Legislature(2011 - 2012)BARNES 124

03/14/2012 03:15 PM LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSHB 292(L&C) Out of Committee
Heard & Held
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                         March 14, 2012                                                                                         
                           3:21 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Kurt Olson, Chair                                                                                                
Representative Craig Johnson, Vice Chair                                                                                        
Representative Mike Chenault                                                                                                    
Representative Dan Saddler                                                                                                      
Representative Lindsey Holmes                                                                                                   
Representative Bob Miller                                                                                                       
MEMBERS ABSENT                                                                                                                
Representative Steve Thompson                                                                                                   
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO.  292, "An Act relating to  property exemptions for                                                               
retirement plans;  relating to pleadings, orders,  liability, and                                                               
notices under  the Uniform Probate  Code; relating to  the Alaska                                                               
Principal  and  Income  Act;  relating   to  the  Alaska  Uniform                                                               
Transfers to  Minors Act;  relating to  the disposition  of human                                                               
remains;  relating  to  insurable interests  for  life  insurance                                                               
policies; relating  to transfers of individual  retirement plans;                                                               
relating  to  the  community property  of  married  persons;  and                                                               
amending Rule 301(a), Alaska Rules of Evidence."                                                                                
     - MOVED CSHB 292(L&C) OUT OF COMMITTEE                                                                                     
HOUSE  BILL NO.  269,  "An Act  relating to  the  amendment of  a                                                               
declaration that creates a common interest community."                                                                          
     - HEARD & HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 292                                                                                                                  
SHORT TITLE: PRINCIP.& INC/PROBATE/UTMA/RETIREMT/ETC.                                                                           
SPONSOR(s): REPRESENTATIVE(s) THOMPSON                                                                                          
01/20/12       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/20/12       (H)       L&C, JUD, FIN                                                                                          
02/29/12       (H)       L&C AT 3:15 PM BARNES 124                                                                              
02/29/12       (H)       Heard & Held                                                                                           
02/29/12       (H)       MINUTE(L&C)                                                                                            
03/14/12       (H)       L&C AT 3:15 PM BARNES 124                                                                              
BILL: HB 269                                                                                                                  
SHORT TITLE: COMMON INTEREST COMMUNITIES                                                                                        
SPONSOR(s): REPRESENTATIVE(s) HOLMES                                                                                            
01/17/12       (H)       PREFILE RELEASED 1/13/12                                                                               
01/17/12       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/17/12       (H)       L&C, JUD                                                                                               
03/14/12       (H)       L&C AT 3:15 PM BARNES 124                                                                              
WITNESS REGISTER                                                                                                              
JANE PIERSON, Staff                                                                                                             
Representative Steve Thompson                                                                                                   
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified on behalf of the sponsor,                                                                      
Representative Steve Thompson, on legal issues raised during the                                                                
discussion of HB 292.                                                                                                           
LINDA HALL, Director                                                                                                            
Division of Insurance, Anchorage Office                                                                                         
Department of Commerce, Community & Economic Development (DCCED)                                                                
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions during the discussion of                                                              
HB 292.                                                                                                                         
JAMES WALDO, Staff                                                                                                              
Representative Lindsey Holmes                                                                                                   
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified during the discussion of HB 269.                                                               
JAMES H. MCCOLLUM, Attorney                                                                                                     
Law Offices of James H. McCollum                                                                                                
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the discussion of HB 269.                                                               
JOE BEEDLE, President; Chief Executive Officer (CEO)                                                                            
Northrim Bank                                                                                                                   
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 269.                                                                          
TERRY BRYAN, Vice President; Manager                                                                                            
First American Title Insurance Company (FATIC)                                                                                  
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 269.                                                                          
BOB PETERSEN, President and Owner                                                                                               
The Petersen Group                                                                                                              
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 269.                                                                          
ACTION NARRATIVE                                                                                                              
3:21:43 PM                                                                                                                    
CHAIR KURT  OLSON called  the House  Labor and  Commerce Standing                                                             
Committee meeting  to order at 3:21  p.m. Representatives Holmes,                                                               
Miller, Johnson, Saddler,  and Olson were present at  the call to                                                               
order.   Representative Chenault  arrived as  the meeting  was in                                                               
        HB 292-PRINCIP.& INC/PROBATE/UTMA/RETIREMT/ETC.                                                                     
3:21:55 PM                                                                                                                    
CHAIR OLSON announced  that the first order of  business would be                                                               
HOUSE BILL NO.  292, "An Act relating to  property exemptions for                                                               
retirement plans;  relating to pleadings, orders,  liability, and                                                               
notices under  the Uniform Probate  Code; relating to  the Alaska                                                               
Principal  and  Income  Act;  relating   to  the  Alaska  Uniform                                                               
Transfers to  Minors Act;  relating to  the disposition  of human                                                               
remains;  relating  to  insurable interests  for  life  insurance                                                               
policies; relating  to transfers of individual  retirement plans;                                                               
relating  to  the  community property  of  married  persons;  and                                                               
amending Rule 301(a), Alaska Rules of Evidence."                                                                                
3:22:08 PM                                                                                                                    
CHAIR OLSON  lifted his objection.   He stated that the  issue he                                                               
had has been addressed.                                                                                                         
3:22:47 PM                                                                                                                    
JANE PIERSON, Staff, Representative  Steve Thompson, Alaska State                                                               
