HB 421: RELATING TO CONTRACTORS.

A BILL FOR AN ACT

RELATING TO CONTRACTORS.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that the State faces a critical shortage of affordable rental housing, creating challenges for residents seeking accessible and diverse housing options.  The escalating demand for rental properties, coupled with limited housing supply, has led to increased housing costs and economic strain on families throughout the State.

     The legislature further finds that Hawaii is one of only seven states in the country that temporarily prohibit the leasing of residential structures built by the owner-builder.  Current regulations and barriers hinder homeowners in Hawaii from efficiently converting their single-family properties into multi-family dwellings, limiting their ability to actively participate in addressing the housing crisis.

     Accordingly, the purpose of this Act is to remove the leasing restriction on owner-builders who obtain an owner-builder exemption to act as their own contractor and who build or improve residential or farm buildings or structures on property they own or lease and do not offer the buildings or structures for sale.

     SECTION 2.  Section 444-2.5, Hawaii Revised Statutes, is amended to read as follows:

     "§444-2.5  Owner-builder exemption.  (a)  This chapter shall not apply to owners or lessees of property who build or improve residential or farm buildings or structures on property [for their own use, or for use by their grandparents, parents, siblings, or children,] they own or lease and who do not offer the buildings or structures for sale [or lease]; provided that:

     (1)  To qualify for an exemption under this section, the owner or lessee shall register for the exemption as provided in section 444-9.1;

     (2)  The exemption under this section shall not apply to electrical or plumbing work that must be performed only by persons or entities licensed in accordance with this chapter, unless the owner or lessee of the property is licensed for [such] work under chapter 448E;

     (3)  An owner or lessee exempted under this section shall:

          (A)  Supervise the construction activity on the exempt buildings or structures;

          (B)  Hire subcontractors appropriately licensed under this chapter to perform any part of the construction activity for which a license is required;

          (C)  Ensure that any electrical or plumbing work is performed by persons and entities appropriately licensed under this chapter or chapter 448E;

          (D)  Deduct Federal Insurance Contributions Act and withholding taxes and provide workers' compensation insurance for persons working on the construction activity who are not licensed under this chapter or chapter 448E and who shall be considered employees of the owner or lessee; and

          (E)  Ensure that the construction activity complies with all applicable laws, ordinances, building codes, and zoning regulations;

     (4)  Until completion of the construction activity, an owner or lessee exempted under this section shall make available the following records for immediate inspection upon request by the department:

          (A)  A copy of the building permit application;

          (B)  A copy of the issued building permit;

          (C)  Copies of all contracts with the names of all persons who performed or are performing work on the exempt buildings and structures; and

          (D)  Proof of payment to all persons contracted to work on the exempt buildings and structures; and

     (5)  Upon completion of the construction activity, an owner or lessee exempted under this section shall keep and maintain the records identified in paragraph (4) for a period of three years from completion of the construction activity and shall make the records available for inspection within seven business days upon request by the department.

     (b)  Proof of the sale [or lease,] or offering for sale [or lease,] of the structure within one year after completion shall be prima facie evidence that the construction or improvement of the structure was undertaken for the purpose of sale [or lease]; provided that this subsection shall not apply to:

     (1)  Residential properties sold [or leased] to employees of the owner or lessee;

     (2)  Construction or improvements performed pursuant to an approved building permit where the estimated valuation of work to be performed, as reflected in the building permit, is less than $10,000; or

     (3)  Any sale [or lease] caused by an eligible unforeseen hardship as determined by the board pursuant to subsection (c).

     (c)  The board shall determine the eligibility of an unforeseen hardship claimed by an owner under subsection (b); provided that an alleged unforeseen hardship shall not be deemed eligible if the board determines that the construction or improvement of the structure was undertaken for the purpose of sale [or lease].  An exemption for an unforeseen hardship shall not be denied solely because of lack of completion, as the term is defined in subsection [(e).] (h).  An owner seeking a determination of eligibility of an unforeseen hardship shall:

     (1)  Be in compliance with the requirements set forth in the disclosure statement required to be provided under section 444-9.1; and

     (2)  Submit a written application to the board at any time prior to selling[, leasing,] or offering to sell [or lease] the property describing the nature of the applicant's unforeseen hardship.  The application shall include supporting documentation detailing the hardship, such as:

          (A)  Evidence of receipt of unemployment compensation;

          (B)  Tax returns;

          (C)  Medical records;

          (D)  Bank statements;

          (E)  Divorce decrees ordering sale of property;

          (F)  Mortgage default letters; or

          (G)  Bankruptcy filings.

