Hawaii Administrative Rules
Title 16 - DEPARTMENT OF COMMERCE AND CONSUMER AFFAIRS
Chapter 107 - RULES RELATING TO HORIZONTAL PROPERTY REGIMES, CHAPTER 514A, HAWAII REVISED STATUTES
Subchapter 6 - REQUIREMENTS FOR REPLACEMENT RESERVES
Section 16-107-62 - Definitions
Unless the context clearly indicates otherwise, the definitions in chapter 514A, HRS, apply to this subchapter and the following definitions apply to chapter 514A and this subchapter:
"Asset" means any part of the association property.
"Association property" means those parts of a condominium project which an association is obligated to maintain, repair, or replace, including but not limited to:
(1) All of the common elements of the project, as determined from the project's declaration and the bylaws of the association and any master deeds, restrictive covenants, apartment deeds, apartment 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; and
(4) Any fixtures owned or leased by the association.
"Association property" does not include any part of the project which is "exempt association property" or which fewer than all owners are obligated to maintain, such as apartments or certain limited common elements.
Example:
A condominium association's documents state that a deck is a limited common element assigned to less than all of the owners. The documents also state that the owners of the apartments to which the deck is appurtenant must pay for the cost of maintaining and repairing the deck. Therefore the 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.
"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 which, in the reasonable judgment of the board, may occur;
(2) The payment of insurance deductibles or other expenses relating to insurance;
(3) Legal expenses and lease renegotiation or fee purchase expenses;
(4) Exempt association property or additions and improvements to the association property, such as new construction; or
(5) Late payment or non-payment of an assessment by any owner.
"Emergency" means the same as "emergency situation," defined in section 514A-83.6(j), HRS.
"Estimated 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.
"Estimated replacement reserves" 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 of time 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 twenty 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 16-107-71.
"Existing association" means an association which has held its first association meeting before January 1, 1993.
"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 will be $100,000 x 7/10 = $70,000. In the tenth year of its life, a full replacement reserve will be $100,000 x [10/10=] 1 = $100,000.
"Funds" or "reserve funds" means cash or cash equivalents but excluding any funds which the association has borrowed. No borrowed funds shall be included when calculating whether an association has collected its statutory replacement reserves.
"Managing agent" means, for purposes of the good faith exemption provided by section 514A-83.6(d), HRS, any person who prepares a replacement reserve study and who:
(1) Is a managing agent as defined by chapter 514A, HRS, and commission rules and policies relating to managing agents;
(2) Meets all legal requirements for managing agents; and
(3) Is the managing agent for the association for which the reserve study is prepared.
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.
"New association" means an association which holds its first association meeting on or after January 1, 1993.
"Statutory replacement reserves" means fifty per cent of an association's estimated replacement reserves.
"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.
