SB 2294: Condominiums; Associations; Boards; Managing Agents; Self-Governance; Compliance

A BILL FOR AN ACT

RELATING TO COMMON INTEREST COMMUNITIES.

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

     SECTION 1.  The legislature finds that condominium associations, led by boards of directors and overseen by managing agents, primarily operate under the principles of self-governance and self-enforcement.  The legislature further finds, however, that the powers of associations, boards, and managing agents are not unlimited.  It is critical to the well-being of residents and long-term sustainability of an association that its board members and managing agents understand their obligations to comply with local, state, and federal laws.

     Accordingly, the purpose of this Act is to specify that condominium associations, boards, and managing agents must comply with county, state, and federal laws and regulations.

     SECTION 2.  Section 514B-101, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  This part applies to all condominiums subject to this chapter, except as provided in subsection (b)[.]; provided that any action by an association, board, or managing agent pursuant to this chapter shall comply with any applicable laws, rules, and regulations."

     SECTION 3.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 4.  This Act shall take effect on July 1, 2050.

Report Title:

Condominiums; Associations; Boards; Managing Agents; Self-Governance; Compliance

Description:

Specifies that all condominium associations, boards, and managing agents are required to comply with any applicable laws, rules, and regulations.  Effective 7/1/2050.  (SD1)

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 COMMON INTEREST COMMUNITIES.

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

     SECTION 1.  The legislature finds that condominium associations, led by boards of directors and overseen by managing agents, primarily operate under the principles of self-governance and self-enforcement.  The legislature further finds, however, that the powers of associations, boards, and managing agents are not unlimited.  It is critical to the well-being of residents and long-term sustainability of an association that its board members and managing agents understand their obligations to comply with local, state, and federal laws.

     Accordingly, the purpose of this Act is to specify that condominium associations, boards, and managing agents must comply with county, state, and federal laws and regulations, including those relating to mortgage lending.

     SECTION 2.  Section 514B-104, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  Except as provided in section 514B‑105, and subject to the provisions of the declaration [and]; bylaws[,]; and all county ordinances and state and federal laws, rules, and regulations, including mortgage lending requirements, the association, even if unincorporated, may:

     (1)  Adopt and amend the declaration, bylaws, and rules and regulations;

     (2)  Adopt and amend budgets for revenues, expenditures, and reserves and collect assessments for common expenses from unit owners, subject to section 514B‑148;

     (3)  Hire and discharge managing agents and other independent contractors, agents, and employees;

     (4)  Institute, defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more unit owners on matters affecting the condominium.  For the purposes of actions under chapter 480, associations shall be deemed to be "consumers";

     (5)  Make contracts and incur liabilities;

     (6)  Regulate the use, maintenance, repair, replacement, and modification of common elements;

     (7)  Cause additional improvements to be made as a part of the common elements;

     (8)  Acquire, hold, encumber, and convey in its own name any right, title, or interest to real or personal property; provided that:

          (A)  Designation of additional areas to be common elements or subject to common expenses after the initial filing of the declaration or bylaws shall require the approval of at least sixty-seven per cent of the unit owners;

          (B)  If the developer discloses to the initial buyer in writing that additional areas will be designated as common elements whether pursuant to an incremental or phased project or otherwise, the requirements of this paragraph shall not apply as to those additional areas; and

          (C)  The requirements of this paragraph shall not apply to the purchase of a unit for a resident manager, which may be purchased with the approval of the board;

     (9)  Subject to section 514B‑38, grant easements, leases, licenses, and concessions through or over the common elements and permit encroachments on the common elements;

    (10)  Impose and receive any payments, fees, or charges for the use, rental, or operation of the common elements, other than limited common elements described in section 514B‑35(2) and (4), and for services provided to unit owners;

    (11)  Impose charges and penalties, including late fees and interest, for late payment of assessments and levy reasonable fines for violations of the declaration, bylaws, rules, and regulations of the association, either in accordance with the bylaws or, if the bylaws are silent, pursuant to a resolution adopted by the board that establishes a fining procedure that states the basis for the fine and allows an appeal to the board of the fine with notice and an opportunity to be heard and providing that if the fine is paid, the unit owner shall have the right to initiate a dispute resolution process as provided by sections 514B-161, 514B-162, or by filing a request for an administrative hearing under a pilot program administered by the department of commerce and consumer affairs;

