Learning about a Horizontal Property Regime

Should You Condominiumize?

Even those savvy about real estate may not know the full words or meaning of acronyms HPR or CPR. These stand for Horizontal Property Regime (HPR) or Condominium Property Regime (CPR), and refer to filing documents created when a condominium project is developed. However, you don’t have to be a big developer to create a condominium. An increasing number of homeowners have been condominiumizing residential properties in Hawaii over the past 15 years.

Condos were created to make property more affordable in Hawaii’s expensive real estate market. Costs are decreased to a potential buyer by giving them the ability to purchase one unit rather than a whole undivided property.

Condo Creation

To divide a parcel into units that can be developed and sold separately, but that share common elements, the requirements of the Condominium Property Act, Chapter 514A, Hawaii Revised Statutes (HRS) must be complied with. The condo project must also comply with all of the county requirements for zoning and building code. Proper approvals must be obtained by filing a Declaration of Condominium Property Regime, Association Bylaws, Master Plan and Project Map with the Bureau of Conveyances.

Because a CPR is not a subdivision, it usually does not require separate water meters for each unit. Also, a CPR typically does not require County subdivision improvements such as county water or fire protection.

Hawaii is a leader in the development of condominium laws, and have been used as a model for other states. You can read the Hawaii rules regarding HPR here http://cca.hawaii.gov/pvl/files/2013/08/har_107-c2.pdf.

Why Condominimize?

There is potentially a large financial benefit to condominiumizing because it increases overall property value due to creation of separate saleable units on one property. Also, it can decrease the property owner’s cost basis by allowing them to sell part of their original property.

Condominiumizing may be an alternative if you cannot subdivide. Your property may be large enough to build several units, but the configuration may not lend itself to subdividing, such as a narrow or steep lot. Perhaps you have a large lot with enough frontage to create separate entrances, but want to convey title to a smaller land area than the minimum lot size for a subdivision. There is no minimum land area required for a condo unit whereas the minimum lot size for a subdivision could be 5,000, 7,500, 10,000 or 20,000 square feet.
In family situations, condominiumizing is often a good idea. Let’s say a son or daughter wants to build an additional home on the parent’s property where there is already a house. If the child has borrowed money to build the new house and the mortgage is on the whole property, the parents financial security may be at risk if the child defaults on the loan. The bank could foreclose on the property, or the parents may have to find a new partner for the second house under a Tenants in Common ownership. The new partner could force the sale of the entire property. Bankruptcy, divorce and lawsuits brought against either party puts the other at risk. Condominiumizing avoids many of the problems of joint ownership.

Potential Downsides

Each CPR unit will be assessed separately for property tax purposes, so the total real property taxes for the entire parcel will likely increase. An owner that lives on site will only be able to claim a homeowner’s exemption for one unit. If that same homeowner owns other CPR units they will be assessed at a higher tax rate.

There is an on-going relationship between the Unit Owners, more than just being neighbors. You may be sharing “common elements” such a driveway, and zoning or building code violations of one unit can be attributable to the property as a whole.

Where to start
Check with your homeowner’s association and the planning department to see if your property can be condominiumized. The next step is to hire an attorney that specializes in CPRs. Note that attorney fees can range from $10K to $25K depending on the number of units. In addition, the property will have to surveyed and have plans drawn. These fees, along with documentation and recording, can run $4K to $7k.

 

2018-09-25T18:47:40+00:00