And so for the person who sits there and says, we don't want to do this because it costs too much money. That's a wrong answer, I think, for a board member. I mean, that's abdicating. Because the statute says that if you don't know, you're supposed, the business judgment rule says you're supposed to go out and get an opinion, which means you pay for it, it's not free. I mean, and so you should go out and hire an engineer or hire an accountant or hire an attorney and pay for an opinion. And maybe you may not agree with that opinion. So you go out and hire another expert and get another opinion. And you can do this multiple times and then once you've got all the written opinions based on your knowledge of the building and the project and the people who live there and you've got all this expert opinion, it's up to the board to make a decision. That's what they're there for. Right or wrong, good or ugly, this is what they do. That's what they're supposed to do. And so for people to say, oh, well, I don't want to get a legal opinion or an engineering opinion because it costs too much money. That's just a bad- It's interesting to say that because coming up in September, we have a lawyer, you know, Richard Ecomodo, who gives a course on the seven deadly sins of a board of directors. And one of them is not getting professional opinions unless they do them. And that'll be in September and I invite all of you to come back and watch that because that's a quite an interesting show. But in this process, going back to what we were saying earlier about some owners who just want someone else to be able to override the board. And that's where we had this issue come up last year about an ombudsman. Some person who might have some authority to force them into mediation or some type of governmental management of this. But the reality of it is my friends who are lawyers always accuse me of being a wannabe lawyer because I hang around with them too much. I profess my own theory about this. But it's my belief that there exists when you buy a condominium, a contractual relationship between you and the association. You as an owner, your declaration, your bylaws are all recorded in a part of your deed. But the legislature really can't interfere with that contractual relationship. They can create laws for transparency and those types of things. But to try to undo an existing contract that's been signed, sealed, and delivered between an owner and association, they couldn't adopt a law to change that. Right. And the people who are the proponents of this type of legislation, they're what we call activists. And I was one, I have to admit that I joined one of my boards because I was an activist against the existing board that was there. I was asked to assist some homeowners to get the board working on some issues. And so that's how I got involved in one of my condominiums. So I understand where they're coming from. But the whole thing about self-governance is the owners have to understand that they are the catalysts. They're the ones who decide what types of things happen in their project. And if they don't like what's happening, it's up to them to vote out the people who are sitting on the board. And I have had, many people come to me say, well, that's really hard to do because they're incumbents and they've been there for so long. And my answer to them, well, that's too bad. Then you're just gonna have to live with that board. And I have helped many groups do campaigns to remove people from the board. And it can be done. It's not easy, but it can be done. And the statute and the condominium governing documents allow for you to remove people that you don't want sitting on the board, that you think are making bad decisions. But it's up to the people who live in that building to make that determination. It's not up to the management company. It's not up to the community association managers to tell the board how to do this. It's up to the people who live there to make that decision. And if you can't get enough people to get involved enough so that they will even give you your proxy so that you can go and do whatever you wanna do, then that's self-governance. That means that the majority don't care. And they're happy with what's happening. But in fairness to the board, they're owners too. So when they pass these special assessments, they gotta pay the same money as everybody else. I'm sure those board members don't wanna pay more either, but because they have these professional opinions and they have a legal obligation to protect the property, they sometimes are forced to make decisions that are unpopular. Yes. And that's very hard. I know there's a removal of a client association board proposed coming up in September where they had to assess the owner's $12 million in a very large unit because of the cast iron pipes failing. Well, those board members are gonna have to pay the same money based on their percentage of ownership as everybody else. And I can assure you they didn't wanna do it, but the problem is they were faced with, we have a blackwater or serious environmental problem. And if we don't fix it, the problem's a 20 or 30 million dollar problem. And so the board sometimes have to make tough decisions and these owners who say there must be some other way to fix this are just sometimes hoping and just don't wanna pay the proper, that there is no other way. And I have personal knowledge of that. I mean, I was on one of the boards that I was on several years ago, we were in the process of preparing and fixing our parking decks. And that was like almost a million dollars. We had two parking decks. And in the middle of that, we found out, I mean, there was an issue with some, and this was a wooden townhouse project. And there was an issue with some supports that held up the second floor. And so we hired an engineering firm and lo and behold, they told us that 51 of these supports had to be replaced. And that's a huge amount of, and when we went out and we got the bids and we went to the owners about a special assessment, naturally the first thing is, how come you guys didn't know about this? How come we're being special assesses? This is your fault. We want you off the board. That was their first reaction. And- Let me just say one thing. We're running out of time. Yeah. It's a tough job for board members. We understand the owner's pain, but yes or no. Should community association managers be licensed? No, I don't think so. All right. Well, thank you for watching Kondo Insider. And we're gonna have some more hot topics to talk about every Thursday, three o'clock. Share the knowledge with your friends about the show. And we look forward to you being with us again. Aloha.