    (12)  Impose reasonable charges for the preparation and recordation of amendments to the declaration, documents requested for resale of units, or statements of unpaid assessments;

    (13)  Provide for cumulative voting through a provision in the bylaws;

    (14)  Provide for the indemnification of its officers, board, committee members, and agents, and maintain directors' and officers' liability insurance;

    (15)  Assign its right to future income, including the right to receive common expense assessments, but only to the extent section 514B‑105(e) expressly so provides;

    (16)  Exercise any other powers conferred by the declaration or bylaws;

    (17)  Exercise all other powers that may be exercised in this State by legal entities of the same type as the association, except to the extent inconsistent with this chapter;

    (18)  Exercise any other powers necessary and proper for the governance and operation of the association; and

    (19)  By regulation, subject to sections 514B‑146, 514B‑161, and 514B‑162, require that disputes between the board and unit owners or between two or more unit owners regarding the condominium be submitted to nonbinding alternative dispute resolution in the manner described in the regulation as a prerequisite to commencement of a judicial proceeding."

     SECTION 3.  Section 514B-106, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  Except as provided in the declaration[,]; the bylaws[,]; subsection (b)[, or]; other provisions of this chapter[,]; or county ordinances or state and federal laws, rules, and regulations, including mortgage lending requirements, the board may act in all instances on behalf of the association.  In the performance of their duties, officers and members of the board shall owe the association a fiduciary duty and exercise the degree of care and loyalty required of an officer or director of a corporation organized under chapter 414D.  Any violation by a board or its officers or members of the mandatory provisions of section 514B-161 or 514B-162 may constitute a violation of the fiduciary duty owed pursuant to this subsection; provided that a board member may avoid liability under this subsection by indicating in writing the board member's disagreement with [such] the board action or rescinding or withdrawing the violating conduct within forty-five days of the occurrence of the initial violation."

     SECTION 4.  Section 514B-132, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  Every managing agent shall:

     (1)  Be a:

          (A)  Licensed real estate broker in compliance with chapter 467 and the rules of the commission.  With respect to any requirement for a corporate managing agent in any declaration or bylaws recorded before July 1, 2006, any managing agent organized as a limited liability company shall be deemed to be organized as a corporation for the purposes of this paragraph, unless the declaration or bylaws are expressly amended after July 1, 2006, to require that the managing agent be organized as a corporation and not as a limited liability company; or

          (B)  Corporation authorized to do business under article 8 of chapter 412;

     (2)  Register with the commission prior to conducting managing agent activity through approval of a completed registration application, payment of fees, and submission of any other additional information set forth by the commission.  The registration shall be for a biennial period with termination on December 31 of an even-numbered year.  The commission shall prescribe a deadline date prior to the termination date for the submission of a completed reregistration application, payment of fees, and any other additional information set forth by the commission.  Any managing agent who has not met the submission requirements by the deadline date shall be considered a new applicant for registration and subject to initial registration requirements.  The information required to be submitted with any application shall include the name, business address, phone number, and names of associations managed;

     (3)  Obtain and keep current a fidelity bond in an amount equal to $500 multiplied by the aggregate number of units of the association managed by the managing agent; provided that the amount of the fidelity bond shall not be less than $20,000 nor greater than $500,000.  Upon request by the commission, the managing agent shall provide evidence of a current fidelity bond or a certification statement from an insurance company authorized by the insurance division of the department of commerce and consumer affairs certifying that the fidelity bond is in effect and meets the requirements of this section and the rules adopted by the commission.  The managing agent shall permit only employees covered by the fidelity bond to handle or have custody or control of any association funds, except any principals of the managing agent that cannot be covered by the fidelity bond.  The fidelity bond shall protect the managing agent against the loss of any association's moneys, securities, or other properties caused by the fraudulent or dishonest acts of employees of the managing agent.  Failure to obtain or maintain a fidelity bond in compliance with this chapter and the rules adopted pursuant thereto, including failure to provide evidence of the fidelity bond coverage in a timely manner to the commission, shall result in nonregistration or the automatic termination of the registration, unless an approved exemption or a bond alternative is presently maintained.  A managing agent who is unable to obtain a fidelity bond may seek an exemption from the fidelity bond requirement from the commission;