Legislature,  related  that  questions   previously  arose  in  a                                                               
Legislative  Legal memo  on the  single-subject rule  and whether                                                               
this   would   violate  the   contracts   clause   of  the   U.S.                                                               
Constitution.   She provided copies of  the memos.  She  said the                                                               
court found  a need to balance  the rule's purpose with  the need                                                               
of efficiency in  the legislative process.  She  pointed out only                                                               
one case arose, which was Croft  v. Parnell) 236 P.3d 369 (Alaska                                                             
2010), but  since it was  a soft dedication  of funds it  did not                                                               
fall  under  the  single-subject   rule.    The  legislature  has                                                               
previously passed  bills having to do  with water or lands.   She                                                               
related one  bill addressed driving while  intoxicated and liquor                                                               
laws  since they  both  pertained  to liquor.    She offered  her                                                               
belief  that  this bill  relates  to  Title  13 and  seems  fine.                                                               
Second,  she   did  not  view   any  impairment   of  contractual                                                               
obligations  with respect  to  the contract  clause  of the  U.S.                                                               
Constitution.   It is permissible  to expand rights and this bill                                                               
does  not  constitute  an  impairment of  contracts.    The  only                                                               
people's rights  constrained by  these provisions  are creditors,                                                               
who  have no  contractual right  to  enforce a  claim against  an                                                               
individual  retirement  account  (IRA)  or  retirement  interest.                                                               
Third,  she  noted  many   modifications  are  to  administrative                                                               
provisions  and it  is  well established  that  changes that  are                                                               
administrative in nature do not  impact the contract clause.  She                                                               
concluded that none of the provisions  in this bill that apply to                                                               
the  existing  retirement  accounts,   trusts,  IRA,  or  uniform                                                               
transfer to  minors account  violate the  contract clause  of the                                                               
U.S. Constitution.                                                                                                              
3:26:30 PM                                                                                                                    
LINDA HALL,  Director, Division  of Insurance,  Anchorage Office,                                                               
Department of  Community &  Economic Development  (DCCED), stated                                                               
she  has  a small  section  of  the  bill  that falls  under  the                                                               
Division  of  Insurance's  title.     She  highlighted  that  one                                                               
provision pertains to trusts and  a trustee's ability to purchase                                                               
insurance for the  trust and to be paid for  that insurance. This                                                               
bill allows  an insurance  contract to  be part of  a trust.   In                                                               
response to a question from Chair  Olson, Ms. Hall agreed she had                                                               
no problems with the bill.                                                                                                      
3:28:03 PM                                                                                                                    
REPRESENTATIVE  JOHNSON moved  to report  the proposed  committee                                                               
substitute  (CS)  for  HB 292,  labeled  27-LS1232\B,  Bannister,                                                               
2/22/12,  out of  committee with  individual recommendations  and                                                               
the  accompanying fiscal  note.   There being  no objection,  the                                                               
CSHB  292(L&C) was  reported from  the House  Labor and  Commerce                                                               
Standing Committee.                                                                                                             
3:28:47 PM                                                                                                                    
The committee took an at-ease from 3:28 p.m. to 3:31 p.m.                                                                       
               HB 269-COMMON INTEREST COMMUNITIES                                                                           
3:31:06 PM                                                                                                                    
CHAIR OLSON announced  that the final order of  business would be                                                               
HOUSE  BILL NO.  269,  "An Act  relating to  the  amendment of  a                                                               
declaration that creates a common interest community."                                                                          
3:31:18 PM                                                                                                                    
REPRESENTATIVE  LINDSEY  HOLMES,  sponsor,  stated  that  HB  269                                                               
relates  to  the  Common  Interest   Ownership  Act  (CIOA)  that                                                               
typically applies  to condominium  projects.  She  explained that                                                               
the CIOA was passed in 1986,  based on the Federal Uniform Common                                                               
Interest Ownership Act (FUCIOA).   Since then new provisions have                                                               
been  added  to the  FUCIOA  and  the  state's  act needs  to  be                                                               
3:32:16 PM                                                                                                                    
JAMES WALDO,  Staff, Representative  Lindsey Holmes,  stated that                                                               
the  bill  is  somewhat  simple,  but  the  concept  is  somewhat                                                               
complex.  He reported that  the Uniform Common Interest Ownership                                                               
Act  (UCIOA)  in  state  law   is  currently  outdated;  however,                                                               
provisions  have  been  updated  in the  FUCIOA.    He  explained                                                               
problems can  arise during construction of  housing projects that                                                               
can  stall  the project.    He  related  a  scenario in  which  a                                                               
developer  plans  to build  certain  units  under an  established                                                               
timeline;  however, if  the time  runs out  before the  units are                                                               
completed numerous people are affected.   The developer would not                                                               
be able  to sell uncompleted  units and  the lender would  not be                                                               
repaid until  the units  are finished.   He  offered that  HB 269                                                               
takes the  updated provision  contained in  FUCIOA and  enacts it                                                               
into  state  law.    He   said  this  will  address  the  problem                                                               
developers are experiencing.   He clarified that  the language in                                                               
HB 269  is modeled  after one  provision of  the federal  act and                                                               
will fix what could be a big problem in the state.                                                                              
3:34:09 PM                                                                                                                    
MR. WALDO explained that the current  UCIOA was written at a time                                                               
when the economy was fast-paced,  but the economy has slowed down                                                               
in  terms  of  construction.   Thus  the  timeframes  which  were                                                               
compressed  when the  economy was  booming worked  well; however,                                                               
the  timeframes don't  work  as  well now  that  the economy  has                                                               
slowed down.   Currently, the UCIOA allows a  developer to extend                                                               
the timeline to  complete the project so long  as the condominium                                                               
association  votes in  favor of  extending the  timeline, but  it                                                               
requires   a  unanimous   vote  in   favor  by   the  condominium                                                               
association.    He  said  that  obtaining  unanimous  consent  is                                                               
difficult to achieve.                                                                                                           
