HAR Chapters 119.1 through 119.8 – Condominiums (effective 3/26/26)

CHAPTER 119.6

CONDOMINIUMS - REQUIREMENTS FOR REPLACEMENT RESERVES

§16-119.6-1 Objective §16-119.6-2 Applicability of chapter §16-119.6-3 Definitions §16-119.6-4 Effective date for establishing statutory replacement reserves §16-119.6-5 Calculation of estimated replacement reserves; reserve study; good faith §16-119.6-6 Fund accounting for each part of the association property; use of separate funds for other than stated purpose §16-119.6-7 Emergencies and emergency situations §16-119.6-8 Contingency reserves §16-119.6-9 Conflict of chapter §16-119.6-10 Reserve funds nontransferable §16-119.6-11 Exempt association property; disclosure; transition to association property §16-119.6-12 Borrowing and special assessments to fund replacement reserves §16-119.6-13 Leasing of association property §16-119.6-14 Distribution of budgets and reserve studies §16-119.6-15 Enforcement

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§16-119.6-1

§16-119.6-1 Objective. This chapter implements the requirements of section 514B-148, HRS, that all condominium associations must follow budgets and establish statutory replacement reserves. These rules try to ensure that each unit owner in a project pays a fair share of the short-term and long-term costs of operating the project based upon the owner's period of ownership. The conduct of any reserve study and the selection of any reserve funding plan shall be consistent with the objectives of this section. The provisions of this chapter shall be read and interpreted consistent with these objectives. [Eff MAR 26 2026 ] (Auth: HRS §514B-61) (Imp: HRS §514B-148)

§16-119.6-2 App1icabi1ity of chapter. (a) This chapter applies to all condominiums created within this State. (b) Notwithstanding section 514B-lOl(b), HRS, which states that a project's declaration or bylaws may specifically provide that part VI of chapter 514B, HRS, not apply to nonresidential unit usage and projects not subject to any continuing development rights containing no more than five units, the developer at minimum shall include some provisions in the declaration providing for replacement reserves, funding, and the calculation of replacement reserves and funding. The included provisions may be different than what is required by this chapter and chapter 514B, HRS, or the provisions may be the same. [Eff MAR 26 2026 ] (Auth: HRS §514B-61) (Imp: HRS §§514B-23, 514B-lOl(b), 514B-148)

§16-119.6-3 Definitions. Unless the context indicates otherwise, the definitions in chapter 514B, HRS, apply to this chapter and the following definitions apply to chapter 514B, HRS, and this chapter:

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§16-119.6-3

"Asset" means any part of the association property. "Association property" means those parts of a project which an association is obligated to maintain, repair, or replace, including but not limited to: (1) All the common elements of the project, as determined from the project's declaration and the bylaws and any master deeds, restrictive covenants, apartment or unit deeds, apartment or unit leases, or other documents affecting the project; (2) Any real property which is not part of the common elements but which the association either owns or leases for a term of more than one year, such as a manager's apartment acquired by the association after the project was developed; (3) Any personal or movable property owned or leased by the association; (4) Any fixtures owned or leased by the association; (5) Any limited common element expense determined by the board pursuant to section 514B-41 (c), HRS; (6) Any components of association property; and (7) Solar and wind energy devices as provided by and defined in section 514B-140, HRS, and other renewable energy devices. "Association property" does not include any part of the project that is "exempt association property" or which fewer than all unit owners are obligated to maintain, such as units or certain limited common elements.

Example: A project's documents state that a deck is a limited common element assigned to less than all the owners. The project's documents also state that the owners of the units to which the deck is appurtenant must pay for the cost of maintaining and repairing the deck. Therefore, the

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association need not set aside funds for replacement reserves for the deck.

