SB 2432: DCCA; Common Interest Communities; Associations; Managers; Licenses; Qualifications; Standards of Conduct; Discipline; Appropriation

THE SENATE	S.B. NO.	2432
THIRTY-THIRD LEGISLATURE, 2026
STATE OF HAWAII

A BILL FOR AN ACT

 

 

relating to common interest communities.

 

 

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

 

     SECTION 1.  The purpose of this Act is to:

     (1)  Clarify that common interest community association management licensure is distinct from real estate licensure;

     (2)  Define association management and managers of common interest community associations;

     (3)  Require licensure for individuals and entities managing common interest community associations for compensation;

     (4)  Establish the qualifications, continuing education, and standards of conduct required for common interest community association management licensure;

     (5)  Authorize administration and discipline of common interest community association management licensure by the department of commerce and consumer affairs; and

     (6)  Provide exemptions for volunteer board members and certain licensed professionals.

     SECTION 2.  The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter     

common interest community association MANAGERs

     §   -1  Definitions.  As used in this chapter:

     "Association" means an association of a common interest community.

     "Association management" means the performance for compensation of services relating to the operation, administration, or governance of a common interest community association including but not limited to:

     (1)  Financial and budgetary administration;

     (2)  Reserve study coordination and long-term maintenance planning;

     (3)  Procurement administration or contract administration;

     (4)  Maintenance and repair coordination;

     (5)  Record-keeping;

     (6)  Statutory compliance assistance; and

     (7)  Advisory on governance procedures and legal obligations.

     "Association management firm" means a sole proprietorship, partnership, corporation, or other business entity that provides association management services through one or more licensed association managers.

     "Association manager" or managing agent means an individual licensed pursuant to this chapter to provide association management services. 

     "Common interest community" means any of the following:

     (1)  A "condominium" as defined in section 514B-3;

     (2)  A "cooperative housing corporation" as defined in section 421I-1; or

     (3)  A "planned community" as defined in section 421J-2.

     "Department" means the department of commerce and consumer affairs.

     "Director" means the director of the department of commerce and consumer affairs.

     §   -2  Association managers; license required.  (a)  No person shall engage in association management for compensation or act as an association manager, or advertise or assume to act as an association manager without a license issued pursuant to and in compliance with this chapter.

     (b)  No association management firm shall operate in this State unless the firm designates at least one licensed association manager responsible with compliance with this chapter.

     (c)  A license issued under this chapter shall be specific to common interest community association management and shall not constitute, require, or replace a real estate license under chapter 467.

     §   -3  Administration.  (a)  The department shall administer this chapter through the real estate commission or any other division as designated by the director.

     (b)  The department shall adopt rules pursuant to chapter 91 necessary to implement this chapter, including rules governing:

     (1)  License applications and renewals;

     (2)  Fees;

     (3)  Examinations;

     (4)  Education requirements;

     (5)  Fidelity bond registration; and

     (6)  Disciplinary proceedings.

     §   -4  Qualifications for licensure.  An applicant for licensure as an association manager shall:

     (1)  Be at least eighteen years of age;

     (2)  Possess a high school diploma or equivalent;

     (3)  Complete a department-approved pre-licensing education program consisting of:

          (A)  Hawaii condominium, planned community, and cooperative housing corporation law;

          (B)  Fiduciary duties and ethics;

          (C)  Association budgeting, reserves, and financial controls;

          (D)  Procurement administration and contract administration;

          (E)  Maintenance planning and life-cycle analysis;

          (F)  Record-keeping requirements;

          (G)  Statutory disclosure requirements; and

          (H)  Risk management;

     (4)  Pass a written examination demonstrating competency in common interest community association management; and

     (5)  Submit to a criminal history record check as determined by rule.

     §   -5  Continuing education.  (a)  Each licensed association manager shall complete continuing education requirements as a condition of license renewal, subject to rules adopted by the department.