3:34:58 PM                                                                                                                    
MR. WALDO pointed  out that if one person out  of 400 condominium                                                               
association  members votes  no to  extend the  timeline it  would                                                               
halt a project and could  adversely affect the developer who must                                                               
carry the units not yet built  or finished.  Additionally, once a                                                               
project is stalled, workers are not  paid and the bank may become                                                               
concerned about  the overall financial stability  of the project.                                                               
He  stated  that  the  remedy  in the  FUCIOA  would  reduce  the                                                               
percentage   from  100   to  80   percent   of  the   condominium                                                               
association's members  in order  to approve  timeline extensions.                                                               
This  would still  show significant  support,  but represents  an                                                               
achievable threshold.   In Alaska, some tenants  travel to warmer                                                               
states  during the  winter to  places such  as Arizona  so it  is                                                               
difficult  to contact  them  for approval.    He reiterated  that                                                               
reducing the necessary approval to  80 percent of the condominium                                                               
association members can  help keep the project  moving forward at                                                               
the  right pace.    He  concluded that  HB  269  contains the  80                                                               
percent threshold.                                                                                                              
3:36:37 PM                                                                                                                    
REPRESENTATIVE  SADDLER  asked  for  clarification  on  the  term                                                               
"development rights."                                                                                                           
MR. WALDO explained  the development rights process,  such that a                                                               
developer  must  adhere  to  a  declaration  when  a  condominium                                                               
project is  developed.  This  document outlines the  timeline for                                                               
the  development of  the  project and  during  that timeline  the                                                               
developer  has development  rights  to continue  to build  units;                                                               
however,  when  the timeline  runs  out,  the development  rights                                                               
expire and  need to  be extended.   This  bill addresses  this by                                                               
changing the  vote from unanimous  to 80 percent approval  of the                                                               
condominium owners.                                                                                                             
REPRESENTATIVE  SADDLER   asked  for  further   clarification  on                                                               
special development rights as opposed to development rights.                                                                    
MR. WALDO said he was unsure.                                                                                                   
3:38:14 PM                                                                                                                    
REPRESENTATIVE  CHENAULT recalled  that  a super  majority of  80                                                               
percent of  the owners would  be necessary.   He pointed  out the                                                               
sponsor  statement identifies  67 percent  as a  majority of  the                                                               
MR.  WALDO explained  that  the 67  percent  threshold listed  in                                                               
Section 1 refers  to current law; however the main  thrust of the                                                               
bill is  in Section  3.  He  referred to page  2, lines  15-16 of                                                               
Section 3,  which requires at  least 80  percent of the  votes of                                                               
the association, including  80 percent of the  votes allocated to                                                               
units  not  owned  by  the  declarant.   He  clarified  that  the                                                               
declarant is the developer so  the provision essentially requires                                                               
80 percent of  the people living in the condominium  must vote in                                                               
support of  a time extension  in order  to extend the  time limit                                                               
for project completion.                                                                                                         
3:39:38 PM                                                                                                                    
REPRESENTATIVE  SADDLER  questioned   the  reason  a  condominium                                                               
association would want to extend development rights.                                                                            
MR.  WALDO  answered  that  a developer  may  initially  plan  on                                                               
building a certain number of  condominiums in each unit, but only                                                               
three are  completed during the  timeline.  This would  result in                                                               
essentially  a vacant  lot adjacent  to the  finished condominium                                                               
units.    He imagined  a  condominium  association and  developer                                                               
would  negotiate  the extension  process.    He deferred  to  the                                                               
developers to more fully define the reasons.                                                                                    
3:40:39 PM                                                                                                                    
REPRESENTATIVE JOHNSON  asked whether  HB 269  is limited  to new                                                               
construction  or  if  it  would apply  to  conversion  of  rental                                                               
properties to condominiums.    He envisioned some  units would be                                                               
sold and others would be rented.                                                                                                
MR. WALDO  deferred to  Mr. McCollum  to more  fully answer.   He                                                               
surmised that converting rental  units to condominiums would form                                                               
a  common   interest  community,  which  would   fall  under  the                                                               
governing statutes.   He  suggested that  this bill  would apply,                                                               
but it  may depend on  how the conversion is  set up, but  he was                                                               
3:41:38 PM                                                                                                                    
REPRESENTATIVE JOHNSON  related a scenario in  which an apartment                                                               
is being converted to condominiums,  but some leases would extend                                                               
over a  period of years.   He asked if  the owner sold  two units                                                               
whether  the two  unit owners  could vote  to extend  the rights.                                                               
Further, he  asked whether the  owner could execute  an extension                                                               
without the  consent of two  condominium owners if  the developer                                                               
owns 67 percent  of the building.  He reiterated  his question is                                                               
whether the building  owner could execute the  change without the                                                               
consent of the two condominium owners.                                                                                          
MR. WALDO related his understanding  that the scenario is that an                                                               
owner plans to  convert a building to condominiums  and creates a                                                               
declaration to  form a common  interest community with  less than                                                               
the total units occupied.  He  answered that in that situation 80                                                               
percent of  the owners occupying  the units must agree  to extend                                                               
the timeline for special development  rights.  Thus the owners of                                                               
both units would need to agree.                                                                                                 
REPRESENTATIVE  JOHNSON understood  the  scenario just  described                                                               
would pose a  problem since one person could  potentially hold up                                                               
the development.                                                                                                                
3:43:51 PM                                                                                                                    
REPRESENTATIVE SADDLER  asked for clarification of  why the UCIOA                                                               