"Budget year" means the association's fiscal year for accounting and budgetary purposes. "Cash flow plan" means the same as defined in section 514B-148, HRS, provided that where an association assesses unit owners to fund one hundred per cent of the estimated replacement reserves using a cash flow plan, the different reserve funding plans that are tested against the anticipated schedule of reserve expenses until a desired funding goal is achieved shall not result in: (1) Disproportionate and unreasonable deferral of funding of the estimated replacement reserves to the last five years of the minimum thirty-year projection period; (2) Each owner in a project not paying a fair share of the short-term and long-term costs of operating the project based on the unit owner's period of ownership; or (3) Circumventing the requirements of section 514B-148(b), HRS, to collect the estimated replacement reserves amount for each part of the property for each year during the minimum thirty-year period to fund fully its replacement reserves requirements for each year during the minimum thirty-year period as determined by a reserve study. "Component" means an individual line item in the reserve study developed or updated in the physical analysis part of the reserve study. "Contingency reserves" means all reserve funds, other than replacement reserves, in an association's reserves accounts, including but not limited to reserves for: (1) Unexpected contingencies or emergencies that in the reasonable judgment of the board may occur; (2) The payment of insurance deductibles or other expenses relating to insurance;

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(3) Legal expenses and lease renegotiation or fee purchase expenses; (4) Legal or licensed professional services fees relating to the maintenance, repair, or replacement of association property; (5) Additions and improvements to the association property, such as new construction; (6) Late payment or nonpayment of an assessment by any unit owner; and (7) Large infrastructure major repairs that have an estimated remaining life of more than thirty years. Examples include replacement of aging plumbing components and elevators. Notwithstanding the minimum thirty-year projection of an association's future income and expense requirements to fund fully its replacement reserves requirements each year during that thirty-year period, except in an emergency, a board may elect to include in the reserve study the funding of large infrastructure major repairs that have an estimated remaining life of more than thirty years. "Emergency" means the same as "emergency situation" as defined in section 514B-148(h), HRS. A situation requiring an association payment of an unforeseeable extraordinary amount for a utility expense due in part to a utility company's miscalculation of amounts due, unforeseeable increases in insurance premiums, or any other similar unforeseeable situation shall be included in the definition of "emergency situation" as provided by section 514B-148 (h) (2), HRS. "Estimated age" or "effective age" means the estimated useful life of an asset minus its estimated remaining life. "Estimated remaining life" means any period (1) which is shorter than the estimated useful life of an asset, and (2) for which the asset will continue to serve its intended function without requiring capital expenditures or major maintenance.

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§16-119.6-3

"Estimated replacement reserves", "reserve fund contribution", or "funding goal" means funds which an association's reserve study indicates must be assessed and collected during a budget year to establish a full replacement reserve for the association by the end of that budget year. "Estimated useful life" means the period a new asset or an existing asset which has been newly restored or refurbished will serve its intended function without requiring capital expenditures or major maintenance. "Exempt association property" means any asset which: (1) At the end of its estimated useful life will require capital expenditures or major maintenance of less than $1,000 or less than 0.1 per cent of the association's annual operating budget, whichever is greater; or (2) Has an estimated remaining life of more than thirty years. Any asset which because of the passage of time ceases to be exempt shall become association property and be subject to the transitional rules stated in section 16-119.6-11. "Full replacement reserve" means reserve funds for an asset equal to the projected capital expenditure or major maintenance required for the asset at the end of its estimated useful life multiplied by a fraction which has as its numerator and denominator the asset's estimated age and estimated useful life, respectively. The total of the full replacement reserves for each asset shall be a full replacement reserve for the association.

Example: A roof with an estimated useful life of ten years will cost $100,000 to replace. At the end of its seventh year of life, a full replacement reserve would be $100,000 x 7/10 = $70,000. In the tenth

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§16-119.6-3

year of its life, a full replacement reserve would be $100,000 x 10/10 = $100,000.

