At least one condo project burned to the ground in the Lahaina fire. There are likely others damaged or destroyed, but although I’ve seen references to condos, I haven’t found a list identifying those with significant damage.

Rebuilding of condominiums is a trickier affair than rebuilding a single family residence.

A condominium is governed by an association made up of the owners of individual apartments, in some cases owners of commercial as well as residential units.

While the contents of apartments are owned and insured by individual unit owners, the structure(s) themselves are owned in common by the association. State law requires associations to carry insurance sufficient to cover the replacdement cost of the structure.

The state’s condominium statute, Chapter 514B HRS, provides in part:

§514B-143 Insurance. (a) Unless otherwise provided in the declaration or bylaws, the association shall purchase and at all times maintain the following:
(1) Property insurance:
(A) On the common elements;
(B) Providing coverage for special form causes of loss; and
(C) In a total amount of not less than the full insurable replacement cost of the insured property, less deductibles, but including coverage for the increased costs of construction due to building code requirements, at the time the insurance is purchased and at each renewal date….

So in theory, all condo projects are insured against catastrophic loss.

And condo boards are required to use the insurance proceeds to rebuild, usually unless a super majority of owners vote to terminate the condominium instead of rebuilding.

Although the law has several ways to accomplish this. One provides that if 80% of owners, and all holders of liens (mortgage lenders, etc) approve, then a condominium project can move to dissolve itself.

Another possible occurs if a condominium experiences “substantial damage or destruction and the damage or destruction has not been rebuilt, repaired, or restored within a reasonable time after the occurrence thereof, or the unit owners have earlier determined as provided in the declaration that the damage or destruction shall not be rebuilt, repaired, or restored,” then any owner can go file an action for partition, which if approved would mean that the property would be sold and the proceeds divided among qualifying owners.

In practice, the prospect of rebuilding Lahaina is driving up estimated construction costs across the board for all kinds of construction. So condominiums carrying what would normally have been sufficient insurance to cover replacement costs of, say, $400 per square foot, suddenly are finding themselves significantly underinsured when faced with current cost estimates of perhaps $800 per square foot or higher.

If boards are legally bound to rebuild, and if they are unable to get the approval of owners and lenders to terminate their projects, then the uninsured portion of the rebuilding costs will have to be distributed among the owners according to their shares of the common interest. If construction costs are as high as many fear, many owners will likely be unable to pay or finance such a large amount, and they will be forced to sell their interests.

But all that is in the future.

The issue now hitting condo owners in their pocketbooks is that property insurers are having to examine their exposure to catastrophic losses and raise their rates accordingly. And that’s the best case, if insurers raise rates instead of pulling out of the state.

Condo owners in Lahaina and across the state are going to be grappling with these ramifications of the fire for a long time to come.

Here’s a question: Were any condominiums totally destroyed by Hurricane Iniki in 1992, requiring demolition and total rebuilding? Does anybody know?