initially set the threshold at 100 percent.                                                                                     
MR. WALDO  said this provision dates  back to the 1980s  when the                                                               
UCIOA  was written.    He  stated that  the  UCIOA group  quickly                                                               
realized  this  presents a  problem  since  unanimous consent  is                                                               
nearly  impossible  to  meet.     In  1996,  the  group  released                                                               
amendments  to the  UCIOA that  changed it  from unanimous  to 80                                                               
percent and  in 2008 the most  recent release of the  FUCIOA also                                                               
included the amendments.                                                                                                        
3:45:12 PM                                                                                                                    
REPRESENTATIVE  SADDLER  asked  whether most  other  states  have                                                               
subscribed to the changes in the FUCIOA.                                                                                        
MR.  WALDO responded  that only  a  small number  of states  have                                                               
wholly adopted  the UCIOA, but  he has not researched  the number                                                               
of states that have adopted some portions of the act.                                                                           
3:45:43 PM                                                                                                                    
JAMES H.  MCCOLLUM, Attorney, Law  Offices of James  H. McCollum,                                                               
introduced himself.                                                                                                             
REPRESENTATIVE  SADDLER  asked  what types  of  situations  would                                                               
require a developer's timeline to be extended.                                                                                  
MR.  MCCOLLUM responded  that typically  long before  a developer                                                               
performs  some  construction  the  developer  would  declare  the                                                               
additional units.  Thus a  property could be partially developed,                                                               
including  foundations in  place,  holes, or  ditches.   In  some                                                               
instances the property will be  in some stage of development, but                                                               
units have  not been declared.   If  the project timeline  is not                                                               
extended,  the condominium  association  would  not just  inherit                                                               
land, but  sometimes dangerous  grounds.   In most  instances the                                                               
biggest problem in acquiring 100  percent of the owners' approval                                                               
is  not due  to opposition  to  the time  extension, but  getting                                                               
people  to address  the issues.   He  related one  issue is  that                                                               
property under  development is taxed  to the developer,  but when                                                               
development  rights  expire  the   unit  owners  will  be  taxed.                                                               
Additionally, if  the improvements have not  been constructed the                                                               
condominium association must  complete the remaining improvements                                                               
from their  budget and expenses  shared by the  association would                                                               
be  assessed to  a smaller  number of  people.   He offered  that                                                               
negotiations  frequently occur  and the  association may  support                                                               
extending  the  timeline provided  the  developer  adds a  flower                                                               
garden or  swing set.   He  acknowledged some  negotiations occur                                                               
during this process.                                                                                                            
3:49:14 PM                                                                                                                    
REPRESENTATIVE  SADDLER   asked  if  anything  would   prevent  a                                                               
developer  from  creating  a  large 50-year  window.    He  asked                                                               
whether the  problem has  resulted from  the developers  who have                                                               
wrongly estimated timeframes or if another dynamic is in place.                                                                 
MR. MCCOLLUM  answered that  in addition to  the CIOA  related to                                                               
condominiums, the  set of  regulations put  forth by  the Federal                                                               
National  Mortgage Association  (FNMA) commonly  known as  Fannie                                                               
Mae, the  Federal Home Loan  Mortgage Corporation  (FHLMC), known                                                               
as  Freddie  Mac,  the  U.S.  Department  of  Housing  and  Urban                                                               
Development  - also  known as  HUD -  and Alaska  Housing Finance                                                               
Corporation  (AHFC) apply.   Years  ago,  the financing  agencies                                                               
would not  approve projects  beyond five  to seven  years without                                                               
special  consideration.   He said  it's  only been  the past  few                                                               
years since Fannie  Mae has abandoned that  approach.  Currently,                                                               
projects  have relatively  short development  times.   He offered                                                               
his belief  that if someone  put a 50  or even 20  year timeframe                                                               
for development it  may scare off financing  agencies even though                                                               
technically it is not a specific  requirement.  He said they want                                                               
to see  a plan of  development that  will occur since  it affects                                                               
the value of  their collateral to not have  construction going on                                                               
REPRESENTATIVE  SADDLER characterized  the process  as attempting                                                               
to reach a sweet spot.                                                                                                          
MR. MCCOLLUM agreed.                                                                                                            
3:51:17 PM                                                                                                                    
REPRESENTATIVE SADDLER asked for  clarification of the reason for                                                               
the 100-percent threshold on extensions.                                                                                        
MR.  MCCOLLUM  responded  he  is on  list  serve  of  condominium                                                               
lawyers that  serve as advisors to  the uniform act.   He related                                                               
his  understanding  everyone realized  after  the  fact that  the                                                               
requirement set  up an  impossible situation  and simply  did not                                                               
make sense.   He  pointed out  one oddity  is that  under current                                                               
law,  80 percent  of  the condominium  owners  can terminate  the                                                               
condominium  or sell  a portion  of the  common interest,  but it                                                               
requires 100 percent agreement to  extend the development rights.                                                               
Additionally, the  reality is that  the requirement being  set at                                                               
100  percent has  the effect  of  saying it  can't be  done.   He                                                               
recapped that the  changes to reduce the requirement  from 100 to                                                               
80 percent  was made  almost without  comment since  the original                                                               
requirement  was  not a  reasonable  or  workable position.    He                                                               
reiterated that if the whole  project could be terminated with 80                                                               
percent  it didn't  make sense  to  require 100  percent just  to                                                               
extend the right to complete the project.                                                                                       
REPRESENTATIVE SADDLER acknowledged  that achieving agreement can                                                               
be problematic.   He pointed out his  condominium association had                                                               
difficulty determining  simple things  like what kind  of flowers                                                               
to plant.                                                                                                                       
3:53:13 PM                                                                                                                    