Under a cash flow calculation, one hundred per cent means total funding of all projected annual expenses for a minimum thirty-year period. "Funds", "fund balance", or "reserve funds" mean cash or cash equivalents but excludes any funds that the association has borrowed. No borrowed funds shall be included when calculating whether an association has collected its statutory replacement reserves, including the funding of one hundred per cent of the estimated replacement reserves when using a cash flow plan, provided loans made in accordance with section 16-119.6-12 may be included in "funds", "fund balance", or "reserve funds" only for the first year of the life of the loan. Subsequent year loans shall not be included in "funds" or "reserve funds". "Managing agent" means, for purposes of the good faith exemption provided by section 514B-148(d), HRS, any person carrying out the fiduciary duties as prescribed by section 514B-132(c), HRS, who: (1) Is a managing agent as defined by chapter 514B, HRS, and commission rules and policies relating to managing agents; (2) Meets all legal requirements for managing agents; and (3) Prepares a replacement reserve study and is the managing agent for the association for which the reserve study is prepared, provided if a managing agent is not an "independent reserve study preparer" as defined in section 514B-148, HRS, the replacement reserve study shall be reviewed by an independent reserve study preparer not less than every three years. Any employee of a managing agent who prepares the replacement reserve study shall be deemed a managing agent for purposes of this definition. "Minimum replacement reserve" means fifty per cent of a full replacement reserve or one hundred per

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cent of the full replacement reserve when using a cash flow plan. "Reserve study" means a budget planning tool that consists of two parts, a physical analysis and a financial analysis, with both parts updated annually and that identifies the current status of the reserve fund and a stable and equitable funding plan to fund the required "statutory replacement reserves". "Statutory replacement reserves" means fifty per cent of an association's estimated replacement reserves or one hundred per cent of an association's estimated replacement reserves when using a cash flow plan. "Substantially deplete" means any expense for an emergency which reduces the association's replacement reserves and contingency reserves by more than seventy-five per cent. [Eff MAR 26 2026 ] (Auth: HRS §514B-61) (Imp: HRS §§514B-41, 514B-101 (b), 514B-148)

§16-119.6-4 Effective date for estab1ishing statutory rep1acement reserves. (a) Each budget year, beginning with the fiscal year after a new association's first annual meeting, the board shall prepare and adopt an annual operating budget that complies with the requirements of section 514B-148(a), HRS, for the following budget year. Each annual operating budget shall include assessments sufficient to fund the association's statutory replacement reserves for the year to which the budget relates. Each budget year, beginning with the first budget year after a new association's first annual meeting, the association shall collect at least its statutory replacement reserves for that budget year. (b) For those projects where the declaration has been recorded but the association has not held its first meeting as provided in section 514B-102, HRS, at least once each calendar year, commencing with the calendar year immediately following the date the first unit's conveyance was recorded, the developer shall,

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unless the developer owns one hundred per cent of the units in the project, notify in writing each unit owner of the way replacement reserves for future project maintenance and repairs will be addressed. Such notice shall inform the unit owners in reasonable detail of at least the following: (1) The purpose for establishing replacement reserves; (2) A general summary of the replacement reserve requirements that would apply to associations under chapter 514B, HRS, and this chapter, on such form as the commission may provide; and (3) The amount of replacement reserves being collected as part of the unit owner's maintenance fees, based on a reserve study, or otherwise being funded by the developer and the way those reserves were established. [Eff MAR 2 6 2026 ] (Auth: HRS §514B-61) (Imp: HRS §§514B-lOl(b), 514B-148)

§16-119.6-5 Calculation of estimated replacement reserves; reserve study; good faith. (a) The board shall calculate the association's estimated replacement reserves based on a reserve study developed in compliance with this chapter and chapter 514B, HRS, and as required by the commission. (b) The board shall compile a list of the association's assets. If the project's declaration and association's bylaws fail to clearly state whether a part of a project is association property, the board may adopt a resolution allocating responsibility for that part to the association, an individual unit owner, or individual unit owners. The board's resolution shall be based on chapter 514B, HRS, the project's declaration and the association's bylaws, as required by the commission, and any other applicable legal requirements or documents. The resolution shall clearly indicate whether the part in question: (1) Is an asset of the association;

