SB 591: RELATING TO CONDOMINIUMS.

THE SENATE	S.B. NO.	591
THIRTY-THIRD LEGISLATURE, 2025
STATE OF HAWAII

A BILL FOR AN ACT

 

 

relating to condominiums.

 

 

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

 

     SECTION 1.  The legislature finds that under existing law, unit owners, tenants, and other persons who use condominium property are subject to the declarations and bylaws adopted by their condominium's association and must strictly comply with the covenants, conditions, and restrictions set forth in the condominium's declaration, bylaws, and house rules.  The legislature further finds that while condominium associations must have adequate remedies to enforce compliance, individuals subject to an enforcement action must also receive due process.

     Therefore, the purpose of this Act is to clarify the process for unit owners and tenants to dispute assessments levied by condominium associations and ensure that there is due process when fines are imposed on individuals subject to condominium association enforcement actions.

     SECTION 2.  Chapter 514B, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§514B-     Fines; imposition; appeals; collection.  (a)  An association may levy reasonable fines against a unit owner or tenant of a unit owner for a violation of declaration, bylaws, house rules, or regulations adopted by the association.  A unit owner or tenant shall be entitled to appeal the imposition of a fine levied pursuant to this section.  The board shall adopt a resolution that establishes an appeals process that includes notice and an opportunity for the unit owner or tenant to be heard and dispute the fine.

     (b)  Prior to the imposition of a fine, the association shall provide notice to the unit owner or tenant, as applicable.  The notice shall include:

     (1)  For each act or omission that constitutes a violation and is subject to the fine:

          (A)  A reference to the applicable provision or provisions of the declaration, bylaws, house rules, or regulation that serves as the basis for the fine; and

          (B)  A general description of the violation; and

     (2)  A copy of the appeals process adopted pursuant to subsection (a).

     (c)  A unit owner or tenant may request a hearing before the board within thirty days of receipt of the notice under subsection (b).

     (d)  A unit owner or tenant aggrieved by the decision of the board may file an appeal in the small claims division of the district court in which the condominium is located within thirty days of receipt of notice of the decision from the board regarding the fine.

     (e)  A fine imposed for a violation of declaration, bylaws, house rules, or regulations adopted by the association shall be enforceable and collectible if:

     (1)  The time to initiate an appeal has expired and no appeal has been initiated;

     (2)  The fine has been upheld by the board following a timely appeal and a small claims court case has not been initiated in accordance with subsection (d); or

     (3)  The fine has not been denied by a small claims court within ninety days of the timely initiation of an appeal pursuant to subsection (d).

     (f)  An association shall not charge a unit owner or tenant any attorneys' fees incurred by the association related to a fine imposed for a violation of declaration, bylaws, house rules, or regulations adopted by the association unless the fine is enforceable and collectible under subsection (e).

     (g)  Nothing in this section shall be deemed to limit the remedies of the association otherwise available under this chapter."

     SECTION 3.  Section 514B-104, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:

     "(a)  Except as provided in section 514B‑105, and subject to the provisions of the declaration and bylaws, 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;] section 514B-   ;

    (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.

     (b)  If a tenant of a unit owner violates the declaration, bylaws, [or] rules [and], or regulations of the association, in addition to exercising any of its powers against the unit owner, the association may:

     (1)  Exercise directly against the tenant the powers described in subsection (a)(11);

     (2)  After giving notice to the tenant and the unit owner and an opportunity to be heard, levy reasonable fines against the tenant for the violation[,] in accordance with section 514B-   ; provided that a unit owner shall be responsible for the conduct of the owner's tenant and for any fines levied against the tenant or any legal fees incurred in enforcing the declaration, bylaws, [or] rules [and], or regulations of the association against the tenant; and

     (3)  Enforce any other rights against the tenant for the violation which the unit owner as landlord could lawfully have exercised under the lease, including eviction, or which the association could lawfully have exercised directly against the unit owner, or both."

     SECTION 4.  Section 514B-105, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

     "(c)  Any payments made by or on behalf of a unit owner shall first be applied to outstanding common expenses that are assessed to all unit owners in proportion to the common interest appurtenant to their respective units.  Only after said outstanding common expenses have been paid in full may the payments be applied to other charges owed to the association, including assessed charges to the unit such as ground lease rent, utility sub-metering, storage lockers, parking stalls, boat slips, insurance deductibles, and cable.  After these charges are paid, other charges, including unpaid late fees, legal fees, collectible fines, and interest, may be assessed in accordance with an application of payment policy adopted by the board; provided that if a unit owner has designated that any payment is for a specific charge that is not a common expense as described in this subsection, the payment may be applied in accordance with the unit owner's designation even if common expenses remain outstanding."

