As a Realtor, there are several rule and laws that govern a Realtor’s actions. The Code of Ethics should always be forefront in a Realtor’s mind, but state law and administrative rules are in some ways more important as they govern the actual real estate license. The Hawaii Administrative Rules provide the basis of advertising rules that govern real estate licensees in Hawaii. Specifically, Hawaii Administrative Rule 16-99-11. There are new proposed rules that will be addressed later in this article, for now let’s examine the current rules. HAR 16-99-11(a) states: “All real estate advertising and promotional materials shall include the legal name of the brokerage firm or a trade name previously registered by the brokerage firm with the business registration division and with the commission.” While this seems obvious, it does mean that the brokerage firm’s name must be present in all advertising, including if the advertising is just for a single Realtor. HAR 16-99-11(b) states: “No licensee shall advertise "For Sale by Owner," "For Rent by Owner," "For Lease by Owner," or "For Exchange by Owner."” This prevents Realtors and licensees from advertising a “FSBO” or something like looks like one and confusing the public. HAR 16-99-11(c) states: “Current individual real estate licensees, whether active or inactive, shall disclose the licensee's status as a real estate licensee in all advertising and promotional material.” Not much explanation is needed for this. HAR 16-99-11(d) states: “A leasehold property advertised for sale in any medium shall be identified by the word "leasehold."” There is concern from the State of Hawaii that many people in the public do not understand the difference between a leasehold and a fee simple property, so additional disclosure requirements are placed on leasehold properties. HAR 16-99-11(e) states: (e) All advertising and promotional materials that refer to the individual licensee's name, including but not limited to business cards, shall: (1) Include the licensee's legal name, name as licensed by the commission, or sole proprietor's trade name as licensed by the commission; (2) Identify the licensee with the licensee's associating or employing brokerage firm; and (3) Specify that the licensee is a broker (B), or salesperson (S), or if a current member of the Hawaii Association of Realtors, Realtor (R) or Realtor-Associate (RA). This requirement goes hand in hand with 16-99-11(a) which states that the brokerage firm’s name must be present on all advertising. In additional, there’s a requirement for Realtors to use their legal or trade name as registered with the Real Estate Commission as well as specify the licensee’s status as an agent or a broker, and Realtors would use (R) for Broker and (RA) for Realtor-Associate instead. Lastly HAR 16-99-11(f) states: “If the address of any unregistered place of business is included in advertising materials, then the street address of the principal place of business or the branch office, as the case may be, shall be included and respectively identified as such.” This means if a Realtor advertises another place that he or she does business in, the brokerage firm’s office’s address must also be provided. This is to prevent confusion on the address of record for the brokerage firm. Taking all of these rules into account, a Realtor should check their advertising to see if current advertising complies with all of these rules as well. Currently the Real Estate Commission has issued proposed rules, a comparison between the current rules and the proposed rules can be viewed here There are proposed rules about team names and advertising that will not be examined in this article. The key takeaways are that either brokerage firm’s license number or the individual licensee’s license number may be required to be placed on advertisements. However, these are only the proposed rules and they may change in the future as the process continues on. This should be considered as just an overview of the advertising rules for real estate licensees in Hawaii, and there may be more rules or laws that govern advertising. For Realtors, the Code of Ethics should also be carefully examined to see what is required when a Realtor advertises to the public. Additionally, county ordinances and rules may also be applicable if a Realtor is advertising in a public space, or in front of a house.

Examining the Hawaii Administrative Rules Title 12, Chapter 46, Subchapter 20 – Real Property Transaction Discrimination is helpful in showing what fair housing practices REALTORS^® must follow when doing business. These rules have significant overlap with Hawai‘i Revised Statutes Chapter 515, but this article focuses on the rules. The rules and Hawai‘i Revised Statutes Chapter 515 prohibit discriminatory practices by “an owner, any person engaging in a real property or real estate transaction, or a real estate broker or salesperson against another person because of a protected basis.” As this encompasses pretty much anyone who can be involved in a real property transaction, all REALTORS^® should be aware of what these rule terms mean. A “Protected basis” means race, sex (including gender identity or expression), sexual orientation, color, religion, marital status, familial status, ancestry, disability, age, or HIV (human immunodeficiency virus) infection. The rules place upon the persons engaging in a real estate transaction a record keeping requirement. While there are different rules for different kinds of housing accommodations, it can be roughly summarized as keeping the records for one year. Additionally, if a complaint in filed with the Hawaii Civil Rights Commission, those records must be kept until the complaint is completely handled. The rules consider it a discriminatory practice when someone engaging in a real estate transaction chooses, because of a person’s protected basis, to: (1) Refuse to engage in a real estate transaction, evict, or terminate a tenancy; (2) Discriminate in the terms, conditions, enjoyment, or privileges of a real estate transaction, or in the furnishing of facilities or services in connection therewith; (3) Refuse to receive or fail to transmit a bona fide offer to engage in a real estate transaction from a person; (4) Refuse to negotiate for a real estate transaction with a person; (5) Represent to a person that real property is not available for inspection, sale, rental, or lease when, in fact, it is available, or to fail to bring a property listing to the person’s attention, or to refuse to permit the person to inspect real property, or to steer a person seeking to engage in a real estate transaction; (6) Discriminate against or deny a person access to, or membership or participation in any multiple listing service, real estate broker’s organization, or facility involved either directly or indirectly in real estate transactions, or to discriminate against any person in the terms or conditions of such access, membership, or participation; (7) Engage in harassment; or (8) Institute or apply facially neutral policies or restrictions which result in a disparate adverse impact. It is a discriminatory practice to do the same to a person with a disability. Additionally, not allowing a person with a disability to modify the property to accommodate them, or to build a property that would prevent a person with a disability to be able to use the property is discriminatory. A person’s familial status is also a basis that cannot be discriminated against. This includes advertising or making house rules that would prevent a large family from using the property or excluding children from the property. These rules apply to all real estate transactions, which means both rentals and sales, but there two exemptions. These exemptions are usually not applicable for REALTORS^®, as they are for owner-occupants in either a duplex or someone renting out rooms in their home. In addition to the rental or sale of the property, the protected basis also applies in the application for financing for the property. Most of these concepts are easily understood as treating everyone fairly during real estate transactions. One of the more complicated discriminatory practices is described in the section titled “Blockbusting.” This is where a person attempts to lower property values in an area by representing that a change will happen to that area because of a person with a protected basis is moving into that area. An example of this would be stating that a racial minority will be moving into the neighborhood soon, so the current occupants should sell their homes at a decreased price to the real estate agent, developer, or other person. The instigator of these sales would then sell those homes to people in that racial minority for a profit. This was a more common practice on the mainland many decades ago, but has mostly gone away with the adoption of similar rules throughout the country. There are substantial provisions in the rules concerning assistance animals, but the summation of it is that persons cannot be discriminated against for having an assistance animal. The specific assistance animal can be prohibited if the animal is a danger to others, the property, pose an undue financial and administrative burden, or the presence of the animal would fundamentally alter nature of the operations of the real estate transaction. This means that a prohibition on specific breeds would not be allowed, but a specific animal that is dangerous and harms others can be banned from the property. This is not a comprehensive guide to the administrative rules that govern discrimination is real estate transactions, but just a primer. Additionally, there are more laws, rules and regulations that apply to discrimination in real estate transactions.

