Unique Features of Hawaii Real Property
Posted March 15, 2006

Dear Joan:

 Every state has its own particular characteristics of land ownership—Hawaii perhaps more than others. I’ve even heard that Hawaii once had something called a Dower Law for widows. What up with that?

 Signed,

Curious consumer:

 Dear Curious:

 You’re right, and you may be on your way to becoming a champion in Hawaii real estate trivia. Dower is the 1/3 life interest given to a wife in the property of her husband upon his death. In Hawaii, Dower was abolished for all properties acquired after July 1, 1977. It was replaced by the surviving spouse's right of election.

 Hawaii also has a few other interesting aspects to its laws governing real property. For example, Hawaii was the first state in the nation to pass a condominium law. Here are a few highlights, which just might help you in your next trivia game:

 Beachfront Property

The Hawaii shoreline is recognized as a zone rather than a line, and the State retains title to the beach. The State has held that the boundary between public beach and private upland is the "high wash of the waves," as usually evidenced by the vegetation line. Anyone buying beachfront property should obtain a shoreline survey, and then have it certified by the State (good for one year).

 Ownership

Buyers can choose to own property as tenant in severalty, tenants in common, joint tenants, or tenants by the entirety (husband and wife). There is no community property law in Hawaii. Corporations require at least one Hawaii resident on the Board of Directors. Other forms of ownership include general and limited partnerships (must be registered with the Department of Commerce & Consumer Affairs); and limited liability companies, effective July 1, 1997.

Leasehold

Unlike most Mainland properties, in Hawaii many residential properties were developed on a long-term leasehold basis under ground leases. Some of these properties are in prime locations and are very attractive to buyers. However, it is important to understand what a buyer receives when purchasing a leasehold property is the lease and whatever rights and obligations are contained therein.

The Residential Leasehold Disclosure law is designed to give a buyer a clear understanding of the terms of the lease the buyer is acquiring. Typically, at the end of the lease term the property and improvements revert to the lessor. The buyer is entitled to a 10-day right of rescission. This law applies to residential single-family property and residential condominiums.

Condominium Development

Hawaii was the first state to pass a condominium law in the early 1960s, originally called the Horizontal Property Regime (HPR) and now the Condominium Property Regime (CPR). This form of individual ownership quickly became more popular than the real estate co-operative ownership of multi-unit residential buildings.

Because of the scarcity of land, high-rise condominium buildings are plentiful. Some are located on leasehold land, thus creating unusual ownership interests, such as a fee simple interest in the apartment subject, however, to a 65-year ground lease. And, if the purchaser buys the unit from a seller under an agreement of sale (the seller keeps legal title and the buyer receives equitable title), you can see the importance of using a real estate attorney to explain the rights and interests of all the parties to the transaction!

The Condominium Property Regime (HRS 514A) covers the creation, sale and management of condominiums. Some condominium projects are managed better than others. To assure that there is enough money in the maintenance reserve to cover future replacement and repairs, the CPR has strict requirements for association budgets and replacement reserves.

Financing

Hawaii is a lien-theory state, whereby the lender (mortgagee) makes the loan, while the borrower (mortgagor) gives the lender a promissory note secured by a mortgage on the property. Deeds of trust are not used to create liens on Hawaii property.

Disclosure

The law requires that real estate agents disclose to consumers material facts in every real estate transaction. Disputes often arise over what is a material fact. In some cases a specific state law addresses what must be disclosed.

Seller Disclosure Law—HRS Ch. 508D requires sellers in residential real estate transactions to disclose material facts about property condition. Buyers are afforded a right of rescission in the event they do not approve the disclosure statement prepared by the seller in good faith using due care.

Agency Disclosure—HRS Ch. 467 requires that the real estate broker disclose whom it is the selling broker represents in every real estate transaction (except leases less than one year in duration)

Leasehold Disclosure—In any sale of residential leasehold property (single-family or condominium), the seller must give the buyer a copy of the original lease and a plain language summary of the lease. The buyer has a 10-day right of rescission.

Encroachment—Sellers must disclose any encroachment affecting the subject property. A 1997 law clarifies the fact that minor boundary discrepancies may not create an encroachment issue. This law was designed to eliminate the need for complicated agreements when the residential property improvement is located less than 6 inches over the boundary (3 inches if commercial property).

HARPTA—The seller must disclose if they are a nonresident of Hawaii, in which case the buyer should direct escrow to withhold 5% of the sales proceeds to cover possible taxes owed to the State Department of Taxation (similar to the 10% federal rule if the seller is a foreign person).

These highlights point out that buying and selling property in Hawaii is best done using professional assistance. In the long run, it’s the best way to have the winning answer when questions arise.

Reprinted from The Maui News