     SECTION 5.  Section 514B-146, Hawaii Revised Statutes, is amended to read as follows:

     "§514B-146  Association fiscal matters; lien for assessments[.]; dispute of assessments.  (a)  All sums assessed by the association but unpaid for the share of the common expenses chargeable to any unit shall constitute a lien on the unit with priority over all other liens, except:

     (1)  Liens for real property taxes and assessments lawfully imposed by governmental authority against the unit; and

     (2)  Except as provided in subsection [(j),] (k), all sums unpaid on any mortgage of record that was recorded prior to the recordation of a notice of a lien by the association, and costs and expenses including attorneys' fees provided in such mortgages;

provided that a lien recorded by an association for unpaid assessments shall expire six years from the date of recordation unless proceedings to enforce the lien are instituted prior to the expiration of the lien; provided further that the expiration of a recorded lien shall in no way affect the association's automatic lien that arises pursuant to this subsection or the declaration or bylaws.  Any proceedings to enforce an association's lien for any assessment shall be instituted within six years after the assessment became due; provided that if the owner of a unit subject to a lien of the association files a petition for relief under the United States Bankruptcy Code (11 U.S.C. §101 et seq.), the period of time for instituting proceedings to enforce the association's lien shall be tolled until thirty days after the automatic stay of proceedings under section 362 of the United States Bankruptcy Code (11 U.S.C. §362) is lifted.

     The lien of the association may be foreclosed by action or by nonjudicial or power of sale foreclosure, regardless of the presence or absence of power of sale language in an association's governing documents, by the managing agent or board, acting on behalf of the association and in the name of the association; provided that no association may exercise the nonjudicial or power of sale remedies provided in chapter 667 to foreclose a lien against any unit that arises solely from fines, penalties, legal fees, or late fees, and the foreclosure of any such lien shall be filed in court pursuant to part IA of chapter 667.

     In any such foreclosure, the unit owner shall be required to pay a reasonable rental for the unit, if so provided in the bylaws or the law, and the plaintiff in the foreclosure shall be entitled to the appointment of a receiver to collect the rental owed by the unit owner or any tenant of the unit.  If the association is the plaintiff, it may request that its managing agent be appointed as receiver to collect the rent from the tenant.  The managing agent or board, acting on behalf of the association and in the name of the association, unless prohibited by the declaration, may bid on the unit at foreclosure sale, and acquire and hold, lease, mortgage, and convey the unit.  Action to recover a money judgment for unpaid common expenses shall be maintainable without foreclosing or waiving the lien securing the unpaid common expenses owed.

     (b)  Except as provided in subsection [(j),] (k), when the mortgagee of a mortgage of record or other purchaser of a unit obtains title to the unit as a result of foreclosure of the mortgage, the acquirer of title and the acquirer's successors and assigns shall not be liable for the share of the common expenses or assessments by the association chargeable to the unit that became due prior to the acquisition of title to the unit by the acquirer.  The unpaid share of common expenses or assessments shall be deemed to be common expenses collectible from all of the unit owners, including the acquirer and the acquirer's successors and assigns.  The mortgagee of record or other purchaser of the unit shall be deemed to acquire title and shall be required to pay the unit's share of common expenses and assessments beginning:

     (1)  Thirty-six days after the order confirming the sale to the purchaser has been filed with the court;

     (2)  Sixty days after the hearing at which the court grants the motion to confirm the sale to the purchaser;

     (3)  Thirty days after the public sale in a nonjudicial power of sale foreclosure conducted pursuant to chapter 667; or

     (4)  Upon the recording of the instrument of conveyance;

whichever occurs first; provided that the mortgagee of record or other purchaser of the unit shall not be deemed to acquire title under paragraph (1), (2), or (3), if transfer of title is delayed past the thirty-six days specified in paragraph (1), the sixty days specified in paragraph (2), or the thirty days specified in paragraph (3), when a person who appears at the hearing on the motion or a party to the foreclosure action requests reconsideration of the motion or order to confirm sale, objects to the form of the proposed order to confirm sale, appeals the decision of the court to grant the motion to confirm sale, or the debtor or mortgagor declares bankruptcy or is involuntarily placed into bankruptcy.  In any such case, the mortgagee of record or other purchaser of the unit shall be deemed to acquire title upon recordation of the instrument of conveyance.

     (c)  No unit owner shall withhold any common expense assessment claimed by the association for any reason, except that a unit owner may dispute the common expenses claimed by the association after the common expense assessment has been paid in full.