The board shall communicate its determination to the owner in writing within ninety days of receiving a completed application under this subsection.

     (d)  Any owner or lessee of property found to have violated this section shall not be permitted to engage in any activities pursuant to this section or to register under section 444-9.1 for a period of three years.  There is a rebuttable presumption that an owner or lessee has violated this section when the owner or lessee obtains an exemption from the licensing requirements of section 444-9 more than once in two years.

     [(e)  For the purposes of this section, "completion" means the date of final inspection approval by the county.]

     (e)  An owner or lessee exempted under this section shall provide, at the time of offering a residential structure for lease or sublease, a written notice stating that the residential structure was built or improved by an individual who is not a licensed contractor.  The written notice shall be signed and dated by the owner or lessee.

     (f)  An owner or lessee exempted under this section shall not be eligible to recover from the contractors recovery fund.

     (g)  This section shall not apply to agricultural buildings, structures, or appurtenances thereto that do not require a building permit or are exempt from the building code.

     (h)  For purposes of this section, "completion" means the date of final inspection approval by the county."

     SECTION 3.  Section 444-9.1, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

     "(c)  The county shall provide applicants for the exemption under section 444-2.5 with a disclosure statement in substantially the following form:

"Disclosure Statement

     State law requires construction to be done by licensed contractors.  You have applied for a permit under an exemption to that law.  The exemption provided in section 444-2.5, Hawaii Revised Statutes, allows you, as the owner or lessee of your property, to act as your own general contractor even though you do not have a license.  You must supervise the construction yourself.  You must also hire licensed subcontractors.  [The building must be for your own use and occupancy.]  It may not be built for sale [or lease].  If you sell [or lease] a building you have built yourself within one year after the construction is complete, the law will presume that you built it for sale [or lease], which is a violation of the exemption, and you may be prosecuted for this.  It is your responsibility to make sure that subcontractors hired by you have licenses required by state law and by county licensing ordinances.  Electrical or plumbing work must be performed by contractors licensed under chapters 448E and 444, Hawaii Revised Statutes.  Any person working on your building who is not licensed must be your employee, which means that you must deduct F.I.C.A. and withholding taxes and provide workers' compensation for that employee, all as prescribed by law.  Your construction must comply with all applicable laws, ordinances, building codes, and zoning regulations.  If you violate section 444-2.5, Hawaii Revised Statutes, or fail to comply with the requirements set forth in this disclosure statement, you may be fined $5,000 or forty per cent of the appraised value of the building as determined by the county tax appraiser, whichever is greater, for the first offense; and $10,000 or fifty per cent of the appraised value of the building as determined by the county tax appraiser, whichever is greater, for any subsequent offense."

The county shall not issue a building permit to the owner-applicant until the applicant signs a statement that the applicant has read and understands the disclosure form."

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act shall take effect on July 1, 3000.

Report Title:

Contractors; Owner-builder Exemption; Leasing Restriction; Disclaimer; Repeal

Description:

Repeals the leasing restriction on owner-builders who obtain an owner-builder exemption to act as their own contractor and who build or improve residential or farm buildings or structures on property they own or lease and do not offer the buildings or structures for sale.  Requires an owner or lessee to provide signed written notice that the structure for lease or sublease was built or improved by an individual who is not a licensed contractor.  Effective 7/1/3000.  (HD1)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

A BILL FOR AN ACT

relating to contractors.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that the State faces a critical shortage of affordable rental housing, creating challenges for residents seeking accessible and diverse housing options.  The escalating demand for rental properties, coupled with limited housing supply, has led to increased housing costs and economic strain on families throughout the State.

     The legislature further finds that Hawaii is one of only seven states in the country that temporarily prohibit the leasing of residential structures built by the owner-builder.  Current regulations and barriers hinder homeowners in Hawaii from efficiently converting their single-family properties into multi-family dwellings, limiting their ability to actively participate in addressing the housing crisis.

     Accordingly, the purpose of this Act is to remove the leasing restriction on owner-builders who obtain an owner-builder exemption to act as their own contractor and who build or improve residential or farm buildings or structures on property they own or lease and do not offer the buildings or structures for sale.

