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Purchase of Leased Fee Interest by Condominium Association Upheld

On July 22, 2005, the Hawaii Supreme Court ruled in Association of Apartment Owners of Maalaea Kai, inc. v. Stillson that the purchase of the leased fee interest by the condominium association was proper. This is the second appeal in this case. The case began when Stillson failed to pay his maintenance fees. After several demands, the Association filed a notice of lien and then sought to foreclose the lien. Stillson claimed that the Association was prohibited from purchasing the leased fee interest in the Project unless 100% of the apartment owners approved the purchase. Eventually, Stillson paid the assessments and pursued his counterclaim challenging the purchase of the leased fee interest. The trial court agreed with Stillson’s argument that the purchase of the leased fee interest required approval of 100% of the apartment owners. In the first appeal, the Hawaii Supreme Court overturned the decision stating that approval of 75% would be sufficient. It remanded the case to determine whether the requisite approval was obtained.

Upon remand, the trial court ruled that less than 75% of the apartment owners approved the purchase of the leased fee interest. The court arrived at this conclusion because not all of the owners for a unit voted in favor of the purchase. For instance, written consents were submitted by many units signed by either the husband or wife of a jointly owned apartment. The trial court disallowed part of the votes for each of these units.

The Hawaii Supreme Court ruled in the second appeal that the Association could rely upon the method of voting in the By-Laws if it does not violate law. The Association’s By-Laws provided that votes of units could not be split and that if one joint owner of a unit voted without objection, the vote binds all the joint owners of the unit. The Supreme Court also ruled that even if there is a defect in the voting process, the purchase of the leased fee interest by more than 75% of the owners constitutes a ratification of the purchase. The ratification is treated as if it occurred at the time of the original vote. Two of the five justices of the Supreme Court dissented.

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