CHAIR OLSON asked if this  bill would apply to reconstruction for                                                               
situations in which a significant  amount of damage occurred to a                                                               
major condominium  and had  to rebuild  from the  ground up.   He                                                               
recalled  a  specific  project  in  Anchorage  was  hamstrung  by                                                               
ownership issues.                                                                                                               
MR.  MCCOLLUM  answered no,  that  reconstruction  is covered  by                                                               
other sections  of the  law.   He said he  was familiar  with the                                                               
specific  project  in question.    He  recalled the  project  was                                                               
underinsured and the owners were  not happy that the other owners                                                               
received brand new  units, yet all condominium  owners were being                                                               
assessed substantial assessments; however,  this situation is not                                                               
governed by this section of statutes.                                                                                           
3:54:38 PM                                                                                                                    
REPRESENTATIVE JOHNSON  questioned whether the bill  would affect                                                               
contractors or developers converting apartments to condominiums.                                                                
MR.  MCCOLLUM  answered  that  it would  depend  on  whether  the                                                               
conversion was done  in stages or not.   Most conversion projects                                                               
have been  smaller four-plex to  six-plex projects that  have not                                                               
involved  reserving  development rights  since  all  four or  six                                                               
units are  converted at  once.   He described  the process  for a                                                               
project  that involved  an apartment  building with  10 units  on                                                               
each floor and the developer  wanted to create 10 condominiums at                                                               
a time.   Fannie  Mae rules  require the  conversion be  done one                                                               
floor at  a time so  the developer would  create 10 units  on the                                                               
upper floor and  reserve the right to declare the  other units at                                                               
a later date.   Further, this type of  development doesn't create                                                               
significant problems since the apartments  are already built.  As                                                               
the deadline  approaches the developer  would simply  declare the                                                               
units  and  not need  any  time  extension.   This  would  simply                                                               
accelerate  the time  for the  conversion, but  the units  exist.                                                               
This  differs from  new development  projects  the bill  remedies                                                               
since the  physical structure  does not  yet exist  with proposed                                                               
new construction.                                                                                                               
3:56:28 PM                                                                                                                    
REPRESENTATIVE JOHNSON related a  scenario in which the developer                                                               
has 10  apartment units and  would like  to convert them  to five                                                               
larger units and sell them as condominiums.                                                                                     
MR. MCCOLLUM  answered that  if the  building is  vacant, without                                                               
tenants,  it  is  not  likely  the  developer  would  record  the                                                               
condominium documents  until the work  was finished.   He related                                                               
the developer would then declare all  five units.  In a practical                                                               
sense it would  be impossible for the developer  to declare units                                                               
or   reserve  development   rights  since   the  units   must  be                                                               
substantially complete  before they are declared.   He reiterated                                                               
the  developer could  not record  the conversion  of 10  units to                                                               
five condominiums  until construction  was completed so  it would                                                               
not constitute a development rights issue.                                                                                      
3:57:49 PM                                                                                                                    
MR. MCCOLLUM  characterized development  rights as a  very narrow                                                               
term.   He said development  rights would allow the  developer to                                                               
add units and  withdraw property.  He  said, "That is it.   It is                                                               
very, very  narrow.  In most  cases you are adding  units."  Thus                                                               
the  process of  converting units  to condominiums  would not  be                                                               
considered  creating the  units pursuant  to development  rights.                                                               
Instead,  the   developer  would   create  the   condominiums  by                                                               
recording the  declaration.  He  explained the typical  process a                                                               
developer  would  use  to  develop  units on  two  floors.    The                                                               
developer could  reserve the  right to create  the five  units on                                                               
each additional floor,  but would not record  the amendment until                                                               
such time as the construction  was complete.  Theoretically, if a                                                               
developer  needed additional  time  to reconstruct  the units  it                                                               
could fall under  these statutes and the developer  would need to                                                               
approach the  condominium association  to extend  the development                                                               
rights to create the units.                                                                                                     
3:59:03 PM                                                                                                                    
REPRESENTATIVE  SADDLER asked  for  clarification on  development                                                               
rights.   He  asked whether  "withdrawing property"  is shrinking                                                               
the footprint and use less real estate.                                                                                         
MR.  MCCOLLUM answered  that is  correct.   He  defined the  term                                                               
withdrawing property  as a  right granted under  the act  that is                                                               
reserved  under the  declaration.   He related  a scenario,  such                                                               
that if 10 acres of a  20-acre parcel is built out, the developer                                                               
could withdraw  10 acres.  The  only limitation would be  for the                                                               
developer to  re-class the 10 acres.   He said that  sometimes it                                                               
is feasible  to do so  and sometimes it is  not.  He  recalled an                                                               
Anchorage project  that involved a  large parcel.   The developer                                                               
had  planned to  build 600  condominiums; however,  the developer                                                               
did not  finish the  improvements and  defaulted on  the property                                                               
which went into  foreclosure.  He described his  involvement.  He                                                               
reported that he  has worked with the  Municipality of Anchorage,                                                               
the developer, and the lender to  withdraw a major portion of the                                                               
parcel for further  development, in part, because  the market did                                                               
not support  the original development  plan.  He stated  that the                                                               
developer  has been  considering building  senior housing  rather                                                               
than building typical condominium units  for about 30-40 acres of                                                               
the original parcel.                                                                                                            
4:00:52 PM                                                                                                                    
REPRESENTATIVE  SADDLER  related  his  understanding  of  special                                                               
declarant  rights as  an umbrella  concept  that would  encompass                                                               