What is the current Eviction Moratorium? Currently we are under the Governor’s 18^th Proclamation which suspends specific provisions of law including provisions within Hawaii Revised Statutes (“HRS”) 127A-30(a)(2), HRS 521-68, HRS 521-71, and Chapter 666.  Page 17 of this link shows those statutes as it relates to the Governor’s Proclamation: Governor’s 18^th Proclamation Under the Eviction Moratorium, no tenant may be evicted from a rental property for non-payment of all or any portion of the rent, maintenance fees, utility charges, taxes or other required fees. If a tenant violates the rental agreement for other reasons, such as damaging the property, being a danger to others or other potential issues, then the landlord is permitted to evict the tenant. This Eviction Moratorium applies to all residential dwellings, whether that is a periodic (month-to-month) or fixed-term (year-long) lease. Under the current Eviction Moratorium, what do I do if there is an existing tenant in the property that will be sold & when can notice be given? For sales of property with an existing tenant on a periodic (month-to-month) tenancy while the emergency order is in effect, Hawaii Revised Statute § 127A-30, 45-day notice of termination is given “(i) when the residential dwelling unit is sold to a bona fide purchaser for value; or (ii) when the landlord or an immediate family member of the landlord will occupy the residential dwelling unit.” For sales of property with an existing tenant on a fixed-term lease, the new owner needs to take over the lease unless something is negotiated with the tenant. If a property to be listed is tenant-occupied, it is best to work closely with the tenant to make sure that the tenant is okay with showings and other inspections that occur during the real estate transaction. Where can I get help on questions specifically dealing with the Landlord/Tenant Code? Because our Legal Kokua line is available for informational guidance only, the following options are good resources for legal advice: The Office of Consumer Protection has released an FAQ dealing with the Landlord/Tenant Code: https://cca.hawaii.gov/ocp/landlord-tenant-faqs/ The Office of Consumer Protection’s Landlord-Tenant Information Center at 808-586-2634 provides assistance with the Landlord/Tenant Code. Legal Aid Society of Hawaii can also be contacted at 808-536-4302 or 1-800-499-4302 (neighbor islands). What can I do if a tenant isn’t paying rent during the Eviction Moratorium? Landlords cannot give notice of evicting for nonpayment until after the moratorium period ends. Landlords can apply to the federal emergency rental assistance program with consent of the tenant.  The program provides up to 12 months of rental assistance to those less than 80% of AMI with priority to those less than 50% of AMI who are at risk of homelessness.  Payments go directly to the landlord.  https://home.treasury.gov/policy-issues/cares/emergency-rental-assistance-program Rapid Response Mediation Programs are available free of charge to help landlords and tenants negotiate realistic payment plans through videoconference, telephone or a secure online platform with an impartial mediator.  The mediator helps discuss options such as payment plans, temporary rent reduction, deferred payments, and other solutions. Oahu: Mediation Center of the Pacific at 808-521-6767 East Hawai‘i: Ku‘ikahi Mediation Center at 808-935-9844 West Hawai‘i: West Hawai‘i Mediation Center at 808-885-5525 Maui County: Maui Mediation Services at (808) 244-5744 Kauai: Kauai Economic Opportunity, Inc. Mediation Program at (808) 245-4077 x229 or x237 Can a tenant refuse to me to show the unit if the lease is ending soon? The landlord tenant code requires the landlord provide 48-hour notice for reasonable access.  During the state of emergency and social distancing recommendations, the request may not be seen as reasonable, so the tenant can technically refuse entry to the unit. What rules do I need to follow when advertising? The current advertising rules require that a brokerage firm’s name be present in all advertising, including if the advertising is just for a single Realtor.  Under HAR 16-99-11(a) states that: “All real estate advertising and promotional materials shall include the legal name of the brokerage firm or a trade name previously registered by the brokerage firm with the business registration division and with the real estate commission. Other advertising rules to keep in mind: HAR 16-99-11(b) states: “No licensee shall advertise “For Sale by Owner,” “For Rent by Owner,” “For Lease by Owner,” or “For Exchange by Owner.”” This prevents Realtors and licensees from advertising a “FSBO” or something like looks like one and confusing the public. HAR 16-99-11(c) states: “Current individual real estate licensees, whether active or inactive, shall disclose the licensee’s status as a real estate licensee in all advertising and promotional material.” Not much explanation is needed for this. HAR 16-99-11(d) states: “A leasehold property advertised for sale in any medium shall be identified by the word “leasehold.”” There is concern from the State of Hawaii that many people in the public do not understand the difference between a leasehold and a fee simple property, so additional disclosure requirements are placed on leasehold properties. HAR 16-99-11(e) states: “All advertising and promotional materials that refer to the individual licensee’s name, including but not limited to business cards, shall: (1) Include the licensee’s legal name, name as licensed by the commission, or sole proprietor’s trade name as licensed by the commission; (2) Identify the licensee with the licensee’s associating or employing brokerage firm; and (3) Specify that the licensee is a broker (B), or salesperson (S), or if a current member of the Hawaii Association of Realtors, Realtor (R) or Realtor-Associate (RA).  This requirement goes hand in hand with 16-99-11(a) which states that the brokerage firm’s name must be present on all advertising. In addition, there’s a requirement for Realtors to use their legal or trade name as registered with the Real Estate Commission as well as specify the licensee’s status as an agent or a broker, and Realtors would use (R) for Broker and (RA) for Realtor-Associate instead. HAR 16-99-11(f) states: “If the address of any unregistered place of business is included in advertising materials, then the street address of the principal place of business or the branch office, as the case may be, shall be included and respectively identified as such.” This means if a Realtor advertises another place that he or she does business in, the brokerage firm’s office’s address must also be provided. This is to prevent confusion on the address of record for the brokerage firm. Note:  HAR has previously discussed the previously proposed amendment to the advertising rules.  This proposed amendment was ultimately not adopted as of now.  The relevant rule, Hawaii Administrative Rules § 16-99-11 in its current form has not been amended to require a license number. Does the name on my license need to be the same as my legal name? Your license name can be different from your legal name, provided that you follow the requirements of Hawaii Administrative Rules (HAR) 16-99-19.1.  Be sure to notify the Real Estate Commission of any changes under HAR 16-99-5 and to follow the real estate advertising and promotional materials rules under HAR 16-99-11. Is execution of the form Independent Contractor Agreement sufficient enough to classify my workers as independent contractors? Though the Independent Contractor Agreement is an important element of establishing an independent contractor relationship with a real estate salesperson, it is not all that’s needed to maintain/establish this classification.  Other important elements include the actual nature of the relationship, how the parties interacted, and how much control a broker exerts over the real estate salesperson. Can I provide an Hawai‘i REALTORS® Standard Form to parties or individuals I am not representing? It is a violation of law and the Standard Form Policy to provide, publish, lend, sell, distribute, or transfer any HR Standard Form to the public (any non-member).  The only form that is publicly available is the HR Rental Agreement but only by purchasing a printed copy from an authorized Local Board.  Members are not permitted to provide the HR Rental Agreement to non-members and may only refer members of the public to the Local Board of which they can obtain the Rental Agreement from.  All other HR Standard Forms are not available to the public (meaning they are also not available to the public from a Local Board). Any instructors or educators who would like to use the HR Standard Forms in their course may only do so upon receiving express written permission from HR for use that is limited to the specific course. For a non-member who has an active Hawaii real estate licensee, they can purchase printed copies of HR forms and use them.  Pursuant to the third paragraph of the HR Standard Forms Policy: Printed copies of the forms may be purchased by active Hawai‘i real estate licensees for a fee through one of the Local Boards in Hawai‘i. The Local Board may determine whether its Board/Association will sell the forms and if so, at what price. The Local Boards are: Hawai‘i Island REALTORS®, Honolulu Board of REALTORS®, Kauai Board of REALTORS®, REALTORS® Association of Maui and West Hawai‘i Association of REALTORS®. As a reminder, do not provide any person/entity who is not a Member with an HR Standard Form, including any prospective buyer or seller you are not representing that may approach you for guidance or assistance.  The HR Standard Forms are only to be used in connection with the relevant transaction and only provided to such parties necessary to complete the transaction. The Counter Offer Standard Form specifies that the offer can be withdrawn at any time prior to delivery of a written acceptance to the undersigned’s Brokerage Firm.  Does that mean that the offer is not considered accepted until the party who submitted the offer physically receives the recipient’s acceptance? No, the acceptance date of the offer is the date and time designated by the party who received the offer under “Acceptance or Rejection of Counter Offer.”  However, because the counter offer can still be withdrawn, it is important to quickly deliver the written acceptance to the party that submitted the counter offer. When is the “Acceptance Date” of a Purchase Contract? The Acceptance Date triggers many of the performance provisions within the Purchase Contract, yet there has been confusion on how such date is determined.  The HR Standard Form Purchase Contract defines the Acceptance Date as “the date on which this Purchase Contract becomes binding upon the parties.”  The contract becomes binding once executed by all parties, which typically makes the Acceptance Date on the day which the last party signs (i.e. when the party receiving the offer or counteroffer signs to accept).  For example, if the Buyer submits an offer, the Purchase Contract becomes binding on the date signed by Seller under Section T. Time is of the essence in these deals, so acceptance should be communicated as soon as possible to the other party.

This Act took effect July 1, 2018 and applies to any divorce filed in the State of Hawaii. It provides for an automatic restraining order upon the filing party once it is filed and on the other party once it has been served. However, the restraining order only applies to the finances and prevents the parties from moving children off-island or from their current school. This restraining order prevents the parties from doing anything substantial with their finances, such as selling their property or acquiring new debt. The intent behind the Act is to protect a spouse that would be in a financially disadvantaged position during a divorce. Often times, the first thing that happen after someone files for divorce is for that person to go and withdraw all the money out of a joint bank account and cancel any existing credit and debit cards. This would put the other party at a severe disadvantage if he or she does not work or has a substantially lower income. This Act prevents the parties from selling, transferring, encumbering, concealing, assigning, removing, or in any way disposing of any property, real or personal, belonging to or acquired by either party. There are some exceptions to this, such as being able to pay for reasonable expenses of living, occurring in the ordinary and usual course of business, required for attorney’s fees, with written consent of both parties, or by court order. The last two exceptions are the most likely options that real estate agents would face. A listing agreement with both spouses signing it would likely work. Additionally, if the parties have already gone to court, there may be a court order allowing the sale of the property before the final divorce decree. In order to best protect any agent and brokerage firm, in any listing contract, there should be a disclaimer stating that this Act may apply if the client is married or a married couple, and if it is relevant that the client should contact an attorney. This would protect the agent and brokerage firm by making the client aware of this Act. This would also be helpful in a client representation contract, as a divorcing party taking on debt through a mortgage or spending marital assets on a cash sale would also be covered under this Act. Informing the client is the key part of this, as the main concern about this Act is that the client may attempt to sue the agent or brokerage firm if the client feels they were not properly informed about this Act and go on to violate the restraining order. There should be no concern on the part of the agent or brokerage firm in violating the Act and being sanctioned under the restraining order if the agent does not know about the divorce, because the restraining order only applies to the married couple. If one party to the divorce does violate the restraining order, sanctions may be imposed against the violating party or a worse final divorce decree may result. As a consequence, agents and brokerage firms should not be concerned about this Act in terms of violating the restraining order, but instead, there is a need to inform clients to avoid legal headaches down the road. Finally, this Act is new and courts may still be working on how to apply it in real-life situations. Appellate courts may also change the interpretation of this Act as time moves on and there could be future legislation that changes it again.

