Spatial And Nested Condominiums
Prior to 2006, spatial condominiums were not recognized by the Real Estate Commission. When Hawaii’s Legislature re-codified Hawaii’s 50-year old condominium law and expressly permitted the creation of spatial condominiums, it opened a whole new avenue of opportunity for owners and developers to structure projects that need the flexibility that spatial units provide. The spatial condo permits a developer to create separate units that encompass an area of land and/or air without the need to subdivide property. This simple concept permits a developer to, as an example, create a separate unit for a hotel, or a commercial space, on, above, or below, a portion of a subdivided lot.
Some examples of how this may be utilized include the creation of a multiple spatial units on a large unsubdivided lot to short cut a lengthy subdivision process. In other instances, where a large unsubdivided lot has multiple zoning designations, it could permit the creation of a condo that fits the respective uses of the designated zoning areas. If a lot is zoned both for urban and conservation use, the urban portion could be designated for urban uses and sold and/or be developed as such, while the conservation portion could be a separate unit unto itself and held for conservation use, as contemplated by existing land use designations.
These advances in statutory law are remarkable in and of themselves, but when this concept is also married with the ability of a developer to then create a separate condo regime within a spatial unit, the options for a developer are boundless. This year, the Commission embraced the concept of what is called a “nested” condominium (so named because it contemplates that a unit will be created within an existing unit, and is therefore “nested” in that unit) in at least two instances. This relatively new concept of creating a condo regime within an existing unit opens up a whole new set of options for developers who are looking to develop a mixed-use project. The developer now has the ability to create a “large condo condo” (analogous to a large lot subdivision) and use each spatial unit as a separate space to develop different products.
While there are complexities associated with such a legal structure, the end result is that this new development in the law, as recognized by the Commission, opens the door for a host of legal solutions not available before in Hawaii. It should serve to facilitate the financeability of these complex multi-use projects by separating the various interests, and by mitigating, to some degree, the risks associated with particular portions of the project.