RELATING TO CONDOMINIUM ASSOCIATION'S OPERATING BUDGET.

HB1053

HOUSE OF REPRESENTATIVES

H.B. NO.

1053

THIRTY-THIRD LEGISLATURE, 2025

STATE OF HAWAII

A BILL FOR AN ACT

RELATING
TO CONDOMINIUM ASSOCIATION'S OPERATING BUDGET
.

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

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SECTION 1.
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The legislature finds that, due to issues in
the global insurance industry and recent increases in catastrophic weather
events around the world, there have been unprecedented insurance premium rate
increases for condominium associations.
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These significant increases have left condominium associations without a
means to fund the premiums without placing an unbearable and unforeseen
financial burden on Hawaii's condominium unit owners.

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The
purpose of this Act is to allow associations to authorize an association's
board to borrow or reallocate funds from its replacement reserve funds to pay
for association operating expenses.

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SECTION
2.
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Section 514B-105, Hawaii Revised
Statutes, is amended to read as follows:

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514B-105
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Association; limitations on powers.
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(a)
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The declaration and bylaws shall not impose
limitations on the power of the association to deal with the developer that are
more restrictive than the limitations imposed on the power of the association
to deal with other persons.

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(b)

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Unless otherwise permitted by the
declaration, bylaws, or this chapter, an association may adopt rules and
regulations that affect the use of or behavior in units that may be used for
residential purposes only to:

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(1)
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Prevent any use of a unit that violates
the declaration or bylaws;

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(2)
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Regulate any behavior in or occupancy
of a unit that violates the declaration or bylaws or unreasonably interferes
with the use and enjoyment of other units or the common elements by other unit
owners; or

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(3)
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Restrict the leasing of residential
units to the extent those rules are reasonably designed to meet underwriting
requirements of institutional lenders who regularly lend money secured by first
mortgages on units in condominiums or regularly purchase those mortgages.

Otherwise,
the association shall not regulate any use of or behavior in units by means of
the rules and regulations.

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(c)

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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, including commercial property assessed financing
assessment expenses incurred for improvements financed pursuant to section
196-64.5.
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Only after the 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.
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After these charges are paid, other charges,
including unpaid late fees, legal fees, 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.

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(d)

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No unit owner who requests legal or
other information from the association, the board, the managing agent, or their
employees or agents, shall be charged for the reasonable cost of providing the
information unless the association notifies the unit owner that it intends to
charge the unit owner for the reasonable cost.
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The association shall notify the unit owner in
writing at least ten days prior to incurring the reasonable cost of providing
the information, except that no prior notice shall be required to assess the
reasonable cost of providing information on delinquent assessments or in
connection with proceedings to enforce the law or the association's governing
documents.

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After
being notified of the reasonable cost of providing the information, the unit
owner may withdraw the request, in writing.
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A unit owner who withdraws a request for
information shall not be charged for the reasonable cost of providing the
information.

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(e)

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Subject to any approval requirements and
spending limits contained in the declaration or bylaws, the association may
authorize the board to borrow money for the repair, replacement, maintenance,
operation, or administration of the common elements and personal property of
the project, or the making of any additions, alterations, and improvements
thereto; provided that written notice of the purpose and use of the funds is
first sent to all unit owners and owners representing fifty per cent of the
common interest vote or give written consent to the borrowing.
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In connection with the borrowing, including
non-commercial property assessed financing, the board may grant to the lender
the right to assess and collect monthly or special assessments from the unit
owners and to enforce the payment of the assessments or other sums by statutory
lien and foreclosure proceedings.
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The
cost of the borrowing, including, without limitation, all principal, interest,
commitment fees, and other expenses payable with respect to the borrowing or
the enforcement of the obligations under the borrowing, shall be a common
expense of the project.
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For purposes of
this section, the financing of insurance premiums by the association within the
policy period shall not be deemed a loan and no lease shall be deemed a loan if
it provides that at the end of the lease the association may purchase the
leased equipment for its fair market value.

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(f)
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For financing assessments imposed upon the
project under a commercial property assessed financing program pursuant to
section 196-64.5 and due from the association, the cost of the commercial
property assessed financing, including all principal, interest, commitment
fees, servicing fees, and other expenses payable with respect to this borrowing
or the enforcement of the obligations under the borrowing, shall be a common
expense of the project and the unit owners' proportionate share of the
financing assessment shall be collected in the same manner as common
expenses.
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The written consent of at
least fifty per cent of all unit owners to finance qualifying improvements with
commercial property assessed financing shall include an acknowledgement that
the annual financing assessment required to fund debt service on the commercial
property assessed financing shall be included as part of the association's
adopted revised budget.

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(g)
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Subject to any spending limits contained in
the declaration or bylaws, the association may authorize the board to borrow or
reallocate funds from the replacement reserves fund to pay for association-wide
operating expenses to the extent that the reserve fund maintains a minimum of
fifty per cent of the required estimated replacement reserves as detailed in
the reserve study conducted pursuant to section 514B-148(a)(5) and (b),
provided that written notice of the purpose and proposed use of the funds is
sent to all unit owners, and owners representing a minimum of fifty per cent of
the common interest, consent to the borrowing:

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(1)
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No consent by the ownership shall be
given unless the written notice by the association to borrow or reallocate
funds from the replacement reserves fund includes a schedule for how and when
the funds will be restored over a maximum of one year and includes statements
regarding the necessity of using the replacement reserves for other than their
designated purpose, the necessity of the expense involved, and why the expense
was not or could not have been reasonably foreseen in the budgeting process.
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A proposal to borrow or reallocate
replacement reserves funds that are in excess of one hundred per cent of the
estimated replacement reserves shall not require a schedule for restoration of
borrowed or reallocated funds;

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(2)
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An association shall not borrow or
reallocate replacement reserves funds that are reserved for repair and
maintenance projects occurring within one year of the borrowing date; and

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(3)
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An association shall not borrow or
reallocate replacement reserves funds for operating expenses that primarily
benefit the board of directors, its officers, or their families.
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Violating this section constitutes a violation
of fiduciary duty.
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SECTION
3.
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New statutory material is underscored.

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SECTION
4.
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This Act shall take effect upon its
approval.

INTRODUCED BY:

_____________________________

BY REQUEST

Report Title:

Condominium Associations; Reserve Funds

Description:

Permits condominium associations to borrow from or
reallocate their reserve funds provided the loan is repaid within one year.
Effective upon approval.

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