Maui Real Estate Blog
What The FAQ is a Residential Condo?
If you browse through enough home or land listings on Maui, you may encounter some terms that may leave you scratching your head. Words like residential condominium, condominium home or CPR seem out of place when it comes to home and land listings. That said, these aren’t typos. Residential Condominiums are an increasingly popular form of ownership. This post attempts to define residential condos and answer some of the most frequently asked questions we receive from prospective residential condo buyers.
Frequently Asked Questions on Maui Residential Condos
What exactly is a residential condo?
I think it is safe to say that most understand how condos work in an apartment building setting. At a basic level, Residential condos takes the same principles and apply them to land that is zoned to allow multiple structures. For example, zoning rules for an agriculturally zoned lot allow the potential for a main house and a cottage. With the residential condo process, the main house and a surrounding area of land becomes one unit of the condo. The cottage and a surrounding area of land becomes the other unit of the condo.
I have seen the term CPR before in listing remarks. What does that mean?
CPR is not just an abbreviation for cardio pulmonary resuscitation. In a Hawaii real estate context, it is an abbreviation for Condominium Property Regime. The CPR process is how condominium homes are created. A CPR is the legal mechanism where a single property can be divided into two separate units of ownership. Each unit of ownership has its own deed, it may have its own mortgage and it has its own Tax Map Key.
How does a CPR process differ from a subdivision?
A CPR is not the same as a subdivision. The CPR process takes one property and divides it into two or more separate units of ownership. The process does not create additional entitlements to build more structures. For example, if you subdivided a five acre piece of agricultural land into to two lots, each lot would then have the potential for a home and a cottage. If the same five acre parcel were to go through the CPR process, one unit might have the rights to build a main house and the other unit may have the rights to the ohana unit.
Do I Own the Underlying Land with a Residential Condo?
The owners of the condominum units collectively own the underlying land. That said, limited common elements may be designated for the exclusive use of each unit. Exclusive is the key term. That means your partner in the condo can’t just meander into your yard area when they see fit.
Do Residential Condos have Common Elements?
Sometimes. The most frequent common elements relate to water and access. Two or more condos will sometimes share a single water meter. Two or more units might share a driveway or a portion of a driveway. In some cases, they may share both. Some residential condo properties on island have an area of common land shared by all of the different condo owners. There are some condo developments on island where almost all of the property is considered to be common element. In those cases, each unit may have a very small limited common element around the structure.
Do Residential Condos have Maintenance fees?
It is typical to have a nominal maintenance fee. Most frequently, the fee goes towards liability insurance for any common areas and the maintenance and maintenance reserves for those common areas. The larger and more elaborate the common area, the higher the fee. If there is nothing shared between the units of a condo, there may be no fee at all.
Are There More Rules with Residential Condos than a conventional home?
That depends on the intention of the people who created the condo. Some condo associations impose rules above and beyond county zoning. That said, most of the residential condo bylaws create no additional rules or regulations above and beyond county code.
Can any property go through the CPR process?
Some homeowners associations restrict CPR properties. For properties with existing structures, all homes need to go through miscellaneous inspections with the county. The structures need to comply with county zoning with all necessary permits in place. If the improvements on the property aren’t fully permitted, that could delay or prohibit the CPR process.
Is there a difference between a CPR property that is vacant land and a CPR property that has homes?
At a base level, they are similar. It is the same general process. I know some attorneys believe that CPRing raw land (sometimes called a spatial CPR) carries a little more risk. The risk is that one unit owner’s construction efforts could impact the construction efforts of the other unit owner. An owner who builds too much home or uses too many water fixtures could limit the plans of the other owner.
Typically, units of land sold as CPRs come with defined entitlements. Again, I will use an agricultural lot as an example. One unit of land receives entitlements to build a main house. The other unit of land receives entitlements to build an ohana of 1,000 square feet or less. If the ohana unit owner were to build first, and to build a structure larger than 1,000 square feet of living space, the owner of the main house unit may find themselves in a situation where they aren’t able to build over 1,000 square feet.
There is also some risk if the two unit owners share a county water meter. If the first person to build goes a little overboard with the number of plumbing fixtures for their unit, it could leave the other owner with fewer fixtures than anticipated.
I know of just one circumstance where the ohana side of the CPR overbuilt. I haven’t heard first hand of any issues with someone hogging all of the water fixtures. That said, I want to help illuminate potential risks even if they aren’t likely to occur. Condo documents should spell out the entitlements available to each unit. They should also offer some means to mitigate against the above risks. If there are any questions about the documents, hire a Hawaii Real Estate attorney to assist with document review.
Is there anything else I should know about the process of buying a residential condo?
There are a couple of things to note. If it is the first time the condo is being sold, the buyer has a 30 day rescission period. Not all attorneys are equal when it comes to the creation of condominium documents. More specifically, some do a great job and others write confusing documents with too many loop holes and ambiguities. Repeating the advice from the question above, it is worth the investment to hire a qualified Hawaii Real Estate attorney to review the condo documents. They can answer the legal questions about the condo documents that are outside the scope of your Realtor’s services.
Why do people choose to CPR a property?
There are a number of reasons why people choose to condo.
- Statistics show that the CPR process creates equity. The sum of selling the units of a CPR minus the cost of the CPR exceeds the value of a whole property that has not been through the CPR process.
- Not everyone wants or needs all of the building entitlements that come with a property. Some don’t want or need an ohana on their property.
- The units of a CPR tend to create more affordable options for buyers.
- CPRs allow for the split of a property in a tenants in common situation or among family members.
- It does not typically require the improvements necessary for a subdivision.
- It is typically faster than the subdivision process.
Are there any downsides to CPRing a property?
- We mentioned the potential risk with a spatial CPR above.
