[§514B-148]  Association fiscal matters; budgets and reserves.  (a)  The budget required under section 514B‑144(a)
shall include at least the following:



(1)  The estimated
revenues and operating expenses of the association;



(2)  Information
as to whether the budget has been prepared on a cash or accrual basis;



(3)  The total
replacement reserves of the association as of the date of the budget;



(4)  The estimated
replacement reserves the association will require to maintain the property
based on a reserve study performed by the association;



(5)  A general
explanation of how the estimated replacement reserves are computed;



(6)  The amount
the association must collect for the fiscal year to fund the estimated
replacement reserves; and



(7)  Information as to whether the amount the
association must collect for the fiscal year to fund the estimated replacement
reserves was calculated using a per cent funded or cash flow plan.  The method
or plan shall not circumvent the estimated replacement reserves amount determined
by the reserve study pursuant to
paragraph (4).



(b)  The
association shall assess the unit owners to either fund a minimum of fifty per
cent of the estimated replacement reserves or fund one hundred per cent of the
estimated replacement reserves when using a cash flow plan; provided that a new
association need not collect estimated replacement reserves until the fiscal
year which begins after the association's first annual meeting.  For each
fiscal year, the association shall collect the amount assessed to fund the
estimated replacement for that fiscal year reserves, as determined by the
association's plan.



(c)  The
association shall compute the estimated replacement reserves by a formula that
is based on the estimated life and the estimated capital expenditure or major
maintenance required for each part of the property.  The estimated replacement
reserves shall include:



(1)  Adjustments
for revenues which will be received and expenditures which will be made before
the beginning of the fiscal year to which the budget relates; and



(2)  Separate,
designated reserves for each part of the property for which capital
expenditures or major maintenance will exceed $10,000.  Parts of the property
for which capital expenditures or major maintenance will not exceed $10,000 may
be aggregated in a single designated reserve.



(d)  No
association or unit owner, director, officer, managing agent, or employee of an
association who makes a good faith effort to calculate the estimated
replacement reserves for an association shall be liable if the estimate
subsequently proves incorrect.



(e)  Except
in emergency situations or with the approval of a majority of the unit owners,
a board may not exceed its total adopted annual operating budget by more than
twenty per cent during the fiscal year to which the budget relates.  Before
imposing or collecting an assessment under this subsection that has not been
approved by a majority of the unit owners, the board shall adopt a resolution
containing written findings as to the necessity of the extraordinary expense
involved and why the expense was not or could not have been reasonably foreseen
in the budgeting process, and the resolution shall be distributed to the
members with the notice of assessment.



(f)  The
requirements of this section shall override any requirements in an
association's declaration, bylaws, or any other association documents relating
to preparation of budgets, calculation of reserve requirements, assessment and
funding of reserves, and expenditures from reserves with the exception of:



(1)  Any
requirements in an association's declaration, bylaws, or any other association
documents which require the association to collect more than fifty per cent of
reserve requirements; or



(2)  Any
provisions relating to upgrading the common elements, such as additions,
improvements, and alterations to the common elements.



(g) 
Subject to the procedures of section 514B‑157 and any rules adopted by
the commission, any unit owner whose association board fails to comply with
this section may enforce compliance by the board.  In any proceeding to enforce
compliance, a board that has not prepared an annual operating budget and
reserve study shall have the burden of proving it has complied with this
section.



(h)  As
used in this section:



"Capital
expenditure" means an expense that results from the purchase or
replacement of an asset whose life is greater than one year, or the addition of
an asset that extends the life of an existing asset for a period greater than
one year.



"Cash
flow plan" means a minimum twenty-year projection of an association's
future income and expense requirements to fund fully its replacement reserves
requirements each year during that twenty-year period, except in an emergency;
provided that it does not include a projection of special assessments or loans
during that twenty-year period, except in an emergency.



"Emergency
situation" means any extraordinary expenses:



(1)  Required by
an order of a court;



(2)  Necessary to
repair or maintain any part of the property for which the association is
responsible where a threat to personal safety on the property is discovered;



(3)  Necessary to
repair any part of the property for which the association is responsible that
could not have been reasonably foreseen by the board in preparing and
distributing the annual operating budget;



(4)  Necessary to
respond to any legal or administrative proceeding brought against the
association that could not have been reasonably foreseen by the board in
preparing and distributing the annual operating budget; or



(5)  Necessary for
the association to obtain adequate insurance for the property which the
association must insure.



"Major
maintenance" means an expenditure for maintenance or repair that will
result in extending the life of an asset for a period greater than one year.



"Replacement
reserves" means funds for the upkeep, repair, or replacement of those
parts of the property, including but not limited to roofs, walls, decks,
paving, and equipment, that the association is obligated to maintain. [L 2004,
c 164, pt of §2]



 



Note



 



  Chapter 16-107,
subchapter 6, Hawaii Administrative Rules, applies to this section until new
rules are adopted.  L 2006, c 273, §34.