Who Is Responsible for Adhering to the Vacation Rental Laws in Hawaii?

By
Services for Real Estate Pros with Waikoloa Vacation Rentals
http://actvra.in/4tZr

Illegal vacation rentals are coming to the forefront of issues in Hawaii relating to vacation rentals.  On the Big Island of Hawaii we do not deal with illegal rentals as far as zoning goes, but we do deal with owners not adhering to the current laws and the State of Hawaii not enforicing them.  My question is: Who is at fault, the homeowner or their unlicensed agent?

The Hawaii Law clearly states that to manage a vacation rental in Hawaii you must have a real estate brokers licensed and be set up to do property management (HRS Chapter 467).  The only common condition is that if you are an employee of an individual and only manage that one property.  It is becoming more and more common for homeowners to just use their housekeepers as their managing agent in order to save money in this tough economy.  Not only is this hurting the local property management companies, but it is also hurting the state as there is being less income generated within small businesses in the state of Hawaii, which in turn is costing the state tax dollars. 

As the issue was becoming greater and greater I was getting really frustrated with the people that were involved in these activites, but I soon realized that it really was not their fault, but the State of Hawaiis'.  At no point has the State attempted to enforce the laws or to even make people aware of them.  What I feel should happen is the State of Hawaii should send letters to anyone renting their property out letting them know what the rules are and then from that point forward they be held acountable.

If the State of Hawaii did hold someone accountable who would it be?  The person really at fault is the housekeeper whom is acting as a broker, but is unlicensed.  It also seems as though the homeowner should be at fault also for knowingly acting against the law with their vacation rental.

 

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Rainmaker
1,176,236
Wallace S. Gibson, CPM
Gibson Management Group, Ltd. - Charlottesville, VA
LandlordWhisperer

Rob * in MY DAY as a broker in Hawaii * there was a provision for a RENTAL MANAGER license on the books - pay a fee and not have a license; however, real estate board just did not issue them - had a form, had a fee collection process - just would not process the forms.

Apr 12, 2011 12:17 AM #3
Rainer
239,664
Janet Jones
Just Your Style Interiors, LLC - Kihei, HI
Home Staging, Interior Redesign Kihei, Maui, Hawaii

Rob--couldn't we just add this to the list of the things the State of Hawaii doesn't enforce?  Fortunately their desire to raise the excise tax has failed but many of us here on Maui feel if even that were enforced we'd have far less budget deficit issues. 

Apr 13, 2011 09:31 PM #4
Rainmaker
66,878
Rob Dalton
Waikoloa Vacation Rentals - Waikoloa, HI
Big Island Vacation Rental Guru

Yeah, they just try to get more out of the people paying taxes versus getting the poeple not paying to pay.  I have called numerous people with the State including the District Attorneys office and none of them even have a clue about the issue or even seem interested.

Apr 14, 2011 05:41 AM #5
Anonymous
jk

While researching a related issue using an internet search engine, I happend to be directed to your homepage and read the above. I think you are misinterpreting HRS Chapter 467.

 

Hawaii Revised Statute Chapter 467 states that one must be a real estate broker to lease or offer to lease, rent or offer to rent, manage or offer to manage any real estate.

I'm shure this doesn't apply to vacation rentals, because what they offer to their customers is NOT any kind of "Real Estate transaction", which Chapter 467 is about. Chapter 467, '§467-14  (C) gives a Non-Real Estate business description that applies to to some of them:

"A travel agency that in the course of business as a travel agency or sales representative, arranges for compensation the rental of a transient vacation rental; provided that for purposes of this paragraph "travel agency" means any person that, for compensation or other consideration, acts or attempts to act as an intermediary between a person seeking to purchase travel services and any person seeking to sell travel services, including an air or ocean carrier;"

Greetings
jk
Jun 15, 2011 11:23 PM #6
Rainmaker
66,878
Rob Dalton
Waikoloa Vacation Rentals - Waikoloa, HI
Big Island Vacation Rental Guru

jk,

Sorry, I did not understand what you are getting at.  I feel HRS 467 is very clear.  If you felt I was misinterpreting it because I did not take into account the travel agency exemption, I did take that into account. 

A travel agent may act as an intermediary, but they may not be a managing agent. 

Sorry, but I think the law is pretty clear.

Jun 16, 2011 02:58 PM #7
Rainmaker
66,878
Rob Dalton
Waikoloa Vacation Rentals - Waikoloa, HI
Big Island Vacation Rental Guru

Since writing this post I have gotten dozens of PMs regarding this law.  It is amazing how many people in the industry (both legal and illegal) are oblivious to the laws.  It seems with the hiked up continuing education requirements that they would request for brokers in the property management sector to take classes related to that.  In the past there has only been one offerened and you can not take any class twice.  It kind of is pointless for me as a broker that focuses on property management to take classes about Lending, etc.

