REPORT TITLE:
Condominiums; Apartment Owners


DESCRIPTION:
Facilitates voluntary, bulk lease-to-fee conversions of
condominiums by condominium associations on behalf of their
members, by clarifying the applicable procedures as well as the
powers of condominium boards of directors to directly negotiate
agreements to purchase the leased fee interest. (CD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 1999                                H.D. 1
STATE OF HAWAII                                            C.D. 1
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO CONDOMINIUM PROPERTY REGIMES. 


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

 1      SECTION 1.  The legislature finds that condominium lessees
 
 2 are often able to acquire the leased fee interest appurtenant to
 
 3 their apartments at more affordable prices when the association
 
 4 of apartment owners negotiates directly with the project's lessor
 
 5 for a bulk purchase of all of the lessor's interests by the
 
 6 association and its members.  The legislature further finds that
 
 7 it is necessary to clarify the powers of the boards of directors
 
 8 of associations of apartment owners to enter into purchase
 
 9 agreements with lessors to facilitate and encourage voluntary
 
10 lease to fee conversions of condominium projects in an efficient
 
11 and economical manner.
 
12      SECTION 2.  Chapter 514C, Hawaii Revised Statutes, is
 
13 amended by adding a new part to be appropriately designated and
 
14 to read as follows:
 
15                 "PART   .  VOLUNTARY CONVERSIONS
 
16      514C-      Definitions.  As used in this part, unless the
 
17 context requires otherwise:
 
18      ""Lessor" means any or all of the fee simple owners and
 
19 other persons having legal or equitable ownership interests in
 

 
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 1 the leased fee interest appurtenant to the various condominium
 
 2 units in the condominium project and in the various apartment and
 
 3 ground leases including, but not limited to, any sublessor.  The
 
 4 definition of "lessor" in section 514C-1 shall not apply to this
 
 5 part.
 
 6      514C-   Power of association of apartment owners to
 
 7 negotiate, purchase, and sell lessor's interest.(a)  The
 
 8 association of apartment owners may purchase the lessor's
 
 9 interest in the condominium project; provided that the
 
10 declaration of condominium property regime shall either contain
 
11 or be amended to include a provision authorizing the board of
 
12 directors to effectuate such a purchase.  If the lessor is also a
 
13 condominium unit lessee, the lessor's lessee interest shall be
 
14 disregarded in the computation of the percentage of condominium
 
15 unit lessees needed to achieve the vote or written consent
 
16 required to amend the declaration of condominium property regime.
 
17      (b)  If the association of apartment owners is authorized to
 
18 purchase the lessor's interest pursuant to this section, the
 
19 following powers, in addition to any other existing powers, shall
 
20 be conferred upon the association of apartment owners:
 
21      (1)  To purchase or otherwise acquire, own, improve, use,
 
22           and deal in and with the lessor's interest or any or
 
23           all undivided interests therein;
 

 
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 1      (2)  To incur liabilities, borrow money, and secure any of
 
 2           its obligations by mortgage or pledge all or any
 
 3           portion of its property, assessments, and funds to
 
 4           effectuate acquisition of the lessor's interest;
 
 5      (3)  To assess, as a common expense, the condominium unit
 
 6           lessees for the expenses incurred in acquiring the
 
 7           lessor's interest, or to service any debt associated
 
 8           therewith; and
 
 9      (4)  To sell the fee interest appurtenant to a condominium
 
10           unit and acquired from the lessor by the association of
 
11           apartment owners, to any condominium unit lessee or
 
12           subsequent purchaser of such unit.
 
13      (c)  No condominium unit lessee shall be compelled to
 
14 purchase the portion of the fee interest of the property
 
15 appurtenant to the lessee's condominium unit and acquired from
 
16 the lessor by the association of apartment owners, but may
 
17 instead pay lease rent to the association of apartment owners
 
18 together with the lessee's share of the common expenses incurred
 
19 in acquiring the fee interest to the land, including any debt
 
20 associated therewith."
 