development rights as well as other rights.                                                                                     
MR.  MCCOLLUM agreed.    He said  that  special declarant  rights                                                               
include a  whole variety of  rights given to developers,  such as                                                               
the right to  have sales offices on the property  or other things                                                               
that  allow the  developer to  continue to  develop the  property                                                               
without interference.   He characterized development  rights as a                                                               
subcategory of  special declarant  rights.  He  further clarified                                                               
development  rights   are  not  considered   special  development                                                               
rights,  but rather  are considered  a  subcategory of  declarant                                                               
rights and are referred to as development rights.                                                                               
4:01:53 PM                                                                                                                    
JOE BEEDLE,  President; Chief  Executive Officer  (CEO), Northrim                                                               
Bank, spoke  in favor of HB  269 and as an  Alaska bank executive                                                               
urged support and  immediate action and said that time  is of the                                                               
essence.  He elaborated the  state lags slightly behind on UCIOA,                                                               
with respect to the provisions  that allow for time extensions on                                                               
development projects for condominiums.   Further, this bill would                                                               
provide  consistency  with  national  best  practices  given  the                                                               
slowing  economy  and the  absorption  of  real estate  projects,                                                               
including   condominium  projects.     He   predicted  unintended                                                               
consequences would result by not  amending the existing statutes.                                                               
He  said condominiums  provide higher  density construction  that                                                               
allows   developers  to   allocate   land   for  more   efficient                                                               
development  and  spread  amenity   costs  based  on  the  common                                                               
interest  community  development  protocol.   Additionally,  many                                                               
obstacles  must be  overcome  with  condominium construction  and                                                               
this committee  has just  begun to hear  some of  the challenges.                                                               
He   said  today's   banking   environment   is  cautious   about                                                               
condominiums.  He emphasized the  projects are significantly more                                                               
complicated  and to  add this  five-year  timeout is  problematic                                                               
since projects  that go beyond the  timeframe encounter financing                                                               
4:04:38 PM                                                                                                                    
MR.  BEEDLE  elaborated on  the  five-year  timeframe.   He  said                                                               
typically banks  don't like  to finance  projects that  will take                                                               
more than five  years to build due  to the cost to  carry and the                                                               
unknown   market  environment.     He   recalled  legal   counsel                                                               
previously  mentioned phasing  of  projects  and he  acknowledged                                                               
that normally banks  want a project absorbed within  a few years.                                                               
Thus the  historical creation of  UCIOA for the  secondary market                                                               
addresses the  preference that these  projects be  defined early,                                                               
completed, and  put into the  market.   The slow economy  has had                                                               
unintended   consequences  which   has  adversely   affected  the                                                               
contractor  declarant and  potentially  the banks.   He  reported                                                               
that the Northrim  Bank currently has eight  projects impacted by                                                               
the  100 percent  unanimity requirement  and  the developers  are                                                               
adversely  impacted.   He predicted  not removing  the artificial                                                               
impediment   will   guarantee   hardships   for   financing   and                                                               
condominiums that already face  difficulties for various reasons.                                                               
He  stated  that  Northrim  Bank  is a  market  share  leader  in                                                               
residential construction  in Southcentral Alaska, with  more than                                                               
50 percent of bank financing  for residential construction.  Thus                                                               
Northrim  has had  experience working  on these  projects, albeit                                                               
not  all good  experiences.   He trusted  the committee's  action                                                               
will  be appropriate.   He  reported he  serves as  chair of  the                                                               
Alaska  Bankers Association,  which is  comprised of  eight banks                                                               
and the group meets on Friday  mornings.  He anticipated that the                                                               
ABA will  vote on  Friday to  support this  bill since  they have                                                               
informally expressed  concern.  He  urged members to pass  HB 269                                                               
so  the  problematic  projects  can move  forward.    He  advised                                                               
members  that   Northrim  Bank's  Senior  Vice   President,  Tera                                                               
Tetzlaff,  Senior Vice  President, Construction  Loan Manager  is                                                               
available to answer questions.                                                                                                  
4:07:27 PM                                                                                                                    
REPRESENTATIVE JOHNSON referred to page  1, line 12, and read, "A                                                               
declaration may  not specify a  smaller number unless all  of the                                                               
units  are restricted  exclusively  to nonresidential  use."   He                                                               
asked  for  clarification  on  how  this  language  would  affect                                                               
condominium storage units.                                                                                                      
MR. MCCOLLUM  answered that a  smaller percentage of  unit owners                                                               
can be  specified for commercial  projects, since the  buyers are                                                               
typically more  sophisticated.  He  related that only  67 percent                                                               
is required  under current  law, AS 38.08.250  (a), as  listed in                                                               
Section  1  of HB  259.    He  said  this will  certainly  impact                                                               
projects and he  was unsure he would ever write  an amendment for                                                               
less than  67 percent or two-thirds.   He was unsure  he has ever                                                               
seen one.                                                                                                                       
4:09:42 PM                                                                                                                    
REPRESENTATIVE JOHNSON  asked whether  he predicted  any problems                                                               
for condominium storage units.                                                                                                  
MR. MCCOLLUM  offered his  belief this  is a  marketing decision.                                                               
He  related in  his experience  that commercial  buyers are  more                                                               
careful  about reading  documents  than residential  buyers.   He                                                               
offered his  belief that  a buyer  would not want  to buy  into a                                                               
project in which  some ridiculously small number  of people could                                                               
impact  the project.   He  explained  that this  is an  unrelated                                                               
issue  for   typical  amendments  to  other   provisions  of  the                                                               
declaration.  This  provision will only apply  to commercial non-                                                               
residential projects.   He reiterated this  specific provision is                                                               