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§16-119.6-5

(2) Is the responsibility of an individual owner or individual owners, but fewer than all owners; or (3) Is partly an asset of the association and partly the responsibility of fewer than all owners, such as plumbing or electrical systems. The resolution shall state the basis of the board's decision and shall be effective to determine responsibility for replacement reserves for the part in question upon adoption and until changed by the board or by an amendment to the declaration or bylaws. (c) The board shall determine the estimated useful life of each asset based on at least one of the following: (1) The association's experience with the asset; (2) Any professional or trade publication and any amendments or updates thereto that provide statistics on the estimated useful lives of items similar or comparable to the asset; (3) The estimate of any Hawaii-licensed contractor, architect, engineer, or other design professional or an authorized supplier for the asset for any item similar or comparable to the asset or any materials or services for the asset's upkeep, repair, or replacement; or (4) Any warranty provided by the supplier, installer, manufacturer, or builder of the asset or any services relating to its installation, upkeep, repair, or replacement. (d) The board shall calculate the estimated capital expenditure or major maintenance required for each asset based on at least one of the following adjusted for inflation: (1) The association's experience with expenses relating to the asset; (2) Any professional or trade publication and any amendments or updates thereto that provide statistics on the estimated capital

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expenditure or major maintenance, required for the asset or items similar or comparable to the asset; or (3) The estimate of any Hawaii-licensed contractor, architect, engineer, or other design professional or an authorized supplier of the asset of any item similar or comparable to the asset or any materials or services for the asset's installation, upkeep, repair, or replacement. (e) Each budget year, the board shall adjust the amount of the estimated replacement reserves for an asset based on its reserve study and reasonable projections for inflation and interest which may be earned during the estimated useful life of the asset. Adjustments for inflation shall not assume an annual inflation rate less than that of the Honolulu Consumer Price Index for All Urban Consumers for the prior year or its five-year historical average. Adjustments for interest earned shall not exceed the prior year's average interest rate for seven-year United States treasury bills or its five-year historical average. (f) If a board plans to assess less than one hundred per cent of the association's estimated replacement reserves for a budget year, the association's operating budget for that year, the reserve study, and the association's other records shall clearly and prominently indicate: (1) The total amount the association's replacement reserve study indicates will be a full replacement reserve for the association at the end of the current budget year; and (2) The total amount the association will have collected at the end of the current budget year. (g) Any association, unit owner, director, officer, managing agent, or employee of an association who calculates the association's estimated replacement reserves as provided in subsections (b), (c), (d), and (e) shall be deemed to have acted in good faith if the calculations subsequently prove incorrect, provided

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that an association, board, director, officer, or managing agent act as fiduciaries as provided in section 4140-149, HRS, and also make the disclosures required by subsection (f) to be deemed to have acted in good faith. For purposes of this section, "in good faith" also includes honesty in fact in the investigation, research, and preparation of the reserve study and calculations of the full and estimated replacement reserves. [Eff MAR 2 6 2026 (Auth: HRS §514B-61) (Imp: HRS §§514B-101 (b), 514B-148)

§16-119.6-6 Fund accounting for each part of the association property; use of separate funds for other than stated purpose. (a) Unless the association is funding its reserves through a cash flow plan, an association shall establish at least one reserve account for its projected full replacement reserves. Within the full replacement reserve account, the association shall establish a separate designated fund or funds for each asset for which estimated capital expenditures or major maintenance will exceed $10,000. Projected full replacement reserves for all assets for which estimated capital expenditures or major maintenance will not exceed $10,000 may be aggregated into a single designated fund in the projected full replacement reserve account. (b) For each of the separate designated funds, the association's records for the projected full replacement reserve account shall state: (1) The purpose of each fund or the asset for which it is established; and (2) An amount for the projected full replacement reserves allocated to each fund provided: (A) An association need not comply with paragraph (1) for the single, aggregated fund. Instead, the projected full replacement reserve account records may state the purpose of the fund as "miscellaneous" or