Most REALTORS® are familiar with the classic dual agency scenario of a brokerage firm representing both the buyer and the seller in a transaction. HAR provides the “Dual Agency Consent Addendum” which helps to advise clients on what that entails for a both the buyer and the seller. What is less clear is how to handle dual agency in a Buyer-Buyer or Seller-Seller scenario. A Buyer-Buyer dual agency is where a brokerage firm represent clients, many of which may be interested in the same properties to purchase. In that case, clients may feel that the brokerage firm is hurting their ability to make good offers by secretly outbidding them for their other clients. This is unlikely to actually occur, but the perception that buyers are being constantly outbid is hard to control without setting expectations appropriately. One way to mitigate any potential claims from a client is to sign a Buyer’s Representation Contract, which discloses that the brokerage firm may be representing multiple buyers and explicitly states Buyer will not be privy to the offers made by other buyers represented by the brokerage firm. While agents are often apprehensive of getting clients to sign the Buyer’s Representation Contract early in the relationship, for the purposes of disclosing dual agency, it would be helpful to make it clear as early as possible. Seller-Seller dual agency has many of the same concerns, but the Exclusive Right-to-Sell Listing Contract takes care of these concerns in the same way that having a client sign the Buyer’s Representation Contract does. The big takeaway from this should be that dual agency of all kinds should be disclosed, it’s a requirement under the Hawaii Administrative Rules for representing both Buyer and Seller, but also for Buyer-Buyer and Seller-Seller dual agency. This prevents clients from feeling misled due to a client of your brokerage firm getting the house or sale that your client wanted.

The Legal Kokua Line receives many calls from Principal Brokers and Brokers-in-Charge, but one of the more common problems are issues with commissions. The toughest thing about these calls is that oftentimes the problem would have never come up if there was a signed Buyer Representation Contract. Hawai‘i REALTORS® provides the “Buyer Representation Contract” to its members, which details the agreement between the Buyer and Agent. This agreement is helpful in the event that the Buyer is misled by another person who attempts to gain the commission for a sale. There have been several callers to the Legal Kokua Line who have taken a Buyer to a property, entered into contract with the Seller, and then the Buyer switches to another agent. However, the REALTOR® did not have a signed contract with the Buyer that details compensation, so the REALTOR® will have to go through a procuring cause claim. While not every one of these situations would be resolved with a Buyer Representation Contract, it would at the very least be clearer to both the REALTOR® and the client what the expectations for their relationship. Additionally, having anything in writing between the REALTOR® and the client is helpful in a procuring cause claim. Some REALTORS® are wary of scaring away clients by making them sign a Buyer Representation Contract due to the exclusivity, however explaining the actual agreement to clients and making it clear that the contract can be terminated by the mutual agreement between the parties. This may make clients more open to signing the agreement and help solve some of the issues that arise on a regular basis.

Many members have had questions about mediation and arbitration that involves REALTORS®. There are many different reasons and possibilities on why a member can be involved in a dispute that would result in mediation or arbitration, which is not the topic of this article. Instead, this article is designed to help members understand what can happen in mediation or arbitration. Mediation Mediation typically happens at the very beginning of a dispute, but it can happen later in the process, depending on the exact circumstances. Mediation is where both parties sit down together with an impartial mediator to discuss the issues and see if a mutually agreeable solution can be reached. Oftentimes mediation allows for the parties to understand what the exact issue between the parties, and that can result in the dispute going away. An apology or a minor change in behavior is sometimes all that is needed to resolve a dispute. If that doesn’t happen, then in mediation, the parties can talk numbers on what would resolve the dispute. Depending on the exact situation, these numbers are not binding if arbitration or an actual court case occurs, especially because further steps in the process can result in increased legal costs or other associated costs. For most mediations, both parties can have legal counsel present, but it is not required. When the parties sit down in mediation, it is best if it remains a conversation and not an argument or legal proceeding. This is to help the parties talk to each other, rather than at each other. In the event that a settlement is reached, the parties sign a binding agreement that can be enforced in court if needed. A fair settlement of a dispute in mediation can make both parties feel like they did not “win” the dispute, if that seems clear to both parties, then that may prevent further escalation of the dispute, either through arbitration or a lawsuit. Arbitration Arbitration is typically the next step from mediation, and is not always required in a dispute. Many people are familiar with the word arbitration from signing documents that state “mandatory arbitration in the event of a dispute”. These often come from companies that are trying to minimize legal costs by avoiding court cases on a constant basis. Arbitration is like a court proceeding in the sense that both parties present their case to an impartial arbitrator who will decide the case based on the evidence and arguments presented. While there are different procedures and policies for each arbitration, the typical guidelines are that both sides may have legal representation, and all evidence must be presented to the other side. After the case is argued and decided by the arbitrator, the decision will describe who was found to be at fault and how any monetary awards should be awarded. This decision will be accompanied with a signed contract stated that the parties contracted to be bound by this decision before entering into arbitration. Again, depending on the exact method of arbitration, an appeal of the decision from the arbitrator can go to court for a full legal dispute. In that case, the entire case would be heard from the beginning by the court. Nothing in the mediation or arbitration would be looked at by the court and the court could request that the parties go into mediation (again, depending on what happened). Conclusion Parties involved in a dispute may feel like mediation or arbitration did not allow them to have their full argument or voices heard, but a court case may actually have less opportunities for relevant evidence to be produced as mediation and arbitration can be significantly less formal on what evidence may be considered. A court of law follows rules of civil procedure that govern what evidence may be admitted and when it may be considered. The more informal nature of mediation or arbitration allows for parties to potentially handle the dispute without attorneys (though they may be recommended) and to bring up any evidence that may be relevant. This article was designed to inform REALTORS® about the basics of mediation and arbitration. If you are about to go into mediation or arbitration for a dispute, it is recommended that you consult with an attorney if you have any questions.

For any landlord renting a property out, allowing pets is always a difficult decision. The potential damage any animal can cause in a home has to be weighed against the significantly increased number of potential tenants that may rent the home. Issues of service and emotional support animals can add another layer of difficulty to pet deposits and pet addendums. As those issues are even more complex, this article will not address them. To help property owners mitigate the costs of damage from a tenant’s pet, Hawaii Revised Statutes 521-44(b) allows for a landlord to collect a pet deposit of not more than one month’s rent. This deposit is treated the same as the security deposit. That means that a pet owner tenant could potentially hand over the first month’s rent, a security deposit equal to one month’s rent, and a pet deposit equal to one month’s rent at beginning of the rental agreement. The landlord does not have to make the pet deposit equal one month’s rent. Depending on the property, the animal, and other considerations, it may be significantly less than that. The other important step when allowing a tenant to bring pets into the property is to use Hawaii REALTORS® RR305 – Pet Addendum or something similar to get detailed information on each pet that the tenant is bringing into the property. This type of agreement is important because it restates the rules for the tenant and has the option to require the tenant to purchase liability insurance for claims that may arise due to the tenant’s pets. Hawaii Revised Statutes 663-9 states that the owner or harborer (this would include a landlord) is liable for the personal or property damage caused by the animal. This means a landlord could be held liable for a tenant’s pet causing harm to someone else on the property. Property owners, property managers, and landlords have to make many decisions when listing a property for rent, and deciding whether or not to allow pets is an important one that should not be taken lightly.

“Who can I pay a referral fee to?” is one of the more common questions the Legal Kokua Line receives from members. There are a few specific types of people that members ask this about. The general rule is that as long as the person is a real estate licensee, you can pay them a referral fee. For more specific scenarios, please see below. 1. Out of state REALTORS®/Real Estate Licensees Yes, you can pay mainland REALTORS® who refer a client to you. This is covered under Hawaii Revised Statutes 467-14(14), which discusses that a broker may split fees or otherwise give compensation to out of state real estate brokers as long as they are licensed in another state. This also applies to real estate brokers licensed in another county. 2. Attorneys Generally, you cannot pay an attorney a referral fee. There are exceptions to this, the first is if the attorney is a real estate licensee, just treat them as a real estate licensee and pay the referral fee to his or her brokerage firm as usual. The second possible exception is if the attorney did legal work, but this would not be a referral fee, it would just be the legal fees incurred as part of the work the attorney did. 3. Unlicensed People/Clients/Members of the Public That same Hawaii Revised Statute 467-14(14) states that a broker may have his or her license revoked, suspended or be fined for splitting fees or otherwise compensated an unlicensed person. One particular note of caution would be inactive real estate licensees, it is recommended to check that the real estate licensee has a current and active license before paying a referral fee to avoid any potential discipline for violating HRS 467-14(14).

What’s the difference between an addendum and amendment? The difference really comes down to timing. When parties are still in the process of negotiating a contract, such as determining who will pay for various obligations within the Purchase Contract, an addendum should be used to add, change or remove terms from the contract. An addendum is typically signed at the same time as the rest of the contract. In the Hawaiʻi REALTORS® Standard Forms library there are various addenda that may be useful during a transaction. There is also a blank addendum that can be used if none of the other addendums cover the desired changes. An amendment is used after the contract has been agreed to and signed. For example, if the Buyer and Seller have already entered into a Purchase Contract and want to change the purchase price, an amendment should be used to reflect that change on the Purchase Contract. It can also be used to remove terms from the contract if something has changed during the time that the parties are under contract. Just like the blank addendum, there is also a blank amendment that can be found in the Standard Forms library. As a word of caution, writing long addenda or amendments for clients may result in the unlicensed practice of law as the contract terms have legal implications. To prevent this, it is recommended to have an attorney review these terms.