     (d)  A unit owner may dispute assessments, other than common expense assessments, prior to payment.  A unit owner who receives a demand for payment from an association and disputes the amount of an assessment, other than a common expense assessment, may request a written statement clearly indicating:

     (1)  The amount of common expenses included in the assessment, including the due date of each amount of common expenses claimed;

     (2)  The amount of any [penalty or fine, late fee, lien filing fee, and any other] charge included in the assessment that is not imposed on all unit owners as a common expense[; and], such as a penalty or fine, late fee, or lien filing fee; and

     (3)  The amount of attorneys' fees and costs, if any, included in the assessment.

     [(d) A] (e)  An association who receives a request from a unit owner [who disputes the information in the written statement received from the association] pursuant to subsection [(c) may request a subsequent] (d) shall include the following in the written statement [that additionally informs the unit owner that]:

     (1)  Under Hawaii law, a unit owner has no right to withhold common expense assessments for any reason;

    [(2)  A unit owner has a right to demand mediation or arbitration to resolve disputes about the amount or validity of an association's common expense assessment; provided that the unit owner immediately pays the common expense assessment in full and keeps common expense assessments current;

     (3)  Payment in full of the common expense assessment shall not prevent the owner from contesting the common expense assessment or receiving a refund of amounts not owed; and

     (4)  If the unit owner contests any penalty or fine, late fee, lien filing fee, or other charges included in the assessment, except common expense assessments, the unit owner may demand mediation as provided in subsection (g) prior to paying those charges.

     (e)  No unit owner shall withhold any common expense assessment claimed by the association.  Nothing in this section shall limit the rights of an owner to the protection of all fair debt collection procedures mandated under federal and state law.

     (f)  A unit owner who pays an association the full amount of the common expenses claimed by the association may file in small claims court or require the association to mediate to resolve any disputes concerning the amount or validity of the association's common expense claim.  If the unit owner and the association are unable to resolve the dispute through mediation, either party may file for arbitration under section 514B‑162; provided that a unit owner may only file for arbitration if all amounts claimed by the association as common expenses are paid in full on or before the date of filing.  If the unit owner fails to keep all association common expense assessments current during the arbitration, the association may ask the arbitrator to temporarily suspend the arbitration proceedings.  If the unit owner pays all association common expense assessments within thirty days of the date of suspension, the unit owner may ask the arbitrator to recommence the arbitration proceedings.  If the unit owner fails to pay all association common expense assessments by the end of the thirty-day period, the association may ask the arbitrator to dismiss the arbitration proceedings.  The unit owner shall be entitled to a refund of any amounts paid as common expenses to the association that are not owed.

     (g)  A unit owner who contests the amount of any attorneys' fees and costs, penalties or fines, late fees, lien filing fees, or any other charges, except common expense assessments, may make a demand in writing for mediation on the validity of those charges.  The unit owner has thirty days from the date of the written statement requested pursuant to subsection (d) to file demand for mediation on the disputed charges, other than common expense assessments.  If the unit owner fails to file for mediation within thirty days of the date of the written statement requested pursuant to subsection (d), the association may proceed with collection of the charges.  If the unit owner makes a request for mediation within thirty days, the association shall be prohibited from attempting to collect any of the disputed charges until the association has participated in the mediation.  The mediation shall be completed within sixty days of the unit owner's request for mediation; provided that if the mediation is not completed within sixty days or the parties are unable to resolve the dispute by mediation, the association may proceed with collection of all amounts due from the unit owner for attorneys' fees and costs, penalties or fines, late fees, lien filing fees, or any other charge that is not imposed on all unit owners as a common expense.]

     (2)  The obligation to pay a common expense assessment may be disputed after the common expense assessment is paid in full; and

     (3)  A unit owner may dispute other assessments, apart from a common expense assessment, before making payment, as provided by this section and section 514B-   .

     (f)  A unit owner may file an action in any court of competent jurisdiction, or may request mediation, to contest:

     (1)  A paid in full assessment; or

     (2)  An unpaid assessment, other than a common expense assessment, or a fine; provided that a unit owner may contest a fine as provided under section 514B-   .

A unit owner who elects to request mediation shall do so within thirty days after receipt of the written statement provided by the association pursuant to subsection (d).  A timely demand for mediation shall stay an association's efforts to collect the contested assessment for sixty days.

     (g)  If any amount paid by a unit owner is found to be unsubstantiated, the unit owner shall be entitled to a refund.

     (h)  An association may defend an assessment in court or in mediation and may proceed to collect an unpaid assessment by any legal means, except when collection efforts are stayed pursuant to subsection (f).

     [(h)] (i)  In conjunction with or as an alternative to foreclosure proceedings under subsection (a), where a unit is owner-occupied, the association may authorize its managing agent or board to, after sixty days' written notice to the unit owner and to the unit's first mortgagee of the nonpayment of the unit's share of the common expenses, terminate the delinquent unit's access to the common elements and cease supplying a delinquent unit with any and all services normally supplied or paid for by the association.  Any terminated services and privileges shall be restored upon payment of all delinquent assessments but need not be restored until payment in full is received.