Also, with the recent tax law relating to complementary nights or stays, when I asked the tax department how they were going to alert anyone operating a property management business the response was that they were not due to budget constraints.  One again, the state really seems to hae an issue with enforement.

Oct 22, 2011 06:11 PM #8
Rainmaker
66,878
Rob Dalton
Waikoloa Vacation Rentals - Waikoloa, HI
Big Island Vacation Rental Guru

Check out a new post I just made relating to this topic.  If we are lucky the state is doing something.

 

http://activerain.com/blogsview/2804676/proposed-hawaii-vacation-rental-bill-hb1707

Feb 05, 2012 08:59 AM #9
Anonymous
Homeowner...concerned

Please, this should NOT even exist as a law.  A person's home is their home....not the govt. first of all.  The owners I know, including myself are VERY RESPONSIBLE and more ethical on this issue.  Get a life and stay out others lives.  Live in America....maybe tourist shouldn't visit Hawaii, wouldn't that be great for the economy.  After all, tourism is the major source of revenue in the state.  How about ONLY Hawaiian's can own homes, is that the next step?  Why not just KILL the real estate market and tourism at the same time?

Feb 07, 2012 02:38 PM #10
Anonymous
michael

Sounds to me like the real estate agents are trying score a commision by creating a problem where there isn't one. I am the owner of a vacation rental and am very aware of what taxaes I need to pay. Having an unemployed salesperson help me with my finances is a service i don't need. It makes perfect sense to me that agents would be looking for a way to make some money in a down real estate market!

Feb 08, 2012 03:43 PM #11
Anonymous
Allan

The fact is that mainland owners are disregarding Hawaii law and getting away with it. There are issues of consumer protection and unpaid tax revenue that should get the attention of those in office. WHile some of these condo owenrs may be paying their taxes and holding the guests funds in a trust account, I know of several that do not. One recently lost his condo to foreclosure and told his future guests...sorry. He had already spent their money.

 

Feb 13, 2012 01:44 PM #12
Rainmaker
66,878
Rob Dalton
Waikoloa Vacation Rentals - Waikoloa, HI
Big Island Vacation Rental Guru

Allan,
Thanks for your feedback.  Unfortunately I have seen the same issue happen before on a number of occassions except the owners did not let the guest know and the guests just showed up to a foreclosure letter on the door.

Feb 13, 2012 02:12 PM #13
Anonymous
ripped off

I recently became aware of this law. I am a homeowner who has been using a management company to rent my house for short term vacation rentals.. Dealing with the cpmpany has been a nightmare for me and I recently told the owner that we were done doing business. I was threatened with a lawsuit and am still owed money for a rental where I did the maager a favor and moved out of my house for over a week. The move cost me over $1000.00 to rent another place to stay. Until this happened I was unaware of this law. I recently educated myself and realized the management company was also using my funds to finance other operations of theirs which is why it took me as much as six months to get paid. There has never been a trust account for either my house or others they rent.

To anyone who thinks these laws and rules are intrusive, think again. If I had known about this law earlier, I could have saved myself a lot of grief. I would also like to know if you have any advice for how I can get the money which is owed me for a pretty long rental. Ir has been implied to me that I will not get paid.. As this is an illegal business, flaunting the laws, I don't know wehre to turn.

Feb 19, 2012 10:16 AM #14
Anonymous
Sunny

I agree with both of the following:

Please, this should NOT even exist as a law. A person's home is their home....not the govt. first of all. The owners I know, including myself are VERY RESPONSIBLE and more ethical on this issue. Get a life and stay out others lives. Live in America....maybe tourist shouldn't visit Hawaii, wouldn't that be great for the economy. After all, tourism is the major source of revenue in the state. How about ONLY Hawaiian's can own homes, is that the next step? Why not just KILL the real estate market and tourism at the same time?

 

Sounds to me like the real estate agents are trying score a commision by creating a problem where there isn't one. I am the owner of a vacation rental and am very aware of what taxaes I need to pay. Having an unemployed salesperson help me with my finances is a service i don't need. It makes perfect sense to me that agents would be looking for a way to make some money in a down real estate market!

I'm sorry - making new laws is NOT going to fix the people breaking laws today.  It's only going to PUNISH the good guys.  Let's STOP this now.

 

 

 

Feb 21, 2012 09:27 AM #15
Anonymous
k.t.

An interesting discussion. 

Last year, I calld the DCCA/real estate licensing branch. I had read the law, but wanted to clarify, and eliminate any doubt. Here is what I learned. 

In the case of a travel agency, booking vacation rentals, they do not need a real estate license, because they are just the booking agent - they are in no way a property manager. Many times, they are not even in Hawaii. They have a website, people call them, they book the unit, and tell the owner.

In the above case, the owner usually has a caretaker, to give access, pay the bills, etc. 

