STAND. COM. REP. NO. 1689

                                 Honolulu, Hawaii
                                                   , 1999

                                 RE: S.B. No. 285
                                     S.D. 1
                                     H.D. 1




Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twentieth State Legislature
Regular Session of 1999
State of Hawaii

Sir:

     Your Committee on Consumer Protection and Commerce, to which
was referred S.B. No. 285, S.D. 1, entitled: 

     "A BILL FOR AN ACT RELATING TO CONDOMINIUM PROPERTY
     REGIMES,"

begs leave to report as follows:

     The purpose of this bill is to amend chapter 514A, Hawaii
Revised Statutes (HRS), the Condominium Property Regimes law, to
facilitate 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
power of a condominium board of directors to directly negotiate
and purchase the leased fee interest in land under a condominium
project.  This bill:

     (1)  Expressly empowers condominium associations to
          negotiate and purchase a lessor's interest where the
          declaration of condominium property regime authorizes
          or is amended to authorize the board to effectuate the
          purchase;

     (2)  Confers upon authorized associations the power in
          connection with the purchase of the leased fee interest
          to acquire the interest, incur liabilities, assess
          apartment owners for expenses and to service debts, and
          sell the interest;


 
 
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     (3)  Defines "lessor" to allow the purchase of subleasehold
          or "sandwich lease" interests;

     (4)  Provides that lessees shall not be compelled to
          purchase their portion of the leased fee interest and
          may instead pay lease rent and acquisition expenses to
          the association; and

     (5)  Includes a savings clause to uphold the validity of
          association purchases of condominium leased fee
          interests made in good faith prior to the enactment of
          the bill.

     Your Committee received testimony in support of this bill
from the Hawaii Council of Associations of Apartment Owners, and
the law firm of Neeley & Anderson (N&A).  The Real Estate
Commission of the Department of Commerce and Consumer Affairs
(DCCA) generally supported the intent of the measure and
suggested amendments.

     N&A testified that condominium associations are authorized
to purchase the leased fee interest in their projects under
chapter 514C, HRS, which gives associations the right of first
refusal to purchase these interests.  However, it is not clear
whether chapter 514C applies only where a lessor initiates the
transaction and offers the leased fee interest to another, or if
it also allows associations to negotiate sales in other
circumstances.  Despite this ambiguity, tens of thousands of
condominium association members have purchased their leased fee
interests in bulk purchase transactions negotiated by association
boards or directors.  However, there remains a need to remove the
ambiguity in the law that results in uncertainty as to the nature
and extent of board authority in these transactions, as well as
lack of uniformity in the procedures utilized to empower the
boards to perform these transactions.

     DCCA testified that the provisions of this bill should not
be included in section 514A-82, HRS, because this already
overloaded and confusing provision governs the day-to-day
operation and governance of the condominium project, a subject
that is inconsistent with an event like lease-to-fee conversion,
that may occur once in the lifetime of a condominium project.
DCCA suggested that chapter 514C, HRS, which deals with
condominium project and cooperative housing corporation lease-to-
fee conversions, be amended to include the operative provisions
of this bill.

     Your Committee agrees that consumers would be better served
if all laws governing lease-to-fee conversions by condominium

 
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associations were kept together in a single chapter.
Accordingly, your Committee amended this bill by:

     (1)  Inserting the operative provisions of this bill into
          chapter 514C, HRS, as recommended by the DCCA, without
          making any substantive changes to chapter 514C;

     (2)  Clarifying that the definition of "lessor" in section
          514C-1, HRS, is not applicable to voluntary
          conversions; and

     (3)  Making the effective date take effect at an unspecified
          time to facilitate further discussion.

     As affirmed by the record of votes of the members of your
Committee on Consumer Protection and Commerce that is attached to
this report, your Committee is in accord with the intent and
purpose of S.B. No. 285, S.D. 1, as amended herein, and
recommends that it pass Second Reading in the form attached
hereto as S.B. No. 285, S.D. 1, H.D. 1, and be placed on the
calendar for Third Reading.

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



                                   ______________________________
                                   RON MENOR, Chair