existing law.   He pointed  out the  80 percent for  extension or                                                               
granting new development.                                                                                                       
REPRESENTATIVE JOHNSON referred to  the MacKay building which was                                                               
converted  to  condominiums  and  recalled that  at  one  time  a                                                               
business  was  located on  the  ground  floor, yet  the  language                                                               
indicates  it  must exclusively  be  non-residential.   He  asked                                                               
whether that causes any concern.                                                                                                
MR. BEEDLE  said he is familiar  with the project.   He explained                                                               
that the MacKay building project  falls under the UCIOA; however,                                                               
the  project  is  not  a   condominium  project,  but  rather  is                                                               
considered a planned  community.  In a planned  community some of                                                               
the  terms are  worked  out through  negotiations and  marketing.                                                               
The specific  project, the MacKay  building consists of  only two                                                               
units.    Projects of  this  type  will  often will  require  100                                                               
percent  approval   although  it  depends  on   the  division  of                                                               
ownership.  He  highlighted that it is important  to avoid having                                                               
one person control  the entire building so if one  person owns 70                                                               
percent  the  others  must retain  some  control;  however,  this                                                               
specific project  will not be  impacted by  this bill.   The sole                                                               
purpose  of HB  269  is  to reduce  the  percentage necessary  to                                                               
extend development rights from 100 percent to 80 percent.                                                                       
REPRESENTATIVE JOHNSON wanted to ensure it was not an issue.                                                                    
4:13:16 PM                                                                                                                    
REPRESENTATIVE   SADDLER    related   his    understanding   that                                                               
development  rights would  be described  as withdrawing  property                                                               
and adding additional  units.  He asked  whether that description                                                               
is the full extent of development rights.                                                                                       
MR.  BEEDLE answered  that developer  rights are  basically owner                                                               
rights in  which the developer  has restricted rights.   An owner                                                               
would be able to make any  decisions.  He stated that development                                                               
rights would  be defined in  the declarations.   He characterized                                                               
development  rights as  the completion  of the  original plan  as                                                               
described in  the declarations.   A  developer could  not "willy-                                                               
nilly"  decide  to change  the  project.   He  likened  developer                                                               
rights, such  as an  entrepreneur making  decisions to  develop a                                                               
project people  will like,  but if  the circumstances  change the                                                               
developer must go back and obtain amendments to the declaration.                                                                
4:15:10 PM                                                                                                                    
REPRESENTATIVE  SADDLER  read,   "...and  additional  development                                                               
rights created...."   He related his  understanding this language                                                               
would not give the developer the  right to change from a ranch to                                                               
a skyscraper.   He  asked for  clarification that  the additional                                                               
development  rights   would  be   constrained  by   the  original                                                               
MR. BEEDLE answered yes.                                                                                                        
4:15:38 PM                                                                                                                    
REPRESENTATIVE SADDLER  inquired as  to the reasons  the original                                                               
timeframe for  the eight Northrim  projects is insufficient.   He                                                               
further asked whether  changing the threshold to  80 percent will                                                               
resolve the issues for the bank with respect to these projects.                                                                 
MR.  BEEDLE  responded  that  the  eight  situations  vary.    He                                                               
recalled  one project  in which  the absorption  was slower.   He                                                               
pointed out  that when the market  is slow the developer  is also                                                               
on hold.   Further, the developer may have  spec-built more units                                                               
which  could extend  beyond the  five-year period.   Further,  if                                                               
property must  be sold in the  timeframe and not just  be leased.                                                               
One unintended  consequence of carrying rental  property which is                                                               
later sold is  that the timeframe could run  beyond the five-year                                                               
4:17:02 PM                                                                                                                    
MR. BEEDLE  related a  scenario involving  vertical developments,                                                               
or higher rise condominiums.   The developer may have built three                                                               
towers,  but due  to the  lack of  market response  the developer                                                               
cannot  build   the  fourth   condominium  building   within  the                                                               
timeframe.  In that instance,  the condominium association either                                                               
obtains a park  or it results in  undeveloped property defaulting                                                               
back to  the condominium  association.   He highlighted  that the                                                               
primary  reason for  this has  been due  to the  slow market  and                                                               
absorption  of projects  is taking  longer than  five years.   He                                                               
said no  one - the  developer, the development rights  person, or                                                               
the  bank -  anticipated this  would happen.   He  emphasized the                                                               
bank did  not anticipate the issue  arising or it would  not have                                                               
made the loan in the first  place.  He pointed out that currently                                                               
several projects  Northrim Bank is  financing now face  the five-                                                               
year issue.                                                                                                                     
4:18:20 PM                                                                                                                    
REPRESENTATIVE SADDLER asked whether  the 80 percent threshold in                                                               
the bill will accomplish the bank's goal.                                                                                       
MR.  BEEDLE  answered  the assumption  is  that  the  development                                                               
rights owner  has a good  relationship with the association.   He                                                               
offered his  belief that the  developer must be  sophisticated to                                                               
develop  a condominium  development.    The successful  developer                                                               
generally  sets  up  the  condominium  association  and  has  the                                                               
majority votes, communicates well,  and recognizes the importance                                                               
of maintaining  good relations; however,  this is not  always the                                                               
case.    Sometimes  the  developer   defaults  on  the  loan  and                                                               
foreclosure results.   The new owner  could come in and  not have                                                               
good  relationships.    He related  his  understanding  that  the                                                               
current   developers   Northrim   is    working   with   on   the                                                               
aforementioned projects have good  relationships.  This bill will                                                               