     (4)  Act promptly and diligently to recover from the fidelity bond, if the fraud or dishonesty of the managing agent's employees causes a loss to an association, and apply the fidelity bond proceeds, if any, to reduce the association's loss.  If more than one association suffers a loss, the managing agent shall divide the proceeds among the associations in proportion to each association's loss.  An association may request a court order requiring the managing agent to act promptly and diligently to recover from the fidelity bond.  If an association cannot recover its loss from the fidelity bond proceeds of the managing agent, the association may recover by court order from the real estate recovery fund established under section 467-16, provided that:

          (A)  The loss is caused by the fraud, misrepresentation, or deceit of the managing agent or its employees;

          (B)  The managing agent is a licensed real estate broker; and

          (C)  The association fulfills the requirements of sections 467-16 and 467-18 and any applicable rules of the commission;

     (5)  Pay a nonrefundable application fee and, upon approval, an initial registration fee, and subsequently pay a reregistration fee, as prescribed by rules adopted by the director of commerce and consumer affairs pursuant to chapter 91.  A compliance resolution fee shall also be paid pursuant to section 26‑9(o) and the rules adopted pursuant thereto; [and]

     (6)  Report immediately in writing to the commission any changes to the information contained on the registration application or any other documents provided for registration.  Failure to do so may result in termination of registration and subject the managing agent to initial registration requirements[.]; and

     (7)  Comply with the declaration; bylaws; and all county ordinances and state and federal laws, rules, and regulations, including mortgage lending requirements; provided that this paragraph shall apply to all managing agents, including unregistered managing agents and managing agents of planned community associations under chapter 421J and cooperative housing corporations under chapter 421I."

     SECTION 5.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 6.  This Act shall take effect upon its approval.

Report Title:

Condominiums; Associations; Boards; Managing Agents; Self-Governance; Compliance

Description:

Specifies that all condominium associations, boards, and managing agents are required to comply with the declaration, bylaws, and all county ordinances and state and federal laws, rules, and regulations, including mortgage lending requirements.

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. 2389

Honolulu, Hawaii

RE:     S.B. No. 2294

        S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2026

State of Hawaii

Sir:

     Your Committee on Commerce and Consumer Protection, to which was referred S.B. No. 2294 entitled:

"A BILL FOR AN ACT RELATING TO COMMON INTEREST COMMUNITIES,"

begs leave to report as follows:

     The purpose and intent of this measure is to specify that all condominium associations, boards, and managing agents for all common interest communities are required to comply with the declaration, bylaws, and all county ordinances and state and federal laws, rules, and regulations, including mortgage lending requirements.

     Your Committee received testimony in support of this measure from Palehua Townhouse Association and nine individuals.

     Your Committee received testimony in opposition to this measure from the Hawaii Legislative Action Committee of the Community Associations Institute; Associa; Law Offices of Mark K. McKellar, LLLC; AOAO Lakeview Sands; and thirteen individuals.

     Your Committee finds that common interest community associations, led by boards and managing agents, are intended to operate under the principles of self-governance and self-enforcement.  This measure would clarify that the authority of the association, board, or managing agent of a common interest community is not unlimited and that they are obligated to comply with all county ordinances and state and federal laws, rules, and regulations, including mortgage lending requirements.

     Your Committee notes the concerns raised in testimony that this measure could create ambiguities and uncertainties and infers doubt about the rule of law.  Amendments to this measure are therefore necessary to address these concerns.

     Accordingly, your Committee has amended this measure by:

     (1)  Deleting language that would have clarified that a condominium association and its board are subject to all county ordinances and state and federal laws, rules, and regulations, including mortgage lending requirements;

     (2)  Deleting language that would have clarified that a managing agent of a condominium, planned community association, or cooperative housing corporation is subject to all county ordinances and state and federal laws, rules, and regulations, including mortgage lending requirements;

     (3)  Inserting language that clarifies that any action by a condominium association, board, or managing agent pursuant to chapter 514B, Hawaii Revised Statutes, shall comply with any applicable laws, rules, and regulations;

     (4)  Amending section 1 to reflect its amended purpose;

     (5)  Inserting an effective date of July 1, 2050, to encourage further discussion; and

     (6)  Making technical, nonsubstantive amendments for the purposes of clarity and consistency.

     As affirmed by the record of votes of the members of your Committee on Commerce and Consumer Protection that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2294, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2294, S.D. 1, and be referred to your Committee on Judiciary.

Respectfully submitted on behalf of the members of the Committee on Commerce and Consumer Protection,