     [(i)] (j)  Before the board or managing agent may take the actions permitted under subsection [(h),] (i), the board shall adopt a written policy providing for such actions and have the policy approved by a majority vote of the unit owners at an annual or special meeting of the association or by the written consent of a majority of the unit owners.

     [(j)] (k)  Subject to this subsection, and subsections [(k) and] (l)[,] and (m), the board may specially assess the amount of the unpaid regular monthly common assessments for common expenses against a mortgagee or other purchaser who, in a judicial or nonjudicial power of sale foreclosure, purchases a delinquent unit; provided that the mortgagee or other purchaser may require the association to provide at no charge a notice of the association's intent to claim lien against the delinquent unit for the amount of the special assessment, prior to the subsequent purchaser's acquisition of title to the delinquent unit.  The notice shall state the amount of the special assessment, how that amount was calculated, and the legal description of the unit.

     [(k)] (l)  The amount of the special assessment assessed under subsection [(j)] (k) shall not exceed the total amount of unpaid regular monthly common assessments that were assessed during the six months immediately preceding the completion of the judicial or nonjudicial power of sale foreclosure.

     [(l)] (m)  For purposes of subsections [(j) and] (k)[,] and (m), the following definitions shall apply, unless the context requires otherwise:

     "Completion" means:

     (1)  In a nonjudicial power of sale foreclosure, when the affidavit after public sale is recorded pursuant to section 667-33; and

     (2)  In a judicial foreclosure, when a purchaser is deemed to acquire title pursuant to subsection (b).

     "Regular monthly common assessments" does not include:

     (1)  Any other special assessment, except for a special assessment imposed on all units as part of a budget adopted pursuant to section 514B‑148;

     (2)  Late charges, fines, or penalties;

     (3)  Interest assessed by the association;

     (4)  Any lien arising out of the assessment; or

     (5)  Any fees or costs related to the collection or enforcement of the assessment, including attorneys' fees and court costs.

     [(m)] (n)  The cost of a release of any lien filed pursuant to this section shall be paid by the party requesting the release.

     [(n)] (o)  After any judicial or nonjudicial foreclosure proceeding in which the association acquires title to the unit, any excess rental income received by the association from the unit shall be paid to existing lien holders based on the priority of lien, and not on a pro rata basis, and shall be applied to the benefit of the unit owner.  For purposes of this subsection, excess rental income shall be any net income received by the association after a court has issued a final judgment determining the priority of a senior mortgagee and after paying, crediting, or reimbursing the association or a third party for:

     (1)  The lien for delinquent assessments pursuant to subsections (a) and (b);

     (2)  Any maintenance fee delinquency against the unit;

     (3)  Attorney's fees and other collection costs related to the association's foreclosure of the unit; or

     (4)  Any costs incurred by the association for the rental, repair, maintenance, or rehabilitation of the unit while the association is in possession of the unit including monthly association maintenance fees, management fees, real estate commissions, cleaning and repair expenses for the unit, and general excise taxes paid on rental income;

provided that the lien for delinquent assessments under paragraph (1) shall be paid, credited, or reimbursed first.

     (p)  Nothing in this section shall limit the rights of an owner to the protection of all fair debt collection procedures mandated under federal and state law."

     SECTION 6.  Section 514B-157, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  All costs and expenses, including reasonable attorneys' fees, incurred by or on behalf of the association for:

     (1)  Collecting any delinquent assessments against any owner's unit;

     (2)  Foreclosing any lien thereon; or

     (3)  Enforcing any provision of the declaration, bylaws, house rules, and this chapter, or the rules of the real estate commission;

against an owner, occupant, tenant, employee of an owner, or any other person who may in any manner use the property, shall be promptly paid on demand to the association by such person or persons[;], except as otherwise provided in section 514B-   ; provided that if the claims upon which the association takes any action are not substantiated, all costs and expenses, including reasonable attorneys' fees, incurred by any such person or persons as a result of the action of the association, shall be promptly paid on demand to such person or persons by the association."

     SECTION 7.  This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

     SECTION 8.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 9.  This Act shall take effect on July 1, 2025.

 

INTRODUCED BY:	_____________________________

 

 

 

 

Report Title:

Condominium Associations; Fines; Assessments; Common Expense Assessments; Appeals

 

Description:

Clarifies the authority of condominium associations to impose fines for violations of the declaration, bylaws, house rules, or regulations adopted by the condominium association.  Establishes a process for the unit owner or tenant of the unit owner to appeal the imposition of a fine.  Clarifies the responsibilities of unit owners to pay common expense assessments.  Clarifies the rights and process for unit owners to appeal assessments other than common expense assessments.

 

 

 

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