     SECTION 2.  Section 444-2.5, Hawaii Revised Statutes, is amended to read as follows:

     "§444-2.5  Owner-builder exemption.  (a)  This chapter shall not apply to owners or lessees of property who build or improve residential or farm buildings or structures on property [for their own use, or for use by their grandparents, parents, siblings, or children,] they own or lease and who do not offer the buildings or structures for sale [or lease]; provided that:

     (1)  To qualify for an exemption under this section, the owner or lessee shall register for the exemption as provided in section 444-9.1;

     (2)  The exemption under this section shall not apply to electrical or plumbing work that must be performed only by persons or entities licensed in accordance with this chapter, unless the owner or lessee of the property is licensed for [such] work under chapter 448E;

     (3)  An owner or lessee exempted under this section shall:

          (A)  Supervise the construction activity on the exempt buildings or structures;

          (B)  Hire subcontractors appropriately licensed under this chapter to perform any part of the construction activity for which a license is required;

          (C)  Ensure that any electrical or plumbing work is performed by persons and entities appropriately licensed under this chapter or chapter 448E;

          (D)  Deduct Federal Insurance Contributions Act and withholding taxes and provide workers' compensation insurance for persons working on the construction activity who are not licensed under this chapter or chapter 448E and who shall be considered employees of the owner or lessee; and

          (E)  Ensure that the construction activity complies with all applicable laws, ordinances, building codes, and zoning regulations;

     (4)  Until completion of the construction activity, an owner or lessee exempted under this section shall make available the following records for immediate inspection upon request by the department:

          (A)  A copy of the building permit application;

          (B)  A copy of the issued building permit;

          (C)  Copies of all contracts with the names of all persons who performed or are performing work on the exempt buildings and structures; and

          (D)  Proof of payment to all persons contracted to work on the exempt buildings and structures; and

     (5)  Upon completion of the construction activity, an owner or lessee exempted under this section shall keep and maintain the records identified in paragraph (4) for a period of three years from completion of the construction activity and shall make the records available for inspection within seven business days upon request by the department.

     (b)  Proof of the sale [or lease,] or offering for sale [or lease,] of the structure within one year after completion shall be prima facie evidence that the construction or improvement of the structure was undertaken for the purpose of sale or lease; provided that this subsection shall not apply to:

     (1)  Residential properties sold [or leased] to employees of the owner or lessee;

     (2)  Construction or improvements performed pursuant to an approved building permit where the estimated valuation of work to be performed, as reflected in the building permit, is less than $10,000; or

     (3)  Any sale [or lease] caused by an eligible unforeseen hardship as determined by the board pursuant to subsection (c).

     (c)  The board shall determine the eligibility of an unforeseen hardship claimed by an owner under subsection (b); provided that an alleged unforeseen hardship shall not be deemed eligible if the board determines that the construction or improvement of the structure was undertaken for the purpose of sale [or lease].  An exemption for an unforeseen hardship shall not be denied solely because of lack of completion, as the term is defined in subsection [(e).] (h).  An owner seeking a determination of eligibility of an unforeseen hardship shall:

     (1)  Be in compliance with the requirements set forth in the disclosure statement required to be provided under section 444-9.1; and

     (2)  Submit a written application to the board at any time prior to selling[, leasing,] or offering to sell [or lease] the property describing the nature of the applicant's unforeseen hardship.  The application shall include supporting documentation detailing the hardship, such as:

          (A)  Evidence of receipt of unemployment compensation;

          (B)  Tax returns;

          (C)  Medical records;

          (D)  Bank statements;

          (E)  Divorce decrees ordering sale of property;

          (F)  Mortgage default letters; or

          (G)  Bankruptcy filings.

The board shall communicate its determination to the owner in writing within ninety days of receiving a completed application under this subsection.

     (d)  Any owner or lessee of property found to have violated this section shall not be permitted to engage in any activities pursuant to this section or to register under section 444-9.1 for a period of three years.  There is a rebuttable presumption that an owner or lessee has violated this section when the owner or lessee obtains an exemption from the licensing requirements of section 444-9 more than once in two years.

     [(e)  For the purposes of this section, "completion" means the date of final inspection approval by the county.]

     (e)  An owner or lessee exempted under this section shall provide, at the time of offering a residential structure for lease or sublease, a written notice stating that the residential structure was built or improved by an individual who is not a licensed contractor.  The written notice shall be signed and dated by the owner or lessee.

     (f)  An owner or lessee exempted under this section shall not be eligible to recover from the contractors recovery fund.

     (g)  This section shall not apply to agricultural buildings, structures, or appurtenances thereto that do not require a building permit or are exempt from the building code.