21      SECTION 3.  Chapter 514C, Hawaii Revised Statutes, is
 
22 amended as follows:
 
23      1.  By amending its title to read:
 

 
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 1      "[RIGHT OF FIRST REFUSAL] LEASE TO FEE CONVERSIONS FOR 
 
 2        CONDOMINIUMS AND COOPERATIVE HOUSING CORPORATIONS"
 
 3      2.  By designating sections 514C-1 through 514C-8 as:
 
 4                 "PART I.  RIGHT OF FIRST REFUSAL"
 
 5      3.  By amending section 514C-3 to read:
 
 6      "[[]514C-3[]]  Improvements.  The right of first refusal to
 
 7 purchase the leased fee interest in land created by this
 
 8 [chapter] part shall be deemed to include the right to purchase
 
 9 the interest of the seller in any and all improvements on such
 
10 land, other than the leasehold interest in any unit as to which
 
11 the seller is the holder of the leasehold interest."
 
12      4.  By amending section 514C-4 to read:
 
13      "[[]514C-4[]]  Compliance with procedures not required
 
14 when.  Nothing in this [chapter] part shall prohibit any lessor
 
15 and association of condominium owners or cooperative housing
 
16 corporation from agreeing to the sale and purchase of the leased
 
17 fee interest or any part thereof."
 
18      5.  By amending section 514C-5 to read:
 
19      "514C-5 Offer to other prospective purchasers; time limit.
 
20 No lessor shall sell the leased fee interest in any land under a
 
21 condominium project or cooperative project containing one or more
 
22 residential units or any part thereof to any party other than the
 
23 association of apartment owners or cooperative housing
 

 
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 1 corporation for that project until a right of first refusal for
 
 2 the purchase of that interest has been offered as required by
 
 3 this [chapter] part and has been rejected in writing by the board
 
 4 of directors, except in the case of sales to individual
 
 5 condominium unit lessees or cooperative unit lessees, which shall
 
 6 be subject to the requirements of section 514C-6.5; provided that
 
 7 an offer made pursuant to sections 514C-2, 514C-3, and 514C-6.5
 
 8 shall be deemed to be rejected if not accepted in writing by the
 
 9 board of directors of the condominium project or the cooperative
 
10 housing corporation within one hundred twenty days of its receipt
 
11 of the written notice from the seller, as evidenced by the return
 
12 receipts, or if the sale, through no fault of the seller, has not
 
13 closed upon the purchase of one hundred per cent of the interest
 
14 being sold within one hundred eighty days of receipt by the board
 
15 of directors of such written notice, as evidenced by the return
 
16 receipts.  In the event that closing is delayed due to any fault
 
17 of the seller, the deadline for closing shall be extended for a
 
18 period of time equal to the delay caused by seller."
 
19      6.  By amending section 514C-6.5 to read:
 
20      "[[]514C-6.5[]]  Sales to individual lessees.
 
21 Notwithstanding any other [provisions] provision in this
 
22 [chapter,] part to the contrary, a lessor may sell the leased fee
 
23 interest in any land under a condominium project or cooperative
 

 
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 1 project or any part thereof to individual condominium unit
 
 2 lessees or cooperative unit lessees[,]; provided that the
 
 3 following requirements have been complied with:
 
 4      (1)  No individual lessee shall be obligated to enter into a
 
 5           contract to purchase without having been afforded a
 
 6           period of at least ninety days within which to consider
 
 7           the offer made by the lessor[,]; provided that the
 
 8           individual lessee may enter into a contract to purchase
 
 9           before the ninety days expires if the individual lessee
 
10           so desires.  The lessee shall further have the right to
 
11           terminate such contract to purchase without penalty for
 
12           a period of ninety days from the date the contract was
 
13           first entered into;
 
14      (2)  At the time any offer to sell the leased fee interest
 
15           is communicated to the lessee by the lessor, the
 
16           association of owners or cooperative housing
 
17           corporation shall be provided with written notice
 
18           delivered or mailed by registered or certified mail,
 
19           return receipt requested, postage prepaid, to any two
 
20           of the president, vice-president, or managing agent (if
 
21           any), of the lessor's intent to sell the interest,
 
22           together with a complete and correct copy of the offer,
 
23           which offer shall contain the full and complete terms
 

 
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 1           thereof.  Except as provided in paragraph (3), where
 