     (b)  Continuing education shall include instruction in:

     (1)  Changes to Hawaii condominium, planned community, and cooperative housing corporation law;

     (2)  Fiduciary duties and ethics;

     (3)  Association budgeting, reserves, and financial controls;

     (4)  Maintenance and long-term planning and life-cycle analysis; and

     (5)  Risk management.

     §   -6  Standards of conduct.  An association manager shall:

     (1)  Act in the best interests of the association;

     (2)  Exercise reasonable care, diligence, and professional judgment;

     (3)  Disclose and avoid conflicts of interest;

     (4)  Maintain complete and accurate association records; and

     (5)  Comply with this chapter, any rules adopted pursuant to this chapter, and any applicable association governing documents.

     §   -7  Discipline; enforcement.  (a)  The department may deny, suspend, revoke or place conditions on a license, and may impose administrative penalties for violations of this chapter or any rules adopted pursuant to this chapter.

     (b)  Grounds for discipline include:

     (1)  Fraud or misrepresentation;

     (2)  Gross negligence or incompetence;

     (3)  Misappropriation of association funds;

     (4)  Failure to disclose conflicts of interest;

     (5)  Repeated violations of condominium, planned community, or cooperative housing corporation law; or

     (6)  Violation of any other laws.

     §   -8  Exemptions.  This chapter shall not apply to:

     (1)  Volunteer board members of a common interest community association acting without compensation;

     (2)  Employees of an entity acting under the direct supervision of a licensed common interest community association manager; or

     (3)  Licensed attorneys, certified public accountants, or engineers acting within the scope of their professional licensure."

     SECTION 3.  Section 421I-1, Hawaii Revised Statutes, is amended to read as follows:

     "[[]§421I-1[]]  [Cooperative housing corporation; defined.] Definitions.  As used in this chapter[, unless otherwise indicated by the context, "corporation" means a cooperative housing corporation that:]:

     "Corporation" means a cooperative housing corporation that:

     (1)  Has one and only one class of stock outstanding;

     (2)  Allows each tenant shareholder to occupy a dwelling unit for dwelling purposes solely by reason of the tenant shareholder's ownership of stock in the corporation;

     (3)  Does not allow a shareholder to receive, either conditionally or unconditionally, any distributions from the corporation except when there is a complete or partial liquidation of the corporation; provided that this paragraph does not apply to earnings and profits of the corporation; and

     (4)  Has eighty per cent or more of the gross income for the taxable year in which taxes are paid or incurred pursuant to 26 United States Code section 216(A) derived from tenant shareholders.

     "Managing agent" has the same meaning as "association manager" as defined in section   -1."

     SECTION 4.  Section 421J-2, Hawaii Revised Statutes, is amended by adding a new definition to be appropriately inserted and to read as follows:

     ""Managing agent" has the same meaning as "association manager" as defined in section   -1."

     SECTION 5.  Section 467-16, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:

     "(a)  The commission shall establish and maintain a trust fund which shall be known as the real estate recovery fund from which any person aggrieved by an act, representation, transaction, or conduct of a duly licensed real estate broker, [or] real estate salesperson, or common interest community association manager, upon the grounds of fraud, misrepresentation, or deceit, may recover upon the commission's settlement of a claim or by order of the circuit court or district court of the county where the violation occurred, an amount of not more than $25,000 per transaction for damages sustained by the fraud, misrepresentation, or deceit, including court costs and fees as set by law, and reasonable attorney fees as determined by the court.

     (b)  When any person makes application for an original license to practice as a real estate broker [or], salesperson, or common interest community association manager, the person shall pay, in addition to the person's original license fee, a real estate recovery fund fee as provided in rules adopted by the director of commerce and consumer affairs pursuant to chapter 91 for deposit in the real estate recovery fund.  If the commission does not issue the license, this fee shall be returned to the applicant."

     SECTION 6.  Section 514B-3, Hawaii Revised Statutes, is amended as follows:

     1. By adding two new definitions to be appropriately inserted and to read:

     ""Association management" has the same meaning as defined in section   -1.

