Staff Writer - The Timeshare Beat
November 9, 1999
Timeshare owners at the Pono Kai on Kauai, HI, were notified in October that the Board of Directors had purchased
the land lease on behalf of interval owners. The Board had begun this process more than a year previously, with
an eye toward safeguarding the owners' investment over time.
Much property in Hawaii is sold as leasehold property. In effect this means that you lease the land for a specified period of time, and at the end of that time the land and any permanent improvements on the land-- including buildings-- reverts back to the lessor unless a new lease is negotiated. By purchasing the land lease, which is also often called "buying the fee", the Association removed any problems that might be associated with the leasehold when it reverted back to the leaseholder in 2040.
Each interval owner now has fee simple ownership of their interval, which is likely to be helpful when it comes to reselling a unit or getting it appraised.
According to documents, the total amount of the purchase of Pono Kai IOA's share of the lease was $2,925,253, which carries monthly loan servicing payments of $35,492. The closing date of the loan is expected in the middle of this month.
At that time the lease will become the possession of the Association as a legal entity that will continue to
exist under the original terms. Lease payments that once went to the leaseholder will instead be used as funds
to help service the loan.
Over the 10-year life of the loan the servicing costs will continue to be budgeted by the Association. Per the terms of the lease, the fees paid by each interval owner will increase by 33 percent starting in January of 2000. The Board will not be increasing individual owner assessments at that time, however, due to the close monitoring of operating expenses and the expected increase in revenue from the Association's rental program.
When the loan is paid off in 2010 the loan servicing costs will be eliminated, which is expected to result in
a decrease in owner assessments at that time.
According to a notice sent to interval owners at Pono Kai by the Board of Directors, earlier communications to
the interval owners stating that there would be an opportunity to purchase an individual portion of the lease have
been reconsidered. The notice states:
"On further examination, it has been determined that the costs to an owner to purchase their small portion
of the lease are disproportionately high relative to the cost of the lease. For example, an individual's portion
of the lease would cost roughly $400, yet closing costs of $350 and annual administrative costs to adjust billings
to reflect this purchase double the cost of the lease. What small benefit might be gained by purchasing an individual
portion of the lease makes no sense in the face of these high costs. Therefore, the Board's chosen course of action
is for the Association to hold the master deed for the land and to have each individual owner pay equally toward
the loan and the lease through their annual assessment. If at the end of the 10 years when the loan is paid off
an owner would like a deed for their portion of the lease they would be able to obtain it at that time by paying
for their title transfer and other associated administrative fees."
RCIM is the managing entity for the Pono Kai Interval Owners Association.