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similar term and indicate the amount in the aggregated fund. The association shall list the assets for which the aggregated fund is established elsewhere in its records; (B) An association using a cash flow plan shall collect for each budget year the estimated replacement reserves as defined by the reserve study to ensure compliance as provided in the definition of "cash flow" in chapter 514B, HRS, chapters 16-119.1 through 16-119.8, and as required by the commission; and (C) An association using a cash flow plan shall comply with paragraphs (1) and (2) except: (i) The amount of the estimated replacement reserves allocated to each fund may vary for each fiscal year from paragraph (1) and (2) to offset the variable annual expenditures from the reserve fund provided that the offset amount ensures that each unit owner in a project pays a fair share of the short-term and long term costs of operating the project based on the owner's period of ownership and provided that the board includes in the fiscal budget a line item indicating the allocated amount and percentage funded for each component identified by the physical analysis of the reserve study to fund the association's projected full replacement reserves; and (ii) That an association record indicates how the funds are

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distributed, expended, and allocated. (c) The board shall use replacement reserves allocated to a fund only for the stated purpose of that fund except: (1) In an emergency or emergency situation, the board may use the replacement reserves in any fund for any legitimate association purpose provided the board passes a resolution containing written findings as to the necessity of using the replacement reserves for other than their designated purpose, the necessity of the expense involved, and why the expense was not or could not have been reasonably foreseen in the budgeting process, and the resolution is distributed to all members of the association; and (2) The board may at any time use up to fifty per cent of the amount in any fund in the full replacement reserves for the stated purpose of any other fund. In such a case, the association records, including but not limited to board meeting minutes, and its annual budget shall indicate the change in use of the fund and the dollar amount of the fund used for another fund. (d) If a board collects less than one hundred per cent of the association's estimated replacement reserves, the association's reserve account records shall clearly indicate how the board has allocated those reserves among each of the separate designated funds. Where an association has met its statutory replacement reserves, the board may fund each of the designated funds by an equal percentage, fund them by varying percentages, or fully fund some and not fund others. Regardless of the option chosen, the reserve account records shall accurately indicate the allocation and amount of funds allocated and adopted 2 by the board qp,m ~e 201tpenditures made from those funds. [Eff Ml-\ ] (Auth: HRS §514B-61) (Imp: HRS §§514B-lOl(b), 514B-148)

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§16-119.6-8

§16-119.6-7 Emergencies and emergency situations. (a) An association whose replacement reserves and contingency reserves have been substantially depleted by an emergency shall have three budget years to re-establish a minimum of fifty per cent of a full replacement reserve or fund one hundred per cent of a full replacement reserve when using a cash flow plan. The three years shall be calculated from the end of the budget year in which the association makes the payment which substantially depletes the association's replacement reserve. (b) The board shall have the discretion to assess the unit owners in monthly, quarterly, or yearly installments to re-establish a minimum of fifty per cent of a full replacement reserve or fund one hundred per cent of a full replacement reserve when using a cash flow plan. (c) In an emergency situation subject to section 514B-148(e), HRS, the board shall calculate the twenty per cent limit of that section based on the association's total annual operating budget for the budget year when the expense will occur. The board must notify the unit owners if an expense required because of an emergency will exceed the twenty per cent limit, but the board need not obtain unit owner approval for the expense. (d) Section 514B-148(e), HRS, shall only limit a board's right to exceed its annual operating budget during the budget year to which the operating budget relates. That section shall not limit the board's right to increase an annual operating budget by more than twenty per cent over the annual operating budget of the previous year. [Eff MAR 2 6 2026 ] (Auth: HRS §514B-61) (Imp: HRS §§514B-10l(b), 514B-148)

§16-119.6-8 Contingency reserves. Nothing in this chapter shall prohibit the establishment of a contingency reserve in compliance with this section. Unless the declaration or bylaws provide otherwise, the board may establish a contingency reserve in an

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amount the board considers appropriate, based upon the age of the project, its maintenance history, plans for additions or improvements to the project, or any other factors the board deems relevant. The contingency reserve shall be subject to all the requirements relating to reserves except the requirements of sections 16-119.6-4, 16-119.6-5, 16-119 .. 6-6LcJ and (d), 16-119.6-7, andl6-119.6-9. [Eff MAR262026 (Auth: HRS §514B-61) (Imp: HRS §§514B-101 (b), 514B-148)