As a REALTOR® here in Hawai‘i, one of your benefits is access to the Hawai‘i REALTORS® Standard Forms Library. These forms include the most often used forms such as the Purchase Contract and the Exclusive Right-to-Sell Listing Contract. These forms may also be purchased by real estate licensees in the state through the local board of REALTORS®, and the Rental Agreement can even be purchased by members of the public. These forms are created by Hawai‘i REALTORS® Standard Forms Committee, which consists of REALTORS® from all islands and all different kinds of brokerage firms. The committee works to determine which forms need to be revised and forms a subcommittee to work on the revision of a form or multiple related forms. The revised form then goes out to all REALTORS® for a comment period, after which the committee will use the input to work on the form more. After that, the form is then finalized by the Standard Forms Committee and it gets sent to the Hawai‘i REALTORS® Executive Committee for approval to release the form. Every May and November, the Standard Forms Library is released with revised forms, and the forms that were not revised have updated release dates which can be found on the top of the form. This process can take months, if not years, in order to get input from REALTORS® here in Hawai‘i as well as consult with experts from other industry, such as lenders, title companies, scientists, or anyone else who can help improve the forms for the benefit of all members of Hawai‘i REALTORS®. It is because of this process that Hawai‘i REALTORS® takes the copyright of the forms seriously. Without the written permission of Hawai‘i REALTORS®, members cannot distribute, publish, modify, copy, alter, or translate the forms. This means that a REALTOR® who puts one of the forms on his or her website to inform the public how to fill out an offer is violating the copyright of Hawai‘i REALTORS®. To read and review the entire Standard Form Policy that applies to all members please follow this link: use-of-har-standard-forms The Standard Forms Library is a benefit for REALTORS® here in Hawai‘i and it should be guarded as such in order to continue for REALTORS® to be the best real estate resource to clients here in Hawai‘i as well as respect the large amount of time and effort that the volunteers of the Standard Forms Committee give to improve these forms. If you are interested in working with the Standard Forms Committee, you are welcome to contact Hawai‘i REALTORS® for consideration at har@hawaiirealtors.com.  

To reduce the potential for Fair Housing violations and other discriminatory conduct that may arise from the use of personal letters in residential real estate transactions (so-called “love letters”), the Hawai‘i REALTORS^® Board of Directors approved revisions to these forms:

• RR101 - Exclusive Right-to-Sell Listing Contract
• RR104 - Buyer Representation Contract (Exclusive Right to Represent)
• RR201 - Purchase Contract
• RR301 - Rental Agreement
• RR307 - Property Management Contract
• RR308 - Rental Application
• RR401 - Independent Contractor Agreement for Real Estate Agents

Annotated versions of these changes are available below and are current as of December 3, 2021:

• RR101 - Exclusive Right-to-Sell Listing Contract
• RR104 - Buyer Representation Contract (Exclusive Right to Represent)
• RR201 - Purchase Contract
• RR301 - Rental Agreement
• RR307 - Property Management Contract
• RR308 - Rental Application
• RR401 - Independent Contractor Agreement for Real Estate Agents

 

The most common issues that REALTORS®, representing both buyers and sellers, run into on a daily basis are disclosure issues. Here in Hawaii, Hawaii Revised Statutes Chapter 508D lays out the mandatory seller disclosures in real estate transactions. This is the first part in a series discussing disclosures in real property transactions. As an overview, HRS 508D applies to “residential real property” which is defined as real property which currently has one to four dwellings or a residential condominium or cooperative apartment residential building. This is defined in HRS 508D-2, which also has definitions for “common area,” “disclosure statement,” and several other terms. HRS 508D-3 also lays out the exemptions to this law. They can be summed up as sale or transfer of the real property to related parties (co-owner, family members), sale by court order (which includes from a will, foreclosure, bankruptcy, and reasons), sale of the fee simple from leased land, sale of property from the developer with public offering statement or public report, and lastly the sale of timeshares. Future articles will go into the actual disclosure requirements, however, please note that these articles are for informational purposes only. If you need legal advice on disclosures, please consult your own attorney.

When the Seller of residential real property enters into contract with a Buyer, the Seller must give a disclosure statement to the Buyer. Every Realtor® knows that, but what is actually required under the law to be disclosed? Hawaii Revised Statutes Chapter 508D defines a disclosure statement as a document that must fully and accurately disclose all material facts relating to the residential real property being offered for sale. The only material facts that must be disclosed are those that are within the knowledge or control of the seller, can be observed from visible, accessible areas, release or waiver of construction defects, or a few other conditions listed in HRS 508D-15. The key phrase in this is “material fact” which is also defined. A material fact is “any fact, defect, or condition, past or present, that would be expected to measurably affect the value to a reasonable person of the residential real property being offered for sale.” But, what does that actually mean? There are the easy examples, such as a hole in the roof, or other readily apparently conditions that obviously must be disclosed, however issues come up when the issues are either significantly more minor, or not directly related to the home. A Hawaii case decided in 2012 involved disclosure of coqui frogs and a bad neighborhood. The Seller in that case disclosed that coqui frogs were in the area, but not the extent of the noise they were causing. The bad neighborhood was not disclosed by the Seller. The Buyer in that case sued over the perceived lack of disclosure. The Hawaii Intermediate Court of Appeals held that the Seller properly disclosed the existence of coqui frogs, even if they were a larger problem than the disclosure may have indicated, and that the Seller did not have a duty to disclose the social conditions of the neighborhood. Instead, the duty to disclose is kept to the more physical attributes of the area, such as a nearby garbage dump that may be leaking pollutants into the land. These examples are not meant to be exhaustive of disclosure issues that Realtors® face in Hawaii, each property, Buyer, Seller and Realtor® is different. When a Seller fills out a disclosure statement, what may or may not be a material fact should be carefully determined, and it may be safer for the Seller and Realtor® to disclose if in doubt.

In the Purchase Contract, right in the middle of the 14 pages, there’s a disclosure in I-6 called “Sex Offender Registration (“Megan’s Law)”. The disclosure advises that the Buyer may find information on registered sex offenders in the State of Hawaii. What information is actually provided and what does it mean? The Sex Offender Registry can be found here. and the database allows for a search of the radius surrounding an address. Once a registered offender is selected, a photograph, description, address, license type, vehicle, and offenses are displayed. The definitions for the offenses can be found here. How does this relate to a real estate transaction? Since this information is given in the Purchase Contract, a Buyer may become aware that a registered sex offender lives in close proximity to the Property. This may dissuade a Buyer, so Agents on both sides of the transactions should be aware of this fact. On the Exclusive Right-to-Sell Listing Contract, Paragraph D-10 states that if a Seller is aware of a sex offender living in the immediate area of the Property, the Seller must disclose this information to the Buyer. The duty to disclose in a real estate transaction typically encompasses material facts that may adversely affect the value of the Property. In some states this has been found to not include proximity to a registered sex offender, however, disclosing that a registered sex offender lives in the area may prevent a lawsuit or other dispute that could derail a transaction. To read the Hawaii Revised Statute that created the Sex Offender Registration, click here.

After the Seller’s Real Property Disclosure Statement, the disclosure of documents is probably the most critical disclosure given to the Buyer. When selling a property that is subject to a recorded declaration the Seller must provide documents for the Buyer to examine pursuant to Hawaii Revised Statutes 508D-3.5. This most often is for a Seller of a condominium unit or a CPR single family home, but it can also include vacant land or a non-CPR single family home. The documents that that must be provided are: 1) Article of incorporation, or other document, that created the corporation or association that has power to enforce the recorded declaration; 2) Bylaws of the corporation or association; 3) Declaration or similar organizational documents; and 4) Any rules relating to the use of common areas, architectural control, maintenance of units, or payment of money as a regular assessment or otherwise in connection with the provisions, maintenance, or service for the benefit of the residential real property or other real property or common areas. These documents are the controlling documents for a homeowners’ or community association. There are times when a property could have both a homeowners’ and a community association, so there may be two sets of documents for one property. These documents important for Buyers to review as they may have numerous restrictions that the Buyer is unaware of on what can be done on the property. Section (b) of HRS 508D-3.5 also states that unrecorded restrictions on use must also be provided. The most frequent call that the Legal Kokua Line receives regarding condo docs is who pays for these documents. A related question is whether or not an older copy of the documents are sufficient, such as the Buyer already owns a unit in the condominium building. The answer to both of these questions is that the Seller must provide the documents to the Buyer. This is because HRS 508D-3.5 states that the “seller shall” provide the documents, because the Seller is required to provide the documents, the Seller must pay for it and provide it even if the Buyer already has them for some reason.

