Hawaii Condo Boards Can Only Restrict Leasing by Rule for Lender Underwriting

HRS section 514B-105 is titled "Association; limitations on powers" and sits in Part VI, Subpart A of Hawaii's condominium property act, chapter 514B, which was enacted at L 2004, c 164 and applies to condominium projects in the State. The structure of subsection (b) is what matters for renting. It opens with "Unless otherwise permitted by the declaration, bylaws, or this chapter," then permits rules affecting use of or behavior in residential units only to prevent a use that violates the declaration or bylaws, to regulate behavior or occupancy that violates those documents or unreasonably interferes with other owners' use and enjoyment of units or common elements, or to restrict leasing on the narrow underwriting ground. It then closes with a flat prohibition: otherwise, the association shall not regulate any use of or behavior in units by means of the rules and regulations.

The leasing clause, paragraph (b)(3), is written around lenders rather than around neighbors. A rule restricting leasing is valid to the extent it is reasonably designed to meet underwriting requirements of institutional lenders who regularly lend money secured by first mortgages on units in condominiums or regularly purchase those mortgages. In practice that is the statutory hook Hawaii boards use for owner-occupancy ratio rules, because secondary-market purchasers set investor-concentration limits on condominium projects. It is also the boundary: a rule adopted because the board dislikes renters, rather than because a lender's underwriting standard calls for it, is outside paragraph (b)(3) and falls under the closing prohibition.

What Hawaii does not do is just as important for an owner deciding whether to buy in a project. Chapter 514B contains no statutory cap on how far a leasing restriction may go, no required grandfathering of owners already renting when a restriction is adopted, no statutory minimum or maximum lease term, and no special supermajority vote fixed by statute for a rental amendment. The vote needed to amend a Hawaii declaration or bylaws is whatever the project's own documents require. That means the operative document for a Hawaii buyer is the declaration and bylaws themselves, not the statute, and section 514B-105(b) expressly steps aside where those documents permit otherwise.

The planned-community side of Hawaii law is thinner still. Chapter 421J, which governs planned community associations, runs from 421J-1 through 421J-17 and covers boards, notice, proxies, documents, membership lists, assessment increases, liens, mediation and service of process. It contains no counterpart to section 514B-105(b), so a Hawaii planned community association's authority over leasing is a question of its own declaration and covenants, read against the general rules on association documents in 421J-7 and 421J-12.

One related power is worth knowing because it changes the practical stakes for a landlord owner. HRS section 514B-104(b) lets a Hawaii association act directly against a tenant who violates the declaration, bylaws or rules, and section 514B-104(b)(2) makes the unit owner responsible for the tenant's conduct, for any fines levied against the tenant, and for legal fees the association incurs enforcing the documents against the tenant. So even where leasing is permitted, the owner carries the exposure.

The remedy against an over-broad leasing rule is that the rule is outside the association's granted power. HRS section 514B-105(b) closes by stating that otherwise the association shall not regulate any use of or behavior in units by means of the rules and regulations, so a leasing rule that cannot be tied to institutional lender underwriting requirements is not a valid exercise of rule-making authority and an owner can contest it on that basis. Hawaii routes those disputes through the chapter's alternative dispute resolution subpart: HRS section 514B-161 provides for mediation, section 514B-162 for arbitration, and section 514B-104(a)(19) lets an association require by regulation that disputes between the board and unit owners go to nonbinding alternative dispute resolution before a judicial proceeding is commenced, subject to sections 514B-146, 514B-161 and 514B-162.

Running the other way, where leasing is allowed and a tenant breaches the documents, section 514B-104(b) and (c) give the association a fast route. It may act directly against the tenant, levy reasonable fines against the tenant after notice to both tenant and owner and an opportunity to be heard, and enforce any right the owner as landlord could have exercised under the lease, including eviction. Those rights may be exercised only if the tenant or unit owner fails to cure within ten days after the association notifies both of the violation, and no notice is required where the tenant's breach causes or threatens damage to any person or violates HRS section 521-51(1) or 521-51(6). The unit owner remains responsible for the tenant's conduct and for the association's enforcement legal fees.