§16-119.6-9 Conf1ict of chapter. (a) Chapter 514B, HRS, and this chapter supersede any contrary provisions in a project's declaration, an association's bylaws, or any other applicable documents regarding preparation of budgets, calculation of reserve requirements, and assessment and funding of reserves. Except as stated in subsection (b), limits on spending or assessments shall not restrict the board's right to spend or assess for items required by the association's reserve study. (b) Chapter 514B, HRS, and this chapter shall not supersede any contrary provisions in a project's declaration, an association's bylaws, or other applicable documents: (1) Requiring the board to collect more than the association's statutory replacement reserves; (2) Restricting a board's right to assess or spend to upgrade the common elements for such things as additions, alterations, or improvements; or (3) Requiring a board to repair or maintain assets more frequently than the law, this chapter, or the association's replacement reserve study requires. This chapter shall not SUJ;>Atlef ozt11Y related state or 2 federal tax laws. [Eff M ] (Auth: HRS §514B-61) (Imp: HRS §§514B-lOl(b), 514B-148)

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§16-119.6-11

§16-119.6-10 Reserve funds nontransferable. Replacement reserve and contingency reserve funds that an association collects from unit owners become the property of the association. A unit owner who sells a unit shall have no right to reimbursement of the replacement reserve and contingency reserve funds from either the purchaser of a unit or the association. The replacement reserve and contingency reserve funds shall not be conveyed or transferred separately from the unit to which they relate. They shall be deemed conveyed or transferred with the unit, even though they are not specifically mentioned in any conveyance, assignment, or transfer of the unit. [Eff MAR 26 2026 (Auth: HRS §514B-61) (Imp: HRS §§514B-101 (b), 514B-148)

§16-119.6-11 Exempt association property; disclosure; transition to association property. (a) The association's reserve study shall disclose all assets for which funds are not included in the replacement reserve study because they are exempt association property. The reserve study shall also contain a brief explanation of why those assets are exempt association property. (b) An asset which is deemed to be exempt association property because its estimated remaining life is more than thirty years shall become association property on the date its estimated remaining life becomes less than thirty years, referred to in this subsection as the transition date. The asset shall be included in the association's reserve study for the first budget year after the transition date. In calculating a full replacement reserve for the asset after the transition date, the association may disregard the asset's actual age. The association may instead assume that at the beginning of the first budget year after the transition date, the asset's estimated age is zero and its estimated useful life is the same as its estimated remaining life.

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§16-119.6-11

Example: An existing asset has an estimated useful life of fifty years, becomes twenty years old on January 1, 2018, has an estimated remaining life of thirty years, and an estimated replacement cost of $100,000. Under the standard method of calculation, a full replacement reserve on December 31, 2018, for that asset would be $42,000 ($100,000 x 21/50). If an association had not already established a replacement reserve for that asset, the full replacement reserve contribution by December 31, 2018, would be $42,000 (or fifty per cent of that amount $21,000 for the minimum replacement reserve). If the association adopts the method of calculation permitted by subsection (b), the full replacement reserve contribution required by December 31, 2018, for the same asset would be only $3,333 ($100,000 x 1/30), or fifty per cent of that amount - $1,667 (rounded to nearest whole number) - for the minimum replacement reserve, although subsequent annual contributions will be higher than in the first example. In effect, the asset is deemed to be only one-year old, .n~t twenty-one years old on December 31, 2018. [Eff MAK 2 ti 2026 ] (Auth: HRS §§514B-61, 514B-148) (Imp: HRS §514B-148)

§16-119.6-12 Borrowing and special assessments to fund replacement reserves. Provided an association assesses and collects sufficient funds to fund its statutory replacement reserves, complies with the law, chapters 16-119.1 through 16-119.8, and commission requirements, the board may in order to pay the cost to maintain, repair, or replace assets of the association: (1) Transfer funds between the separate, designated funds required by section 16- 119.6-6, subject to the requirements of that section; (2) Borrow funds, subject to the requirements of section 514B-105(e), HRS; and

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§16-119.6-12

(3) Specially assess the unit owners. This section shall apply if the board underestimates the reserve requirements for an asset or if the cost to maintain, repair, or replace an asset will reduce the association's replacement reserve funds to less than fifty per cent of a full replacement reserve or to less than one hundred per cent of the full replacement reserves when using a cash flow plan during any budget year.