Real property dedications can come with the added benefit of lower property taxes for owners. In terms of transactions, they become a discussion point for Buyers and Sellers on intended use. While property tax rules differ under individual counties, there are some generalizations that apply statewide. The most common dedication that all counties have a version of is historic property. These are properties that have historic value and receive a lowered property tax rate as long as they are maintained in that condition and can be viewed by the public. A similar dedication that exists throughout Hawai‘i is for agricultural use. This gives a reduced property tax rate in exchange for property being used for agricultural purposes. The more complicated dedication that exists in the City and County of Honolulu as well as the City and County of Hawai‘i is the residential dedication. While it seems relatively simple to  dedicate the property as residential so the property will not be assessed at the higher commercial or hotel property tax rate, it can be complicated by real estate transactions. For example, residential units inside condominium hotels can be dedicated for residential use only. If a new owner decides to use it as a hotel though, that dedication is lost. The big perk of these dedications is the reduced property tax burden on the owner, however that perk can be lost if the property is used outside of its dedicated purpose. In the case of the condominium hotel, if it was being used for residential purposes and then suddenly changed for use as a hotel, the owner could be faced with a very large property tax bill because the back tax for the higher assessed property tax could be charged to the owner. The same would apply for a historic property and agricultural dedication with a change in use. It is important to speak with clients who are interested in purchasing property with a dedication about their intended use as it may change the value of the deal. It can also help them avoid a situation where they owe large sums of property tax triggered by a change in use. Furthermore, when representing a Seller, making sure that any dedication is disclosed to potential buyers is just as important. If you have further questions on the topic of dedications, please reach out to your county’s property tax office as each county has very different rules on what dedications they allow and how they are implemented.   City and County of Honolulu Real Property Assessment Division 842 Bethel Street Basement Honolulu, HI 96813 Phone: (808) 768-3799   County of Maui Real Property Assessment Division 70 East Kaahumanu Ave Maui Mall, Suite A-16 Kahului, HI 96732 Phone: (808) 270-7297   County of Kauai Real Property Assessment 4444 Rice St., Suite 454 Lihue, HI 96766 Phone: (808) 241-4224   County of Hawaii Real Property Assessment Division Kona Office West Hawaii Civic Center 74-5044 Ane Keohokalole Highway Building D, 2nd Floor Kailua-Kona, HI 96740 Phone: (808) 323-4881   Hilo Office Aupuni Center 101 Pauahi Street, Suite 4 Hilo, HI 96720 Phone: (808) 961-8354  

As the Coronavirus Pandemic continues, Gov. David Ige’s Emergency Proclamations continue to be in effect until December 31, 2020, with the possibility of further extensions. The most recent supplementary proclamation continues the Eviction Moratorium that was created in the Fifth Supplementary Proclamation. The Legal Kokua Line has continued to receive frequent calls about the laws and rules that apply during these times. Under the Eviction Moratorium, no tenant may be evicted from a rental property for non-payment of rent. If a tenant violates the rental agreement for other reasons, such as damaging the property, being a danger to others or other potential issues, then the landlord is permitted to evict the tenant. This Eviction Moratorium applies to all residential dwellings, whether that is a periodic (month-to-month) or fixed-term (year-long) lease. The other protection that applies to tenants is anytime there is an emergency order in effect, periodic tenancies may not be ended or modified. So the landlord of a tenant on a month-to-month lease may not raise the rent, or end the tenancy for the duration of the emergency proclamation. The exceptions to this are 1) if the property is sold or 2) if the landlord or immediate family member will move into the property, then a 45-day notice may be given to the tenant. Because of these two overlapping protections, there has been a lot of confusion on which applies when dealing with tenants. A frequent question is how to handle tenants during the sale of a property. If a property is tenant-occupied, and the property is being listed, it is best to work closely with the tenant to make sure that the tenant is okay with showings and other inspections that occur during the real estate transaction. For a tenant on a fixed-term lease, the new owner would have to take over the lease unless something can be negotiated with the tenant. If the tenant is on a month-to-month lease, then a 45-day notice may be given to the tenant to vacate once the sale has completed.

On July 17, 2020 Governor Ige issued the Tenth Supplemental Emergency Proclamation Relating to COVID-19. It incorporates the Fifth Supplemental Emergency Proclamation, which created the state-wide Eviction Moratorium, and extended the Eviction Moratorium until August 31, 2020. The Eviction Moratorium prevents the eviction of tenants for non-payment of rent. It does not prevent evictions for other breaches of the rental agreement. Whenever an emergency proclamation has been issued, Hawaii Revised Statutes 127A-30 takes effect, which imposes limitation on commodities throughout the state. Periodic rentals of residential real estate are considered a commodity under the law. Q: How do I handle tenants on a month-to-month lease under the current Emergency Proclamation and Eviction Moratorium? A: When an emergency proclamation is in effect, month-to-month tenancies are considered commodities. During the emergency proclamation a month-to-month tenancy cannot be terminated for any reason, except for a breach of a material term, if the unit is unfit for occupancy, if the unit is sold to a bona fide purchaser for value, or if the landlord or immediate family member will occupy the property. This means that for practical purposes, a month-to-month tenant cannot be removed from the property unless they have breached the rental agreement in a way other than not paying their rent. If the property has been sold, or the landlord or immediate family member is moving in, the tenant must be given a 45-day written notice to vacate. Note that the law says when the property is sold, not when it is put on the market or when it has received an offer, but when it has actually sold. Q: What about a fixed-term lease during the Emergency Proclamation? Can I remove the tenant when the lease is up? A: If you have a tenant on a fixed-term lease, such as for one year, when the lease is up you can have the tenant move out as Hawaii Revised Statutes 127A-30 does not extend a fixed-term lease beyond its termination date. If the rental agreement states that it will convert to a month-to-month agreement if it continues, then the landlord may wish to take action to either end the lease at the end of the fixed-term, or sign a new fixed-term lease, to prevent it from turning into a periodic tenancy. The Eviction Moratorium does apply to fixed-term leases. Q: Tenants have been saying that they do not have to pay rent because of the Eviction Moratorium, is that true? A: Tenants still owe rent due on the rental agreement even though there is an Eviction Moratorium. If the tenant is unable to pay the rent, that amount is still owed to the landlord. Q: What will happen when the Eviction Moratorium ends? Will it be extended? How many evictions will there be when the moratorium is over? A: We do not know what will happen when the Eviction Moratorium ends. The Hawaii State Judiciary have created a working group to create a plan for handling the end of the Eviction Moratorium to hopefully handle the cases as smoothly as possible. It is also unknown if the Eviction Moratorium will be extended beyond its current August 31, 2020 end date. The amount of evictions that will be filed when the Eviction Moratorium ends is also unknown as there are many factors that will play into that number. Looking at fiscal year 2018-2019 as an example, approximately 2,400 summary possession cases were filed in the State of Hawaii. We will update these resources as the situation evolves. We encourage you to send additional questions to har@hawaiirealtors.com Resource Links: https://cca.hawaii.gov/ocp/landlord-tenant-faqs/ https://www.legalaidhawaii.org/housing-covid-19.html  

September 3, 2021

The governor’s most recent emergency proclamation does not prohibit or constrain a landlord’s right to terminate a residential tenancy. His proclamation no longer conditions a landlord’s right to terminate a tenancy upon an owner’s sale of the underlying dwelling unit to a bona fide purchaser or upon the owner’s decision to reoccupy that unit. The order contains no impediment to a landlord immediately issuing a 45-day written notice of termination to a month-to-month tenant. 

Please be advised, however, that a landlord’s right to terminate a residential tenancy is subject to change. Further orders of the governor or emergency declarations of the mayor of your relevant county may restrict or condition a landlord’s authority to terminate a residential tenancy. We strongly urge you, therefore, to refer to those authorities before issuing a notice of termination.

Agents are encouraged to speak with their Principal Brokers (PBs) or Brokers-in-Charge (BICs) if they have any additional questions. PBs & BICs are welcome to call our Legal Kokua Line at (808) 733-7060. 

Hawai`i REALTORS® does not intend to create or confirm an attorney-client relationship, nor furnish legal advice, by providing this general guidance. It specifically disclaims any liability, loss, or risk, personal or otherwise, that may be incurred as a consequence, directly or indirectly, of the information provided herein. Hawai`i REALTORS® is under no obligation to update this information and makes no warranty as to its accuracy or currentness.

 

Landlord-tenant issues are one of the biggest headaches REALTORS® face as property managers. The biggest headache is dealing with the security deposit, before and after the rental period. Hawaii Revised Statutes Chapter 521 contains the Residential Landlord-Tenant Code. A great resource for the entire Chapter written by the Department of Commerce and Consumer Affairs can be found here. For security deposits, HRS § 521-44 controls the landlord’s obligations and states that the security deposit may not be more than one month’s rent. The only way that a landlord can require a higher security deposit is for a pet deposit, which may also not be more than one month’s rent. There are five acceptable uses for the security deposit according to HRS § 521-44: 1) Pay for damage caused by the tenant’s failure to maintain the unit, past due rent, or failure to return all furnished items given by landlord (keys, parking cards, etc); 2) Clean the unit to the condition it was given to the tenant; 3) Compensate the landlord for damages caused by the tenant who wrongfully quits the unit; 4) Pay for damage caused by the tenant’s pet animals allowed to reside in the unit; 5) Compensate the landlord for any utilities owed by the tenant provided by the landlord and not included in the rent Note that this doesn’t allow for the tenant to use the security deposit as the last month of rent, however if the tenant does fail to pay the rent, the landlord may use it for that purpose. However, a tenant would likely be incurring a late fee and any damages would need to be paid for as well, which means the security deposit will not cover the entire amount. Once the rental period ends, a landlord has 14 days (must be postmarked before midnight of the 14th day) to return the security deposit to the tenant, minus any deductions, along with written estimates or invoices for the materials and services used to repair and clean the unit. This requires the tenant to provide a mailing address to the landlord. If a tenant feels that an incorrect amount was deducted, the tenant has one year after termination to contest it. All claims involving the security deposit are handled by the small claims division of district court (also called small claims court). More information on the small claims division can be found in HRS Chapter 633. One important consideration is that an attorney may not represent the landlord or the tenant in this claim. There are three outcomes considered by HRS § 521-44: 1) Landlord wrongfully, and willfully, kept the security deposit or part of it, then the court may award the tenant three times the amount in dispute; 2) Landlord wrongfully kept the security deposit or part of it, then the court may award the tenant the amount in dispute; 3) The landlord rightfully handled the security deposit or part of it, then the court may award the landlord the amount in dispute from the tenant. This 14-day period to return the security deposit does not mean that the landlord is prohibited from recovering money from the tenant after that period if the damages or cleaning prove to be more extensive than originally considered. In that case, the landlord would have to pursue the tenant for the additional expenses through the legal process. This is a primer on security deposits for residential landlord-tenant rental agreements and should not be considered an exhaustive guide. If you have more questions or have a situation involving security deposits, the Legal Kokua Line for Brokers is available or you may want to contact your own attorney.