     (h)  For purposes of this section, "completion" means the date of final inspection approval by the county."

     SECTION 3.  Section 444-9.1, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

     "(c)  The county shall provide applicants for the exemption under section 444-2.5 with a disclosure statement in substantially the following form:

"Disclosure Statement

     State law requires construction to be done by licensed contractors.  You have applied for a permit under an exemption to that law.  The exemption provided in section 444-2.5, Hawaii Revised Statutes, allows you, as the owner or lessee of your property, to act as your own general contractor even though you do not have a license.  You must supervise the construction yourself.  You must also hire licensed subcontractors.  [The building must be for your own use and occupancy.]  It may not be built for sale [or lease].  If you sell [or lease] a building you have built yourself within one year after the construction is complete, the law will presume that you built it for sale [or lease], which is a violation of the exemption, and you may be prosecuted for this.  It is your responsibility to make sure that subcontractors hired by you have licenses required by state law and by county licensing ordinances.  Electrical or plumbing work must be performed by contractors licensed under chapters 448E and 444, Hawaii Revised Statutes.  Any person working on your building who is not licensed must be your employee, which means that you must deduct F.I.C.A. and withholding taxes and provide workers' compensation for that employee, all as prescribed by law.  Your construction must comply with all applicable laws, ordinances, building codes, and zoning regulations.  If you violate section 444-2.5, Hawaii Revised Statutes, or fail to comply with the requirements set forth in this disclosure statement, you may be fined $5,000 or forty per cent of the appraised value of the building as determined by the county tax appraiser, whichever is greater, for the first offense; and $10,000 or fifty per cent of the appraised value of the building as determined by the county tax appraiser, whichever is greater, for any subsequent offense."

The county shall not issue a building permit to the owner-applicant until the applicant signs a statement that the applicant has read and understands the disclosure form."

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act shall take effect upon its approval.

Report Title:

Contractors; Owner-builder Exemption; Leasing Restriction; Disclaimer; Repeal

Description:

Repeals the leasing restriction on owner-builders who obtain an owner-builder exemption to act as their own contractor and who build or improve residential or farm buildings or structures on property they own or lease and do not offer the buildings or structures for sale.  Requires an owner or lessee to provide signed written notice that the structure for lease or sublease was built or improved by an individual who is not a licensed contractor.

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

STAND. COM. REP. NO.  582

Honolulu, Hawaii

                , 2025

RE:   H.B. No. 421

      H.D. 1

Honorable Nadine K. Nakamura

Speaker, House of Representatives

Thirty-Third State Legislature

Regular Session of 2025

State of Hawaii

Madame:

     Your Committee on Housing, to which was referred H.B. No. 421 entitled:

"A BILL FOR AN ACT RELATING TO CONTRACTORS,"

begs leave to report as follows:

     The purpose of this measure is to:

     (1)  Repeal the leasing restriction on owner-builders who obtain an owner-builder exemption to act as their own contractor and who build or improve residential or farm buildings or structures on property they own or lease and do not offer the buildings or structures for sale; and

     (2)  Require an owner or a lessee to provide signed written notice that the residential structure for lease or sublease was built or improved by an individual who is not a licensed contractor.

     Your Committee received testimony in support of this measure from the Hawaiʻi Association of REALTORS and Grassroot Institute of Hawaii.  Your Committee received testimony in opposition to this measure from the Contractors License Board and Contractors Association of Kauaʻi.  Your Committee received comments on this measure from the Regulated Industries Complaints Office.

     Your Committee finds that under existing law, an owner-builder who has an owner-builder permit to act as their own general contractor cannot sell or lease, or offer to sell or lease, a structure that was built under an owner-builder exemption until one year after completion.  Your Committee further finds that Hawaii is one of only seven states in the country that imposes this type of restriction.  The existing restriction on leasing means that property owners who could offer units in Hawaii's rental market are unable to do so during this one-year period.  This measure will complement many of the strategies now being used to ease the State's housing shortage by eliminating this lease restriction.

     Your Committee has amended this measure by:

     (1)  Changing the effective date to July 1, 3000, to encourage further discussion; and

     (2)  Making a technical, nonsubstantive amendment for the purposes of clarity, consistency, and style.

     As affirmed by the record of votes of the members of your Committee on Housing that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 421, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 421, H.D. 1, and be referred to your Committee on Consumer Protection & Commerce.

Respectfully submitted on behalf of the members of the Committee on Housing,