Still, this places a heavy burden on people in Hawaii who follow the law, make a legal vacation rental, pay taxes, or carry the cost of maintaining a real estate license (and paying taxes) to do real estate activities. 

IMHO, booking vacation rentals (as a booking agent ONLY), as the law is written, does not require a real estate license.  should this change? YES. WHY? See below:

Many vacation rental (VR) sites are in Canada, Europe, Asia, and some are in the mainland. None of them have to pay General Excise Tax. How does this work?

 

Ex.

VR rents for $400/night.

Booking agent takes 25% off the top.

Owner gets $300. 

State charges GET of $300. State charges NOTHING on out-of-state or foreign booking agent portion. Their income was not generated here, right? Meanwhile, booking agents in Hawaii pay tax on their share - $100... 

Many states are having the same problem...

http://www.cbpp.org/cms/index.cfm?fa=view&id=3467

 

Apr 13, 2012 05:21 PM #16
Rainmaker
66,878
Rob Dalton
Waikoloa Vacation Rentals - Waikoloa, HI
Big Island Vacation Rental Guru

KT,

That is an intersting aspect of the taxes.  Since we do not work with wholesalers I have never thought about that.  That is a great point. 

The more I have looked into vacation rental and tax law the more it seems to be complicated.  Given how many people rent their own properties and file their own taxes you would think there would be some place that it would be "dummied down" for everyone to understand.

Apr 15, 2012 06:57 AM #17
Rainmaker
427,504
Richard Daskam
Keller Williams Realty - Signal Hill, CA
Your Real Estate Consultant

I have a question for you.

I've hired a local broker to market & manage my vacation rental on Maui. The broker manages numerous properties on Maui. Rent funds are collected ahead of time and held for disbursement until the tenant checks out, etc.

This past month, the manager was disbursing funds and overnight, the credit card company she uses raided the trust account due to a fraudulent complaint regarding a stay in someone else’s condo.

The credit card company took over $7000.00 and then said “prove you were in the right” to the manager.

Shouldn’t the funds being held on my behalf “in trust” be immune to a credit card company going in and taking them?  Is there a law in the Hawaii books protecting funds being held “in trust” by a broker?

The manager says that the credit card company ruled against the consumer and will be putting the funds back, but what if they hadn’t?  What if she already paid the other owners their $7000.00 (which she did) but took my $7000.00 and now the bank won’t give it back and the other owner won’t give it back.

How am I protected from the ‘big banks’ raiding a vacation rental trust fund in Hawaii?

Any comments or a direction to look in to find the actual laws would be great.  I’ve Googled it and it doesn’t appear this Regulation has been addressed in Hawaii.

Thank you!

 

May 29, 2012 02:20 AM #18
Rainmaker
66,878
Rob Dalton
Waikoloa Vacation Rentals - Waikoloa, HI
Big Island Vacation Rental Guru

Richard,
That is an interesting one.  I have never heard of that happening.  Given that I am not sure of the full story from both sides here would be my opinion. 

The broker should have a trust account and I do not see how the banks can go after "your funds".  They should be able to go after funds in general and then the broker would have to address the issue with the owner of where the guest had stayed.  Like I said, I do not know the full story and have not heard of this before, but I highly doubt that fraudulent activity at another property would cause your rental funds to be MIA.

May 29, 2012 06:40 AM #19
Rainmaker
427,504
Richard Daskam
Keller Williams Realty - Signal Hill, CA
Your Real Estate Consultant

HI Rob,

Thanks for the response.

In California, as far as I know, and I certainly need to confirm this, my Client Trust Account cannot be "raided" for any reason.  Those funds are entrusted to my company and the bank won't allow electronic grabbing of funds.  It's certainly something I'm going to get into with BofA today.

But, in Hawaii, I don't know how trust fund accounts work and I've searched the Internet with no clear answer.  In my opinion, funds that are held in trust, no matter for who or what, they shouldn't be able to be raided without a court order!

Thanks again.

May 30, 2012 12:56 AM #20
Rainmaker
66,878
Rob Dalton
Waikoloa Vacation Rentals - Waikoloa, HI
Big Island Vacation Rental Guru

Richard,
Did you find out anything?  It definitely sounds a little odd and it definitely does not make sense that your money is lost due to actions of other properties.

Jun 01, 2012 07:11 AM #21
Rainmaker
427,504
Richard Daskam
Keller Williams Realty - Signal Hill, CA
Your Real Estate Consultant

Rob,

The manager states that the credit card company sent the funds back but I haven't seen them show up in my account! 

This is a pretty concerning issue for anyone that uses credit cards to book vacations several months ahead of time.  I wonder if I, as an owner, can get insurance to protect me from the "big banks!"

As for finding more about the legality of credit card companies taking funds from a Trust Account, no, nothing new.  But, I'm heading to Maui this summer and will meet with a local real estate attorney as well a at least one new property manager.

Jun 03, 2012 12:40 AM #22
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Rob Dalton

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