Hawai‘i recently enacted a statute that changes the rules for reporting abandoned wells. The statute, commonly known as Act 213, redefines abandoned well, heightens the likelihood that a seller of residential real property will have to disclose a known or visible abandoned well, and obligates sellers of properties with at least one abandoned well to notify the state’s Water Resource and Management Commission of each abandoned well on their property when escrow opens. This article provides general guidance to our members on that new legislation.

Defining Abandoned Well

Act 213 expands what the law considers to be an abandoned well.[i] Before the new law, an abandoned well could be any well that was:

• permanently discontinued or
• impractical [ii]

Now, in addition to the above, an abandoned well could be any well that:

• is not properly maintained;
• wastes ground water;
• threatens ground water quality; or
• threatens public health or safety.[iii]

  This expanded definition is likely to capture more wells in the state’s abandoned well regime. Importantly, however, a well that meets any one, combination, or all of the above descriptions is not abandoned until its owner or operator declares it abandoned or until the state’s Water Resource and Management Commission determines that it is abandoned.[iv] Only then is a well subject to the Water Code’s provisions for abandoned wells, which we discuss below.

Sealing an Abandoned Well

Well owners must seal their wells when they become abandoned.[v] That rule has existed since 1987.[vi] The new law doesn’t change that. Neither does the new law change the procedures for sealing an abandoned well. As before, an owner of an abandoned well must first ask the state’s Water Resource and Management Commission for a well sealing permit.[vii] The commission then has 90 days to approve or reject the owner’s request.[viii] After the permit issues, the owner may direct an appropriately licensed contractor to seal the owner’s abandoned well. The well must be sealed in accordance with the issued permit and with the commission’s well construction and pump installation standards.[ix] Once the well is properly sealed, the owner has 30 days to file a well abandonment report.[x] All that is the same. What is different is the kinds of wells that may be ordered sealed. Before Act 213, the only wells that could be ordered sealed were wells that were permanently discontinued or impractical.[xi] Now, in addition to those wells, any well that is not properly maintained, wastes ground water, threatens ground water quality, or threatens public health or safety may be ordered sealed.[xii] The new law expands the kinds of wells that can be determined abandoned and ordered sealed.

Selling Property with an Abandoned Well

Disclosing to Buyer

There is no special obligation to disclose an abandoned well, but our state’s general disclosure rules still apply.[xiii] Those rules require residential sellers to fully and accurately disclose all facts about their property: (a) of which they are aware or of which are visible from an accessible area and (b) that a reasonable person would expect to affect the seller's property's value. [xiv] Sealing an abandoned well is, as the state’s Water Resource Management Commission admits, frequently expensive.[xv] Because the new abandoned well law expressly saddles owners with that expense,[xvi] sellers will often find that they must disclose the unsealed abandoned wells on their property that they know about or that are visible from an accessible area.

Notifying Water Resource and Management Commission

If a seller knows that their property includes an abandoned well, or if the abandoned well is visible from an accessible area, the seller must notify the state’s Water Resource Management Commission of their intent to transfer their property.[xvii] The notice must describe all the abandoned wells on their property, and the seller must provide the notice to the commission when escrow opens.

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Disclaimer: This article is designed to furnish general information on the subject matters it covers. Hawai‘i REALTORS® does not intend to confirm or create an attorney-client relationship. No information contained in this article should be construed or interpreted as legal advice. Hawai‘i REALTORS® urges each person that receives any information from this article to seek competent legal counsel for answers to their legal questions. Hawai‘i REALTORS® specifically disclaim any liability, loss, or risk, personal or otherwise, that is incurred as a consequence, directly or indirectly, of the receipt of any information from this article.  Endnotes: [i] See Act 213 (June 27, 2022), https://www.capitol.Hawaii.gov/session2022/bills/GM1314_.PDF (to be codified in relevant part in Hawai‘i Revised Statutes (HRS) § 174C-81), amending 1987 Haw. Sess. Laws Act 45, § 2 at 75-100, https://www.capitol.Hawaii.gov/slh/Years/SLH1987/Volume1/SLH1987_Act45.pdf) (codified as amended in HRS § 174C-81). [ii] 1987 Haw. Sess. Laws Act 45, § 2 at 75-100, https://www.capitol.Hawaii.gov/slh/Years/SLH1987/Volume1/SLH1987_Act45.pdf). [iii] Act 213 (June 27, 2022), https://www.capitol.Hawaii.gov/session2022/bills/GM1314_.PDF  (to be codified in relevant part in HRS § 174C-81); see also Haw. Comm’n on Water Res. Mgmt., Well Construction & Pump Installation Standards (2004), https://files.Hawaii.gov/dlnr/cwrm/regulations/hwcpis04.pdf (setting forth the commission’s standards for repairing and sealing abandoned wells). [iv] See Hawai‘i Administrative Rules (HAR) § 13-168-16. [v] HRS § 174C-87(a). [vi] See 1987 Haw. Sess. Laws Act 45, § 2 at 75-100 (codified as amended in HRS § 174C-87), https://www.capitol.Hawaii.gov/slh/Years/SLH1987/Volume1/SLH1987_Act45.pdf. Note, however, that the prior law required abandoned wells to be “fill[ed] and seal[ed,]”whereas current law only requires that they be “seal[ed].” Compare 1987 Haw. Sess. Laws Act 45, § 2 at 75-100 (codified as amended in HRS § 174C-87), https://www.capitol.Hawaii.gov/slh/Years/SLH1987/Volume1/SLH1987_Act45.pdf, with Act 213 (June 27, 2022), https://www.capitol.Hawaii.gov/session2022/bills/GM1314_.PDF  (to be codified in relevant part in HRS § 174C-87). The change from “fill and seal” to “seal” is no change at all. The word fill was removed at the Department of Land and Natural Resource’s request and to clarify an existing conceptual difference between the terms abandoned well and a sealed well. See S. Stand. Comm. Rep. No. 2048-22, at 2, https://www.capitol.Hawaii.gov/session2022/CommReports/SB2752_SD1_SSCR2048_.pdf; A Bill for an Act Relating to Abandoned Wells: Hearing on S.B. No. 2752 Before the S. Comm. on Water and Land, 31st Leg., Reg. Sess. (Haw. 2022) (testimony of Suzanne D. Case, Chairperson, State of Hawai‘i Department of Land and Natural Resources), https://www.capitol.Hawaii.gov/Session2022/Testimony/SB2752_TESTIMONY_WTL_01-31-22_.PDF. [vii] Act 213 (June 27, 2022), https://www.capitol.Hawaii.gov/session2022/bills/GM1314_.PDF  (to be codified in relevant part in HRS § 174C-87). The careful reader, however, may notice a slight change in language from the original to the new law. The original law spoke of the requirement to obtain a well abandonment report (see HAR § 13-168-16) (describing a well abandonment report, although not referring to it by name) before sealing an abandoned well. That was a mistake. The language describing a well abandonment report was stricken and replaced with new language describing a well sealing permit (see Act 213 (June 27, 2022), https://www.capitol.Hawaii.gov/session2022/bills/GM1314_.PDF (to be codified in relevant part in HRS § 174C-87). The change from the well-abandonment-report language to well-sealing-permit language was made to clarify the already existing and procedure for sealing an abandoned well (see HAR § 13-168-12 (effective Aug. 9, 2018), 16 (effective May 27, 1988): first obtain a permit to seal the well, then, once it’s sealed, submit a well abandonment report. Note also the apparent difference in timing requirements between the old statute, which requires that applications for sealing an abandoned well be filed “[b]efore abandonment” (emphasis added), and the new statute, which requires that the application be filed “[b]efore sealing” (emphasis added). That’s a distinction without a difference. Because owners must seal their wells when they become abandoned (see HRS § 174C-87), they must still file their application for a well sealing permit before their wells become abandoned—just as they did before. [viii] HAR § 13-168-12(b). If the commission rejects the owner’s request, the owner has 30 days from the date the commission mails the rejection to request a hearing. HAR § 13-168-12(h). [ix] Haw. Comm’n on Water Res. Mgmt., Well Construction & Pump Installation Standards (2004), https://files.Hawaii.gov/dlnr/cwrm/regulations/hwcpis04.pdf. [x] See HAR § 13-168-16; see also Haw. Comm’n on Water Res. Mgmt., Well Abandonment Report Form (2008), http://files.Hawaii.gov/dlnr/cwrm/forms/WAR.pdf (constituting abandonment report form). [xi] See 1987 Haw. Sess. Laws Act 45, § 2 at 75-100, https://www.capitol.Hawaii.gov/slh/Years/SLH1987/Volume1/SLH1987_Act45.pdf) (codified as amended in relevant part in HRS § 174C-81). [xii] See Act 213 (June 27, 2022), https://www.capitol.Hawaii.gov/session2022/bills/GM1314_.PDF  (to be codified in relevant part in HRS § 174C-81); see also Haw. Comm’n on Water Res. Mgmt., Well Construction & Pump Installation Standards (2004), https://files.Hawaii.gov/dlnr/cwrm/regulations/hwcpis04.pdf (setting forth commission’s standards for repairing and sealing abandoned wells). [xiii] See HRS Chapter 508D. [xiv] See generally HRS Chapter 508D. [xv] A Bill for an Act Relating to Abandoned Wells: Hearing on S.B. No. 2752 Before the S. Comm. on Water and Land, 31st Leg., Reg. Sess. (Haw. 2022) (testimony of Suzanne D. Case, Chairperson, State of Hawai‘i Department of Land and Natural Resources), https://www.capitol.Hawaii.gov/Session2022/Testimony/SB2752_TESTIMONY_WTL_01-31-22_.PDF. [xvi] HRS § 174C-87. [xvii] HRS § 174C-87(c).                