Example: An association's full replacement reserve requirement is $500,000, but the association has only $250,000 of that amount in cash, as the law permits. The association's replacement reserve account designates $200,000 of the $250,000 to replace its roof in 2020 or to less than one hundred per cent of the replacement reserves when using a cash flow plan. In 2020, the association replaces its roof on schedule. If the association spends all the $200,000 designated in its replacement reserve account for the roof, large assessments will be necessary to re- establish fifty per cent of a full replacement reserve in cash by the end of 2020.

Replacing the roof will reduce the association's replacement reserve requirements during 2020 by $200,000, from $500,000 to $300,000 (to which must be added the funds required during 2020 for the other association assets). Nevertheless, spending the $200,000 will also reduce the association's replacement reserve funds by $200,000, from $250,000 to $50,000 (plus whatever the association collects during 2020).

Thus, by the end of 2020, the association will have only $50,000 in reserves, but needs at least $150,000 (i.e., fifty per cent of its full

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replacement reserve requirements of $300,000). Therefore, the association must collect at least $100,000 by the end of 2020 to reach the minimum replacement reserve of $150,000 (plus whatever funds the reserve study indicates is necessary for other assets).

To reduce the hardship, the board can fund the expenses for the roof by borrowing or by special assessments. Even if the association has designated a specific fund in its replacement reserve account for the asset, the board may also transfer the money in that fund to other designated funds. Essentially, this section permits the board to use cash on hand, special assessments, borrowing, or any combination of the three to replace the roof and reduce the hardship on the unit owners. [Eff MAR 26 2026 ] (Auth: HRS §§514B-61, 514B-148) (Imp: HRS §514B-148)

§16-119.6-13 Leasing of association property. A board may lease rather than buy property to repair or replace any association property. Property which meets the definition of association property shall be deemed to be an asset of the association, and must be included in the association's reserve study, regardless of whether the association owns or leases the property. [Eff MAR 2 6 2026 ] (Auth: HRS §514B-61) (Imp: HRS §§514B-l0l(b), 514B-148)

§16-119.6-14 Distribution of budgets and reserve studies. The board shall attach to any approved budget that it makes available to any unit owner pursuant to section 514B-106(c), HRS, information about: (1) Any updates made to its reserve study and descriptions of and explanation for the

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updates or a statement that no updates were made; (2) A public accountant's findings about the adequacy of reserves or a statement that no findings were made; and (3) Where a unit owner may examine the supporting completed reserve study or request a copy of same. [Eff MAR 2 6 2026 (Auth: HRS §514B-61) (Imp: HRS §§514B-101 (b), 514B-148)

§16-119.6-15 Enforcement. If a board fails to prepare an annual operating budget or replacement reserve study in compliance with the requirements of section 514B-148, HRS, or this chapter, an association member may enforce those requirements. The association member may collect the costs of enforcement in compliance with the procedures provided in section 514B-157, HRS, including fees and costs incurred by the unit owner. If an arbitrator or judge determines that a board or board member has breached a fiduciary duty by intentionally ignoring the requirements of section 514B-148, HRS, or this chapter, the arbitrator or judge may award the unit owner fees and costs of enforcement against the board or board members, rather than against the association. [Eff MAR 26 2025 ] (Auth: HRS §514B-61) (Imp: HRS §§514B-lOl(b), 514B-148)

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§16-119.7-1

HAWAII ADMINISTRATIVE RULES

TITLE 16

DEPARTMENT OF COMMERCE AND CONSUMER AFFAIRS