- The CPR process requires some sort of ongoing relationship between unit owners.
- There is the potential for shared liability with building or zoning violations. The County could attribute the violation to the whole property instead of citing just the specific unit.
- Taxes could go up on the property if you retain both units. This is particularly the case if you have a homeowner tax assessment.
Hopefully, this answers some of our reader’s questions on CPRs. Special thanks to Jacob Wormser, Attorney at Law. His letter to prospective condominium clients helped clarify some of my own questions on the CPR process. Still have questions? Contact the Maui Real Estate Team and we will do our best to provide answers or direct you to the right resources if we can’t do it ourselves.
Published August 13, 2019
Maui Real Estate Blog
With five of our listings classified as residential condominiums or condominium homes, we wanted to make sure everyone understood what exactly this term means. The following is cut and paste from a pamphlet that was created by the state of Hawaii explaining how a property may be turned into a condominium.
An Introduction To Condominium
Development and Project Registration In Hawaii
What is “CPR”?
Condominium Property Regime (“CPR”) refers to the specific form of ownership and governing process created when real property becomes a condominium.
The process of creating a condominium is often referred to as “CPRing” property.
Condominiums come in many forms and encompass a variety of uses as may be permitted by zoning regulations. Some of the allowable uses by zoning include: residential, commercial, industrial and agricultural.
A condominium is a form of ownership of real property regardless of the architectural style of the apartment, be it in a high-rise, townhouse or detached unit.
Condominium ownership is described as ownership of an apartment (or unit) and a percentage of undivided interest in the common elements. The apartment owner is entitled to exclusive ownership of the apartment but the land is a common element, owned jointly in common with other apartment owners in the condominium project. Examples of other traditional common elements are lobbies, hallways, roofs and roadways.
Yard areas or parking spaces which are provided for an apartment’s exclusive use (versus ownership) are usually identified as limited common elements.
The creation and administration of CPRs are governed by Chapter 514A of the Hawaii Revised Statutes (“HRS”).
Two advantages of condominium ownership are separate mortgages and property taxes for each apartment owner.
Note that creating a CPR does not increase the number of apartments permitted on the property. Neither does the CPR determine or change the zoning.
What Property can be “CPR’ed”?
Submission of real property in the State of Hawaii to CPR must be by the owners, including lessees. The project must contain two or more apartments as defined by statute. The number and type of apartments must meet zoning requirements. Therefore, if the project will contain dwelling units, the number of dwelling units allowable is determined by the zoning district. Neither the Real Estate Commission (“Commission”) nor the Counties approve or disapprove what property can be CPR’ed.
How to CPR?
To verify the allowable uses on the property contact the appropriate county agency. Note the uses are the same whether or not the property is CPR’ed. Provide the County with the Tax Map Key (“TMK”) number or property address to confirm the number of apartments e.g. dwelling units and types of uses permitted and defined by zoning regulation. Contact information is provided on the last page of this brochure.
A condominium is created when the following items are recorded at the Bureau of Conveyances or filed at the Office of the Assistant Registrar of the Land Court:
1) Declaration of Condominium Property Regime;
2) Bylaws of the Association of Apartment Owners;
3) Condominium Map (floor plans); and
4) Master deed or lease.
The property owner(s) may be the developer of the condominium project. However, if the developer is not the property owner(s), then the owner(s) must acquiesce to submission of the property to CPR by consent and joinder to the Declaration of Condominium Property Regime.
It is strongly recommended that the condominium documents be drafted with the advice of an attorney familiar with Chapter 514A, HRS. The statute requires that a Hawaii registered architect or professional engineer certify the condominium map.
Refer to Chapter 514A, HRS, and Chapter 107, Hawaii Administrative Rules (“HAR”), for specific requirements. Copies of statute and rules may be purchased from the Cashier’s Office at the Department of Commerce and Consumer Affairs. See the last page of this brochure for contact information.
Time Required to CPR
The time required to create a CPR depends on the time it takes for the developer to create and record the required documents with the Bureau of Conveyances or the Office of the Assistant Registrar of the Land Court. A fair estimate for the total time frame to create a CPR is somewhere between 6 and 12 months.
Registration with the Commission of all condominium projects is required before any apartment is offered for sale or sold.
Any advertisement or attempt of whatever nature used to encourage the acquisition of a legal or equitable interest in a condominium is prohibited until the project is registered with the Commission and an effective date is issued for a public report.
Violators may be subject to a fine of up to $10,000 or imprisonment for up to one year or both. A civil penalty of up to $10,000 for each violation may also be incurred.
Condominium Registration Packets which include the public report form, instructions, fees and checklists are available from the Commission at no charge. The Commission does not approve or disapprove the condominium project.
A public report is a disclosure statement intended for prospective purchasers. The statement provides a description of the project, including permitted uses, restrictions, warranties, and encumbrances.
The three types of public reports are: Preliminary, Final and Supplementary. The Preliminary is often used to test market the project. Once the Final receives an effective date, the sales contracts can become legally binding on the purchasers. When a circumstance occurs that would render a public report misleading in any material respect, as may be determined by the Commission, the developer must submit a Supplementary.
Public reports are effective for a 13-month period. Extensions may be available for a fee.
Time Required for Project Registration
Time estimates vary, based on completeness of submission, the complexity of the project and the volume of submissions. The estimate for the issuance of an effective date for a public report is approximately six to eight weeks from submission of a complete registration file to the Commission.
The Association of Apartment Owners (AOAO) is the governing entity created by the CPR. Each condominium association of six or more apartments is required to register annually with the Commission. The registration form may be obtained from the Commission. See the last page of this brochure for contact information.
Click Here for the original article on Condominiums and for contact information for the state condo specialist at the Hawaii Real Estate Commission.