click here for PDF/Printable version of article  On June 24, 2021, the Champlain South Tower in Surfside, Florida collapsed. In response, the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) promulgated new temporary requirements for issuing mortgages on units in condominiums and cooperatives with five or more attached units.[i] Under the new requirements, Fannie and Freddie must vet condominiums and cooperatives for their “overall safety, soundness, structural integrity, [and] habitability[.]”[ii] Fannie’s and Freddie’s new temporary requirements may portend permanent structural, financial, and maintenance thresholds for mortgage lending. Condominium associations, cooperative corporations, and property managers should interpret the new requirements as a bright signal to ready sufficient documentation for establishing their condominium’s or cooperative’s overall safety, soundness, structural integrity, and habitability. Failure to act may result in failed financings and diminished property values. This article explains: Why Fannie’s and Freddie’s requirements are important. What information is necessary to satisfy those new requirements. Where you can find that information. Who has a right to receive that information. Who has an obligation to provide that information. What liability there may be in providing or failing to provide that information. What can be done if the information does not exist. 1. Why are Fannie’s and Freddie’s new lending requirements important? Fannie and Freddie are mortgage-industry behemoths. They hold half of all residential mortgages[iii] and, therefore, directly determine eligibility for half of all residential mortgages. They also indirectly set the eligibility standard for mortgages issued by other lenders. Those other lenders cannot offer competitive rates for their clients or earn reasonable profits for themselves unless the mortgages they issue become part of a mortgage securitization pool. But the largest pools in town—by a galactically wide margin—are the pools that Fannie and Freddie maintain. Those pools account for 95% of all mortgage-backed securities.[iv] It should be unsurprising, therefore, that most private lenders issue mortgages with the intent to later sell those mortgages to Fannie or Freddie.[v] Because Fannie and Freddie only purchase mortgages that meet their requirements, private mortgage lenders adapt their mortgage lending requirements to meet or exceed Fannie’s and Freddie’s lending bar. In short, Fannie’s and Freddie’s lending requirements directly or indirectly set the standard for nearly all residential mortgages. 2. What new information or documents do Fannie and Freddie require? First, it is important to remember that Fannie’s and Freddie’s new requirements only apply to units in condominiums and cooperatives with five or more attached units. The requirements do not apply to units in smaller condominiums or cooperatives, to units in planned community associations,[vi] or to interests in unincorporated real property (e.g., single-family residences). For most, however, Fannie’s and Freddie’s new requirements are resounding. Condominiums house one-third of Hawai‘i’s population[vii] and, together with cooperatives, account for two out of three of our fastest growing housing segments.[viii] Second, it is important to remember that the new requirements are traceable to the Champlain South Tower collapse. Fannie’s and Freddie’s new requirements manifest what is, in effect, their new philosophy of “scrutinizing before securitizing.” Fannie and Freddie require information on all deficiencies that affect a subject unit’s or building’s “overall safety, soundness, structural integrity, or habitability[.]”[ix] The also require certain information relating to a condominium association’s or cooperative corporation’s special assessments and reserve (on the theory that either or both may manifest an overall safety, soundness, structural integrity, or habitability deficiency or indicate an inability to correct such a deficiency). Overall Safety, Soundness, Structural Integrity, and Habitability To satisfy both Fannie and Freddie, you must describe all significant deferred maintenance and critical repairs, including but not limited to repairs that require the building’s full or partial evacuation for seven days or for an indeterminate period; repairs that present life safety hazards; and violations of any federal, state, or local law, or ordinance relating to zoning, subdivision and use, building, housing accessibility, health matter, or fire safety.[x] Special Assessments Both Fannie and Freddie require information on all current special assessments. Neither Fannie nor Freddie will issue a mortgage: (1) if the borrower would be unable to satisfy their mortgage obligations while repaying the amounts assessed against the subject unit; or (2) if the special assessments negatively impact (a) the building’s overall safety, soundness, structural integrity, or habitability or (b) the condominium association’s or cooperative corporation’s financial viability or marketability. Note: In addition to all current special assessments, Fannie requires information relating to all planned special assessments. It is unclear, however, what constitutes a planned special assessment. We interpret planned special assessment to mean all special assessments that a reasonably prudent person in the seller’s position would expect their association or corporation to levy. Reserve Fannie no longer accepts working capital fund reports or reserve studies. All units that receive a Fannie mortgage must be part of a condominium association or cooperative corporation that budgets at least 10% of its assessment income to its reserve. By contrast, Freddie continues to allow adequate capital funds and satisfactory reserve studies to substitute for a condominium association’s or cooperative corporation’s failure to dedicate 10% of its assessment income to its reserve. 3. Where do I get the documents and information to satisfy Fannie’s and Freddie’s Requirements? Fannie and Freddie recommend a review of a condominium association’s or cooperative corporation’s meeting minutes. To obtain the information required by Fannie’s and Freddie’s new requirements, scour the past six months of an association’s or corporation’s meeting minutes for mentions of: - maintenance or construction projects that may significantly impact the unit’s or the building’s safety, soundness, structural integrity, or habitability; - special assessments; and - the condominium association’s or cooperative corporation’s budget. Other acceptable sources of documentation include inspection, engineering, or other certificate reports completed within the past five years. Meeting Minutes Meeting minutes should be available to most unit owners. Hawai‘i law requires condominium associations and cooperative boards to meet at least once per year[xi] and to make their minutes available to each unit owner.[xii] Special Assessments and Budgets To satisfy both Fannie’s and Freddie’s requirements, you must report all existing or planned special assessments and provide sufficient documentary evidence to establish that those special assessments do not negatively affect the condominium association’s or cooperative corporation’s financial viability or marketability.[xiii] Hawai‘i law helps condominium owners obtain those documents. Under existing law, condominium associations must adopt a budget before levying any assessment.[xiv] That budget must set forth the association’s: - estimated revenues and operating expenses; - actual replacement reserve; - the replacement reserve that the association estimates is necessary to maintain the association’s property based on the estimated life and the estimated capital expenditure or major maintenance required for each part of the property; and - the income the association estimates it must collect to fund that estimated replacement reserve. [xv] And the condominium board must distribute those budgets to the association’s unit owners each year.[xvi] In other words, condominium owners already have the right to documents that can help them establish their association’s financial viability and satisfy Fannie and Freddie. Like condominium associations, which must keep and maintain budgetary documents, cooperative corporations must maintain certain books, records, and accounts. Hawai‘i law requires cooperative corporations to keep and maintain “accurate and complete books and records of account”[xvii] that detail the corporation’s assets, liabilities, receipts, disbursements, gains, and losses[.]”[xviii] Hawai‘i also requires cooperative corporations to keep and maintain their meeting minutes, insurance policies, contracts, invoices, and any document regarding a delinquency to the corporation of 90 or more days.[xix] Unit owners have a right to receive all of these documents,[xx] any or all of which they may use to satisfy Fannie’s and Freddie’s new requirements. 4. What liability may there be in providing this new information? Some directors may fret that furnishing documents or providing information relating to the deficiencies in their building’s “overall safety, soundness, structural integrity, or habitability” may expose themself or their association or corporation to potential liability. For instance, a director may worry that the reports they supply are inaccurate or incomplete. But state law protects condominium and cooperative directors who reasonably rely on their association’s or cooperative’s information, opinion, report, or statement.[xxi] To the extent that a director reasonably relies on such information in describing their building’s “overall safety, soundness, structural integrity, or habitability[,]” they should not fear liability. Condominium directors who do not accept renumeration for their duties are particularly well insulated from liability. Not only are they immune to liability for conduct arising from their reasonable reliance on their association’s information and documents, but they are immune to liability for information and documents that they independently prepare or generate, absent their gross negligence.[xxii] 5. What liability may there be in not providing this new information? In most instances, the danger is in not providing information that Fannie and Freddie require. State law gives unit owners the right to receive most, if not all, of that information. For instance, as noted above, state law requires condominium associations to produce and adopt assessments for common expenses, which their boards must annually distribute to their association’s unit owners.[xxiii] A board’s failure to distribute any such assessment may trigger a unit owner’s statutory right of action against the board.