(a) Subject to the conditions set forth in subsection (b), if units are conveyed or leased before the completion of construction of the building or buildings for the purpose of financing the construction, all moneys from the sale of the units, including any payments made on loan commitments from lending institutions, shall be deposited by the developer under an escrow arrangement into a federally-insured, interest-bearing account designated solely for that purpose, at a financial institution authorized to do business in the State. Disbursements from the escrow account may be made to pay for project construction costs, including, in the case of a conversion, for repairs necessary to cure violations of county zoning and building ordinances and codes, for architectural, engineering, finance, and legal fees, and for other incidental expenses of the project.
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Terms Used In Hawaii Revised Statutes 514B-93

  • Commission: means the real estate commission of the State. See Hawaii Revised Statutes 514B-3
  • Completion of construction: means the earliest of:

    (1) The issuance of a certificate of occupancy for the unit;

    (2) The date of completion for the project, or the phase of the project that includes the unit, as defined in section 507-43;

    (3) The recordation of the "as built" amendment to the declaration that includes the unit;

    (4) The issuance of the architect's certificate of substantial completion for the project, or the phase of the project that includes the unit; or

    (5) The date the unit is completed so as to permit normal occupancy. See Hawaii Revised Statutes 514B-3

  • Contract: A legal written agreement that becomes binding when signed.
  • conversion: means the submission of a structure to a condominium property regime more than twelve months after the completion of construction; provided that structures used as sales offices or models for a project and later submitted to a condominium property regime shall not be considered to be converted structures. See Hawaii Revised Statutes 514B-3
  • county: includes the city and county of Honolulu. See Hawaii Revised Statutes 1-22
  • Declaration: means any instrument, however denominated, that creates a condominium, including any amendments to the instrument. See Hawaii Revised Statutes 514B-3
  • Developer: means a person who undertakes to develop a real estate condominium project, including a person who succeeds to the interest of the developer by acquiring a controlling interest in the developer or in the project. See Hawaii Revised Statutes 514B-3
  • Escrow: Money given to a third party to be held for payment until certain conditions are met.
  • Evidence: Information presented in testimony or in documents that is used to persuade the fact finder (judge or jury) to decide the case for one side or the other.
  • Person: means an individual, firm, corporation, partnership, association, trust, or other legal entity, or any combination thereof. See Hawaii Revised Statutes 514B-3
  • Project: means a real estate condominium project; a plan or project whereby a condominium of two or more units located within the condominium property regime are created. See Hawaii Revised Statutes 514B-3
  • Real property: Land, and all immovable fixtures erected on, growing on, or affixed to the land.
  • Unit: means a physical or spatial portion of the condominium designated for separate ownership or occupancy, the boundaries of which are described in the declaration or pursuant to § 514B-35, with an exit to a public road or to a common element leading to a public road. See Hawaii Revised Statutes 514B-3
(b) Conveyance or leasing of units before completion of construction shall be permitted only if:

(1) The commission has issued an effective date for the developer’s public report for the project;
(2) The developer has recorded the project’s declaration and bylaws; and
(3) The developer has submitted to the commission:

(A) A project budget showing all costs required to be paid in order to complete the project, including real property taxes, construction costs, architectural, engineering and legal fees, and financing costs;
(B) Evidence satisfactory to the commission of the availability of sufficient funds to pay all costs required to be paid in order to complete the project, that may include purchaser funds, equity funds, interim or permanent loan commitments, and other sources of funds;
(C) A copy of the executed construction contract;
(D) A copy of the building permit for the project; and
(E) Satisfactory evidence of security for the completion of construction, that may include the following, in forms and content approved by the commission: a completion or performance bond issued by a surety licensed in the State in an amount equal to one hundred per cent of the cost of construction; a completion or performance bond issued by a material house in an amount equal to one hundred per cent of the cost of construction; an irrevocable letter of credit issued by a federally-insured financial institution in an amount equal to one hundred per cent of the cost of construction; or other substantially similar instrument or security approved by the commission. A completion or performance bond issued by a surety or by a material house, an irrevocable letter of credit, and any alternatives shall contain a provision that the commission shall be notified in writing before any payment is made to beneficiaries of the bond. Adequate disclosures shall be made in the developer’s public report concerning the developer’s use of a completion or performance bond issued by a material house instead of a surety, and the impact of any restrictions on the developer’s use of purchaser’s funds.
(c) Moneys from the conveyance or leasing of units before completion of construction may be disbursed only to pay costs set forth in the project budget submitted pursuant to subsection (b)(3)(A) that are approved for payment by the project lender or an otherwise qualified, financially disinterested person. In addition, such moneys may be disbursed to pay construction costs only in proportion to the valuation of the work completed by the contractor, as certified by a licensed architect or engineer. The balance of any purchase price may be disbursed to the developer only upon completion of construction of the project and the satisfaction of any mechanic’s and materialman’s liens.
(d) If moneys from the conveyance or leasing of units before completion of construction are to be disbursed to pay for project costs, the following notice shall be prominently displayed in the developer’s public report for the project:

“Important Notice Regarding Your Funds: Payments that you make under your sales contract for the purchase of the unit may be disbursed upon closing of your purchase to pay for project costs, including construction costs, project architectural, engineering, finance, and legal fees, and other incidental expenses of the project. While the developer has submitted satisfactory evidence that the project should be completed, it is possible that the project may not be completed. If your payments are disbursed to pay project costs and the project is not completed, there is a risk that your payments will not be refunded to you. You should carefully consider this risk in deciding whether to proceed with your purchase.”

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