Nearly 40% of all sales in real estate are condominiums. Condominium projects can be found in high rise buildings, low rise buildings, single family homes, duplexes and even on agricultural land. A wise consumer needs to know what is involved in a condominium development so that they can understand the intricacies of a condominium project.
 
Condominiums are a different type of ownership created in the 1960s of real property unlike subdivisions which have been in existence for centuries. Hawaii is a leader in the development of condominium laws and has been used as a model by other states. The Condominium Property Regime (CPR) was known as the Horizontal Property Regime (HPR) in the early 1960s. Condominiums projects were high rise buildings or town houses or apartment buildings that were converted to condos and sold to individual buyers. Within the last 15 years, single family homes on one lot were condominiumized because the property could not be subdivided or the owner chose to do a condo project rather than subdivide.

What makes a condominium form of ownership different from all others forms of ownership in real property?  A condo project is a special form of ownership of real property. To create a condo project in Hawaii, the requirements of the Condominium Property Act, Chapter 514A, and now 514B, Hawaii Revised Statutes (HRS) must be complied with. The condo project must also comply with all of the county requirements for zoning and building code.

If an owner owned a 50 unit 10 story apartment building, he can sell the whole building to someone else. If he converted the building to a condominium, he can find 50 individual buyers to buy each unit separately. If an owner owned 6 houses that were detached on one lot, he can sell the whole property to someone else. If he were to convert the property to a condominium project, he can sell each individual house to separate buyers. Whether the condo project is a high rise, low rise or individual detached residences, the same condominium laws and rules will apply.

If you were to drive by and see two lots next to each other and each lot had two houses and all four homes looked exactly like each other, how can you tell whether the lots were subdivided or condominiumized?  In a subdivision, the ownership of the lot is given solely to the buyer and he has no responsibility to the neighboring owners. In a condominium, all of the buyers own the land together in undivided interests based on a predetermined percentage of ownership and they have the exclusive right to use their particular condo unit whether it is an apartment unit in a high rise or a single family home.   

The Real Estate Commission (REC) does not create the condominiums. A condominium project is created by recording the master deed or lease, declaration of the condo project, by-laws of the project and the condo maps at the Bureau of Conveyances or at Land Court. The role of the REC is to make sure that all of the condo documents have complied with the law and all pertinent disclosures have been made for the consumer's protection.. The law states that you cannot sell the condo units to the public unless you have a public report. The CPR documents can create the condominium and be recognized by the government as a condo project but in order to sell the units to the public, a public report has to be issued by the REC.

The condo declaration describes the project, number of units, square footage of the units, construction materials, description of common elements and limited common elements, parking arrangements, the owner and the various companies representing the project, percentage of ownership and voting rights, provisions on how the declaration may be amended, any zoning code compliance or variances on the property.  

The By-Laws addresses how to form the association, rules for calling meetings for the board of directors and the general membership, voting requirements, how to elect officers, powers and duties of the board and officers, method of removing directors, management of the project, insurance, financial matters, amending the by-laws, documents required for the association, annual registration, miscellaneous matters.  

House Rules govern the use and operation of the common and limited common elements. Parking regulations, hours of operation for common facilities, use of lanais and keeping pets, etc., are addressed. The house rules do not have to recorded or filed.

There are times when the owner of the project wants to condominiumize his property and not want a public report because he has no immediate plans to sell the units to the public. The owner of the property may want to split the building into separate units so that he can gift interests in an apartment unit to his heirs rather than give a small percentage of ownership of the whole building. The owner can do more effective estate planning by converting the building to a condo rather than having one apartment building. If the property is worth $4,000,000 at the time of death of the owner, the estate tax could be over $1,000,000. He does not have the cash on hand for his estate to pay the taxes and the apartment building may have to be sold to satisfy the estate taxes. Investors will offer low prices on properties that they know are under time constraints to pay the estate taxes. If the property was condominiumized, the trustee could sell off a number of units to pay the taxes and keep the rest of the units for the heirs to manage or sell. The buyers of the individual units are less likely to offer low prices than a seasoned investor.

Consumers need to understand that the city and county of each island determines what can or cannot be built on the land depending on the zoning and the availability of sewer, water and fire protection. How you transfer title to the property is determined by the developer and he can choose to sell the units under a subdivision or under a condominium property regime. The zoning rules dictate how many units you can have on the lot. For example, a 5,000 sq. ft. lot on R-5 zoned land only allows one house to be built on the property. R-5 means residential zoned land, 5,000 sq. ft. minimum lot size. If you owned 7,500 sq. ft of land in R-5 zoned land, the city allows you to build a duplex. If you wanted to sell each unit separately you cannot sell the individual duplex unit unless you condominiumized the property. You are not allowed to subdivide the lot if you have built a duplex.

We specialize in condominium developments. If you have any questions regarding the highest and best use of land, feel free to email me at abelee@hawaii.rr.com or call me at 216 4999. There is no charge for the initial meeting. If you want to know more about zoning issues, please feel free to go to my website www.abeleeseminars.com and you will see a complete schedule of the classes that I teach. If you want to attend any of these continuing education classes, you are welcome to attend at no cost for being a reader of Around Hawaii. If you are a Realtor, you need to pay for the course to get continuing education credit. If you really want to know more about real estate, I highly recommend that you take the prelicensing course that I teach. I offer scholarships to motivated students who want to know more about real estate.

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