[xxiv] Also, remember that state law requires condominium associations to “keep financial and other records sufficiently detailed to enable [them] to comply with requests for information and disclosures related to [the] resale of [their] units.”[xxv] That ostensibly broad duty includes the express statutory obligation to furnish a full statement of unpaid assessments against each unit owner to each unit owner and potential purchaser that properly requests it.[xxvi] Failing to comply with that statute, or refusing to provide documents in response to reasonable requests relating to a unit’s sale, may expose a director, their board, or their building to liability. Furthermore, and more generally, condominium and cooperative directors must perform their duties with the care that an ordinary prudent person in their position would exercise, and they must perform their duties in a manner that they reasonably believe is in their association’s or corporation’s best interest.[xxvii]  A director who does not provide information to satisfy a national lender’s requirements for purchasing a mortgage may compromise their fiduciary duty and create an unnecessary legal vulnerability. 6. What if the information does not exist? Some condominium associations or cooperative corporations may fail to generate or maintain adequate meeting minutes or account records. But the required documents can often be reconstructed or compiled from other reliable sources. For instance, a condominium association or cooperative corporation might correctly determine its assets, liabilities, receipts, disbursements, gains, or losses by compiling contemporary business records (e.g., bank statements, vendor receipts, managing agent records,[xxviii] or public accountant records[xxix]), a unit owner’s statement against their interest (e.g., an email in which a unit owner agrees that the condominium association or cooperative project properly assessed them for a debt to the association or corporation), a public record (e.g., a lien or developer’s public report), or any other statement or record that is independently reliable and that speaks to a matter for which there is no other record that is as reliable. For new condominiums, their developer’s public report may be fruitful. Fannie Mae describes the review of a certification report as a “best practice,”[xxx] and the reports are replete with information on the association’s “overall safety, soundness, structural integrity, [and] habitability.” For instance, a condominium developer’s public report must include a declaration “that the project is in compliance with all county zoning and building ordinances and codes . . . and all other county permitting requirements applicable to the project[,]” as well as “[a]ny other facts, documents or information that would have a material impact on the use or value of a unit or any appurtenant limited common elements or amenities of the project available for an owner's use . . . ."[xxxi] Many developer public reports must also contain [a] statement by the developer, based upon a report prepared by a Hawai‘i-licensed architect or engineer, describing the present condition of all structural components and mechanical and electrical installations material to the use and enjoyment of the units . . . [their expected useful life and a] list of any outstanding notices of uncured violations of building code or other county regulations, together with the estimated cost of curing [those] violations.[xxxii] The developer must amend their public report with new information "until such time as the developer has sold all units in the project”[xxxiii] and every unit’s first purchaser has a right to receive the developer’s public report.[xxxiv] Absent any of this information, some lenders may accept a “not to my knowledge” statement, but condominium associations and cooperative corporations should consider collecting these reliable sources, if they are available, so that they may reconstruct their minutes, budgets, and special assessments documentation in good faith and with the care of a reasonably prudent person in a similar position. They should then, if in the bests interest of their association or corporation, supply the information that is necessary to satisfy Fannie’s and Freddie’s new lending requirements. Disclaimer This article is designed to furnish general information. Neither its author nor Hawai‘i REALTORS^® intend to confirm or create an attorney-client relationship. No information contained in this article constitutes legal advice. The author and Hawai‘i REALTORS^® each urge every person that reads or otherwise receives any information contained in this article to seek competent legal counsel for answers to particular legal questions. The author and Hawai‘i REALTORS^® specifically disclaim any liability, loss, or risk, personal or otherwise, that could be or is incurred as a consequence, directly or indirectly, of receiving or using any information contained in this article. [i] Fannie Mae, Lender Letter (LL-2021-14) (Oct. 13, 2021), https://singlefamily.fanniemae.com/media/29411/display; Freddie Mac, Bulletin 2021-38: Temporary Condominium and Cooperative Project Requirements and Topic 5600 Reorganization, https://my.sf.freddiemac.com/updates/guide/bulletin~2021-38 (Dec. 15, 2021); see also Fannie Mae Form 1076 at 6-8 (Dec. 2021), https://singlefamily.fanniemae.com/media/15656/display (incorporating new requirements into Fannie’s and Freddie’s joint condominium project questionnaire). [ii] Fannie Mae: Lender Letter (LL-2021-14) (Oct. 13, 2021); Freddie Mac: Bulletin 2021-38 (Dec. 15, 2021). [iii] Compare Total Mortgages Held by Fannie Mae, Federal Reserve Bank of St. Louis (Mar. 10, 2022), https://fred.stlouisfed.org/series/BOGZ1FL403065015Q (reporting total asset value of Fannie Mae’s mortgage holdings as $3,899,025,000,000), and Government-Sponsored Enterprises; Total Mortgages Held by Freddie Mac; Asset, Level, Federal Reserve Bank of St. Louis (Mar. 10, 2022), https://fred.stlouisfed.org/series/BOGZ1FL403065025Q (reporting total asset value of Freddie Mac’s mortgage holdings as $2,789,825,000,000), with Total Home and Multifamily Residential Mortgages, Federal Reserve Bank of St. Louis (Mar. 17, 2022), https://fred.stlouisfed.org/series/BOGZ1FL893065015Q (Mar. 17, 2022), https://fred.stlouisfed.org/series/BOGZ1FL893065015Q (reporting total asset value of all residential mortgages as ($14,413,740,000,000). [iv] See Housing Finance Policy Center, Urban Institute, Housing Finance at a Glance 12 (Feb. 2022). [v] See Bruce Mizrach & Christopher J. Neely, Fed Intervention in the To-Be-Announced Market for Mortgage-Backed Securities, 19 Economic Synopses 1 (2020), https://research.stlouisfed.org/publications/economic-synopses/2020/04/15/fed-intervention-in-the-to-be-announced-market-for-mortgage-backed-securities. [vi] HRS Chapter 421J. [vii] Lila Mower, State Must Address HOA Owners’ Plight, Honolulu Star Advertiser (Feb. 13, 2022), https://www.staradvertiser.com/2022/02/13/editorial/island-voices/state-must-address-hoa-owners-plight/. [viii] Id. [ix] Fannie Mae: Lender Letter (LL-2021-14) (Oct. 13, 2021); Freddie Mac: Bulletin 2021-38 (Dec. 15, 2021). [x] Compare Fannie Mae: Lender Letter (LL-2021-14) (Oct. 13, 2021) with Freddie Mac: Bulletin 2021-38 (Dec. 15, 2021). [xi] HRS § 514B-121 (as to condominium associations); HRS § 421-5 (as to cooperative boards). [xii] See HRS § 514B-122 (requiring condominium associations to adopt meeting minutes); HRS § 514B-154.5(a)(8) (requiring condominium association meeting minutes to be available to each unit owner); HRS § 421I-6 (requiring board minutes be available to unit owners). [xiii] Fannie Mae expressly requires lenders to document: “the reason for the special assessment; the total amount assessed and repayment terms; documentation to support no negative impact to the financial stability, viability, condition, and marketability of the project; and borrower qualification with any outstanding special assessment payment” to confirm that the association has the ability to fund any repairs and to determine if any special assessment relates to the unit’s or building’s “safety, soundness, structural integrity, or habitability[.]” Fannie Mae: Lender Letter (LL-2021-14) (Oct. 13, 2021). Similarly, Freddie Mac requires sellers to determine: the reason for each special assessment; the total amount assessed; and whether the amount budgeted to be collected has been collected. See Freddie Mac: Bulletin 2021-38 (Dec. 15, 2021). Like Fannie Mae, Freddie Mac collects information on special assessments to determine whether there is adequate cash flow to complete the special assessment’s underlying repair or improvement. See id. [xiv] See HRS § 514B-144(a). [xv] HRS § 514B-148. [xvi] HRS § 514B-144(a). [xvii] HRS § 414-470(a); see also HRS § 421I-11 (directing application of HRS Chapter 414 to cooperative corporations)). [xviii] HRS § 414-470(a). [xix] See HRS 421I-6. [xx] See id. [xxi] As to condominium directors, see HRS § 414D-149; see also HRS § 514B-106 (requiring condominium director to “exercise the degree of care and loyalty required of an officer or director of a corporation organized under chapter 414D”). As to cooperative directors, see HRS § 414-221(c); see also HRS § 421I-11 (incorporating HRS Chapter 414). [xxii] See HRS § 414D-149(f); see also HRS § 514B-106 (incorporating HRS Chapter 414D). Note: Unlike condominium director, a cooperative director that does not receive renumeration for performing their duties may still be liable for their acts or failures to act. See generally HRS Chapter 421I. [xxiii] See HRS § 514B-144(a). [xxiv] See HRS § 514B-148(g) [xxv] HRS § 514B-152. [xxvi] See HRS § 514B-144(f). [xxvii] For condominium directors, see HRS § 514B-106. For cooperative directors, see HRS § 414-221; see also HRS § 421I-11 (incorporating fiduciary duties under HRS Chapter 414). [xxviii] A condominium association’s managing agent must keep and disburse the association’s funds in strict compliance” with the condominium’s rules and HRS Chapter 467; see also HAR § 514B-149(e) (requiring brokers to maintain records for three years). [xxix] Condominium associations with 20 or more units must require an annual audit of its financial accounts and must commission a public accountant to conduct at least one unannounced verification of the association’s cash balance. HRS § 514B-150. [xxx] Fannie Mae, Lender Letter (LL-2021-14) (Oct. 13, 2021), https://singlefamily.fanniemae.com/media/29411/display; Freddie Mac, Bulletin 2021-38: Temporary Condominium and Cooperative Project Requirements and Topic 5600 Reorganization, https://my.sf.freddiemac.com/updates/guide/bulletin~2021-38 (Dec. 15, 2021). [xxxi] HRS § 514B-83. [xxxii] HRS § 514B-84. [xxxiii] HRS § 514B-59; accord HRS § 514B-83. [xxxiv] HRS § 514B-82.