     "Department" means the department of commerce and consumer affairs."

     2. By amending the definition of "managing agent" to read:

     ""Managing agent" [means any person retained, as an independent contractor, for the purpose of managing the operation of the property.] has the same meaning as "association manager" as defined in section   -1."

     SECTION 7.  Section 514B-132, Hawaii Revised Statutes, is amended to read as follows:

     "§514B-132  Managing agents.  (a)  Every managing agent shall:

     (1)  Be a:

          (A)  Licensed [real estate broker in compliance with chapter 467 and the rules of the commission.] common interest community association manager in compliance with chapter     and the rules of the department.  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[;] and in compliance with chapter    .

     (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;] common interest community association manager; 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.

     (b)  The commission may deny any registration or reregistration application or terminate a registration without hearing if the fidelity bond and supporting documents fail to meet the requirements of this chapter and the rules adopted pursuant thereto.

     (c)  Every managing agent shall be considered a fiduciary with respect to any property managed by that managing agent.

     [(d)  The registration requirements of this section shall not apply to active real estate brokers in compliance with and licensed under chapter 467.]

     [(e)] (d)  If a managing agent receives a request from the commission to distribute any commission-generated information, printed material, or documents to the association, its board, or unit owners, the managing agent shall make the distribution at the cost of the association within a reasonable period of time after receiving the request.  The requirements of this subsection apply to all managing agents[, including unregistered managing agents]."

     SECTION 8.  Section 514B-143, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  Unless otherwise provided in the declaration or bylaws, the association shall purchase and at all times maintain the following:

     (1)  Property insurance:

          (A)  On the common elements;

          (B)  Providing coverage for special form causes of loss; and

          (C)  In a total amount of not less than the full insurable replacement cost of the insured property, less deductibles, but including coverage for the increased costs of construction due to building code requirements, at the time the insurance is purchased and at each renewal date;

     (2)  Commercial general liability insurance against claims and liabilities arising in connection with the ownership, existence, use, or management of the property in a minimum amount of $1,000,000, or a greater amount deemed sufficient in the judgment of the board;

     (3)  A fidelity bond, as follows:

          (A)  An association with more than five dwelling units shall obtain and maintain a fidelity bond covering persons, including the managing agent and its employees who control or disburse funds of the association, in an amount equal to $500 multiplied by the number of units; provided that the amount of the fidelity bond required by this paragraph shall not be less than $20,000 nor greater than $200,000; and

          (B)  All association management [companies] firms that are responsible for the funds held or administered by the association shall be covered by a fidelity bond as provided in section 514B‑132(a)(3).  The association shall have standing to make a loss claim against the bond of the managing agent as a party covered under the bond; provided that, for the purposes of this subparagraph, "association management firm" has the same meaning as defined in section    -1; and

     (4)  The board shall obtain directors and officers liability coverage at a level deemed reasonable by the board, if not otherwise limited by the declaration or bylaws."

     SECTION 9.  There is appropriated out of the general revenues of the State of Hawaii the sum of $           or so much thereof as may be necessary for fiscal year 2026-2027 for administering licensure of common interest community association managers.

     The sum appropriated shall be expended by the department of commerce and consumer affairs for the purposes of this Act.

     SECTION 10.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 11.  This Act shall take effect on July 1, 2027; provided that section 9 shall take effect on July 1, 2026.

 

INTRODUCED BY:	_____________________________

 

 

 

Report Title:

DCCA; Common Interest Communities; Associations; Managers; Licenses; Qualifications; Standards of Conduct; Discipline; Appropriation

 

Description:

Requires licensure for individuals managing common interest community associations for compensation.  Clarifies that common interest community association manager licensure is distinct from real estate licensure.  Establishes the qualifications, continuing education, and standards of conduct required for common interest community association manager licensure.  Authorizes the Department of Commerce and Consumer Affairs to administer licensure of common interest community association managers.  Clarifies exemptions for licensure requirements.  Appropriates funds.

 

 

 

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