adopt the  national standard  of the 80  percent threshold.   The                                                               
advantage of  using the national  standard is that it  provides a                                                               
uniform  code.   Thus  the  secondary  market  does not  need  to                                                               
consider that Alaska has a peculiar  rule.  He testified in favor                                                               
of adopting the 80 percent  threshold.  He acknowledged obtaining                                                               
80 percent  will still  not be  easy, as  the flower  bed example                                                               
REPRESENTATIVE SADDLER acknowledged that uniformity has value.                                                                  
4:20:10 PM                                                                                                                    
TERRY  BRYAN,  Vice  President;  Manager,  First  American  Title                                                               
Insurance  Company (FATIC),  spoke  in  support of  HB  269.   He                                                               
related  that FATIC  provides title  and escrow  services to  all                                                               
communities   within  Alaska   via   10  branch   offices.     He                                                               
characterized  HB  269  as  taking a  common  sense  approach  to                                                               
correct a statute that has  established an impractical impediment                                                               
to  the  traditional flow  of  commerce  due to  the  restrictive                                                               
unanimous  vote requirement.   He  highlighted the  evolving real                                                               
estate and lending  industry needs to update to the  UCIOA.  This                                                               
bill will remedy  issues related to absorption rate,  the risk of                                                               
lending,  or the  risk  of insuring  a property.    He said  that                                                               
Alaska  has   evolved  along  with   the  national   real  estate                                                               
marketplace.  He emphasized that  Alaska requires a continual and                                                               
sustained flow of development.   This bill would help ensure that                                                               
development  is   not  stymied   or  adversely  affected   by  an                                                               
artificial impediment, such as the  unanimous approval of project                                                               
timelines.  He  emphasized that the 100  percent approval creates                                                               
an artificial  impediment from his  perspective.  The  bill would                                                               
be more  in compliance with the  modifications of the UCIOA.   He                                                               
concluded that the bill is a  common sense approach to the issue.                                                               
He stressed the difficulty in  obtaining 100 percent of the votes                                                               
for anything.                                                                                                                   
4:22:58 PM                                                                                                                    
BOB  PETERSEN, President  and Owner,  The Petersen  Group, stated                                                               
that his company is a  30-year construction company in Anchorage.                                                               
He said  his group was the  first builder to build  a condominium                                                               
in Girdwood under the  UCIOA in 1995.  He reported  that he is on                                                               
his  sixteenth  condominium  building project,  which  makes  his                                                               
company  the most  experienced condominium  builder in  the state                                                               
with over 1,000  units completed.  He testified in  support of HB                                                               
MR. PETERSEN gave  an example of the type  of problem encountered                                                               
with the  requirement of a  unanimous vote to change  a declarant                                                               
right.     He   recorded   the  declaration   for  one   project,                                                               
Summerstone,  in  Anchorage  eight  years  ago,  with  164  units                                                               
declared  to be  built over  seven year  period.   The last  four                                                               
units were finished  in year eight; however,  since the declarant                                                               
rights expired in  the seventh year, the  developer, the Petersen                                                               
Group,  cannot get  clear  title to  the last  four  units.   The                                                               
Summerstone Board  of Directors  (BOD) is unanimously  in support                                                               
to change the declaration to  extend the rights since it benefits                                                               
the homeowners  association.   The BOD  sent out  a proxy  to the                                                               
homeowners and to  date has received 79 or 80  proxies in support                                                               
of  the  extension.    He  highlighted that  there  is  always  a                                                               
dissenter.    The  BOD  is   sending  another  proxy  to  attract                                                               
decisions on  the other 80.   This bill would resolve  the issue.                                                               
He firmly believes that he will  be able to attain the 80 percent                                                               
approval or better  since the BOD unanimously is in  favor of the                                                               
extension.   It is good  for the homeowner's association and will                                                               
remove the cloud on the title.   It will be impossible to achieve                                                               
100  percent approval.   The  reason  it is  good for  homeowners                                                               
associations to have  the ability to change a  declarant right is                                                               
that during  a slow  market many projects  cannot be  finished in                                                               
the timeframe allowed  via the UCIOA at the  time the declaration                                                               
is recorded.   First,  when a project  is completed  it maximizes                                                               
the value of  the project and avoids vacant  lots that homeowners                                                               
association must pay  taxes on.  He pointed out  the lot is owned                                                               
by the  developer, but  due to a  technicality must  transfer the                                                               
rights to the  homeowners association.  He explained  that when a                                                               
proforma is  done and the  developer amortizes expenses  it helps                                                               
keeps  homeowners  association dues  to  a  minimum.   From  that                                                               
standpoint  a  homeowners  association  wants  the  developer  to                                                               
finish the project and the  Municipality of Anchorage (MOA) would                                                               
be in  favor of  completion since it  will increase  the property                                                               
tax  base.   He offered  his belief  this bill  will address  the                                                               
technicality  and update  the UCIOA  that  most of  the U.S.  has                                                               
already adopted as an amendment to their state statutes.                                                                        
4:28:17 PM                                                                                                                    
REPRESENTATIVE  SADDLER  asked whether  the  bill  has any  known                                                               
REPRESENTATIVE HOLMES answered that she was not aware of any.                                                                   
[HB 269 was held over.]                                                                                                         
4:29:10 PM                                                                                                                    
There being no  further business before the  committee, the House                                                               
Labor and  Commerce Standing Committee  meeting was  adjourned at                                                               
4:29 p.m.                                                                                                                       

Document Name Date/Time Subjects
HB269 ver A.PDF HJUD 4/4/2012 1:00:00 PM
HL&C 3/14/2012 3:15:00 PM
HB 269
HB269 Sponsor Statement.pdf HJUD 4/4/2012 1:00:00 PM
HL&C 3/14/2012 3:15:00 PM
HB 269
HB269 Supporting Documents-UCIOA Section 2-117.pdf HJUD 4/4/2012 1:00:00 PM
HL&C 3/14/2012 3:15:00 PM
HB 269
HB269 Supporting Documents-Letter First American Title 2-20-12.pdf HJUD 4/4/2012 1:00:00 PM
HL&C 3/14/2012 3:15:00 PM
HB 269
HB292 Supporting Documents-Alaska Consitution Art. 2, Sec. 13.pdf HL&C 3/14/2012 3:15:00 PM
HB 292
HB292 Supporting Documents-Memo re Contracts Clause Issue.pdf HL&C 3/14/2012 3:15:00 PM
HB 292
HB292 Supporting Documents-Memo re Single Subject rule.pdf HL&C 3/14/2012 3:15:00 PM
HB 292
HB292 Supporting Documents-Westlaw Croft v. Parnell.pdf HL&C 3/14/2012 3:15:00 PM
HB 292
HB269 Fiscal Note-DCCED-DCRA-03-14-12.pdf HL&C 3/14/2012 3:15:00 PM
HB 269