 2           the board of directors of the association of apartment
 
 3           owners or cooperative housing corporation has written
 
 4           authorization to represent its members, then the
 
 5           association or corporation shall have a right of first
 
 6           refusal to purchase that leased fee interest for the
 
 7           same price as is contained in the written purchase
 
 8           offer[,]; provided that the offer shall be deemed to be
 
 9           rejected if not accepted in writing by the board of
 
10           directors of the condominium project or the cooperative
 
11           housing corporation within one hundred twenty days of
 
12           its receipt of written notice from the seller, as
 
13           evidenced by the return receipts;
 
14      (3)  Any board of directors of the association of apartment
 
15           owners or cooperative housing corporation may fully or
 
16           partially waive its right of first refusal at any time
 
17           with written notice to the lessor[,]; provided[,
 
18           however,] that it shall waive its right of first
 
19           refusal with respect to the leased fee interest
 
20           appurtenant to a lessee's apartment at the written
 
21           request of the lessee.  The legislature hereby gives
 
22           the board of directors of the association of apartment
 
23           owners or cooperative housing corporation the authority
 

 
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 1           to exercise the foregoing waiver without having to
 
 2           amend any bylaws, charter, or other governing
 
 3           documents;
 
 4      (4)  Notwithstanding any provision contained in any bylaws,
 
 5           or any amendment thereto or written authorization,
 
 6           authorizing the board of directors of the association
 
 7           of apartment owners or cooperative housing corporation
 
 8           to represent the individual lessees in the lease-to-fee
 
 9           conversion, each individual shall have the right to
 
10           represent himself or herself in such lease-to-fee
 
11           conversion by giving written notice of such desire to
 
12           the lessor and the board of directors; and
 
13      (5)  After the lessor (or its agent or representative) has
 
14           been able to hold one meeting with the lessees and has
 
15           been able to provide a written summary of the meeting
 
16           to the lessees, then for a period of ninety days
 
17           thereafter, the lessor, its agents, employees, and
 
18           representatives, shall not initiate communication with
 
19           the lessees regarding the offer, although such parties
 
20           may respond to inquiries made by lessees."
 
21      7.  By amending section 514C-7 to read: 
 
22      "[[]514C-7[]]  Violations; voidable sale.  Any sale made
 
23 that violates this [chapter] part shall be voidable at the option
 

 
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 1 of the association of owners or the cooperative housing
 
 2 corporation.  If any sale is so voided, the association of owners
 
 3 or cooperative housing corporation shall then have the right to
 
 4 buy the interest which had been conveyed by virtue of such sale
 
 5 for the same price as pertained to the sale so voided, subject to
 
 6 the time restrictions contained in section 514C-5."
 
 7      8.  By amending section 514C-8 to read:
 
 8      "[[]514C-8[]]  Exception.  This [chapter] part shall not
 
 9 apply if the land under the condominium project or cooperative
 
10 housing corporation subject to a leased fee interest is part of a
 
11 larger tract of land and the lessor will not agree to sell the
 
12 leased fee interest in the land in parts."
 
13      SECTION 4.  No purchase or conveyance of the leased fee
 
14 interest made prior to the effective date of this Act to or by an
 
15 association of owners in a good faith belief that the purchase or
 
16 conveyance was valid, and no borrowing, mortgage, or pledge by an
 
17 association of owners in connection therewith shall be invalid
 
18 because it was without capacity or power to do such an act or to
 
19 make or receive such conveyance, transfer, or loan.  Nor shall
 
20 any apartment owner be excused from paying the owner's share of
 
21 the common expenses incurred in acquiring the leased fee interest
 
22 to the land, or to service any debt associated therewith on
 
23 account of any such lack of capacity of power.
 

 
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 1      SECTION 5.  Statutory material to be repealed is bracketed.
 
 2 New statutory material is underscored.
 
 3      SECTION 6.  This Act shall take effect upon its approval.