(808) 523-0702

By John A. Morris, Esq.

Under Hawaii Revised Statutes Section 514B-150, all condominium associations with 20 or more units must annually have an audit and an unannounced cash balance verification.  Condominium associations with fewer than 20 units may waive those requirements by a majority vote at a meeting.  Subject to certain exceptions, an association must make a copy of the audit available to all owners and must provide a copy to those owners who request one by marking their proxy.  Not only does the audit confirm the association’s financial condition, it also helps protect board members from subsequent complaints that they mishandled the funds of the association.  The auditor will usually provide some type of confirmation of the funds on hand at a particular point in time.

Normally, a copy of the audit must be provided to each owner that checks the appropriate box on the proxy form returned by the owner at least thirty days prior to the annual meeting which follows the end of the fiscal year. If the audit is not completed in time to provide the audit report to the owners, the unaudited year end financial statement for the fiscal year must be provided instead. If the association’s fiscal year ends less than two months before the annual meeting, the unaudited financial statement may cover the period from the beginning of the fiscal year to the end of the month preceding the date on which the notice of the annual meeting notice is mailed. Once the audit is completed, the audit report must be provided to the owners that have checked the appropriate box on the proxy form. This must be done within six months after the annual meeting.

Condominium audits and the unannounced cash balance verification are undertaken by the Certified Public Accountant (“CPA”) for the condominium association. CPAs undertake three types of evaluations of financial statements: compilations, reviews, and audits. The Association of International Certified Professional Accountants describes the difference between the three in a short article on its website. In a compilation, the CPA does not provide any assurances about the financial statements. In a review, the CPA provides limited assurance that the financial statements are free of material misstatement. In an audit, the CPA obtains high, but not absolute assurance about the financial statements. While it is important to know the difference among the three, unless the condominium association has fewer than 20 units, an audit is required for condominium associations.

SB 2661 seeks to change the balance of power between associations and owners in connection with the collection of charges other than maintenance fees. The current law requires owners to “pay first and dispute later” with respect to charges imposed by the association – i.e., that owners must pay the amounts claim by the association and then have the option of going to Small Claims Court or filing for mediation and arbitration.  This bill proposes to eliminate that process for all charges other than maintenance fees and common expenses. Instead, the bill proposes that any owner being assessed fines, late fees, and assessments other than maintenance fees, may request mandatory mediation before the association can collect the charges.

The bill also proposes that if the association and owner have entered into a payment plan, any delinquency caused by charges other than maintenance fees will not operate as a breach of the payment plan. Instead, those other charges will have to be resolved through mediation.

Finally, the bill also proposes to eliminate the “priority of payment” section from the law. Those familiar with the section know that it allows an association to apply payments received from maintenance fees to other charges against the owner. In effect, this priority of payment process converts delinquent assessments for fines, late fees, repair costs, et cetera, into a delinquent maintenance fees. The idea is supposed to be that it is easier for the association to collect delinquent maintenance fees than other charges.  Therefore, this process allows the association greater ability to collect fines, late fees, etc. Again, SB 2661 proposes to completely delete this priority of payment process from the law.

SB 2661 reportedly stems from claims by owners to legislators that the collection process was being abused by associations and eliminating the owner’s ability to contest charges other than maintenance fees in any meaningful way.

The Bill is scheduled for a hearing before the Senate Judiciary Committee tomorrow, March 1, 2016 at 9:05AM in conference room 016.  Please contact your State Senator and in addition:

Senator Rosalyn H. Baker
Senate Commerce, Consumer Protection, and Health Committee
Hawaii State Capitol
Room 230
phone: 808-586-6070
fax: 808-586-6071

Gilbert S.C. Keith-Agaran
Chair, Senate Judicairy and Labor Committee
Hawaii State Capitol, Room 221
phone: 808-586-7344
fax: 808-586-7348

Politely inform them that you are opposed to the Bill and that the current process is not misused.  All an owner has to do is pay the fine and dispute the matter later.