Puali rental provision angers buyers

The 12 buyers of homes in the initial phase of Villas at Puali in Puhi recently learned that there is a rental provision in the final public report of County of Kaua’i Ordinance, PM-2005-372 requiring them to live in their homes for seven years prior to having the option to rent.

The county ordinance was created specifically to set the parameters for purchasing the low-priced duplex apartments at the Villas. To acquire one of the homes, buyers agree to abide by the provisions set forth in the ordinance.

The rental provision in the December-released final report states: “Purchasers are further advised the county may interpret the rental of an apartment (before the seven year period) to be a sale or transfer triggering the county’s first option to purchase.”

The county’s first option to purchase within the seven year period is one of three requirements the buyer accepts when buying one of the duplex apartments at the Villas. The other two are shared appreciation by the developer, Diamond Pacific, and the occupancy period of seven years. The shared appreciation clause kicks in if the county declines its first option to purchase. If the home is sold to a third party the developer shares any net appreciation from the sale of the home for a period of seven years.

Some of the 12 Phase I homeowners say the developer, or more specifically, the broker, misled the buyers to believe they could rent out the apartment after one year of occupancy, as opposed to the seven years required by the county.

Cynthia Wallace believes there is a disclosure issue at play in this case.

Many of the buyers of Phase I agree with her, as they showed up to Thursday’s county council meeting to voice their concerns.

Wallace agreed to purchase a Phase I home in late 2004. “I was ecstatic to get into such a beautiful home for such a low price,” Wallace said.

But she is not very happy upon learning about the seven years she must wait to consider options like renting. “What is the advantage of a responsible person not being able to think about renting their home as an option to pay the mortgage?” Wallace said. “Who knows the changes that will come in seven years?”

The county’s intention with the project and the ordinance was to provide middle-income “gap housing” for Kauaians who would buy homes and stay in them, said county council member Jimmy Tokioka.

Developer Matt Deal with Diamond Pacific states in a letter to the council, “Diamond Pacific Homes … has desired all along that the housing built on the site be used as homes for local residents — not as investments or speculation.”

Deal said in the letter that eight or nine speculative buyers dropped their home reservations after the ordinance was developed.

The provision included in the final report caught Phase I buyers by surprise as it was revealed shortly before many were set to close escrow on their homes. “We were forced to sign off (on the seven-year occupancy provision) or not close escrow,” she said.

“We all agreed initially in our purchase agreements to sign an affidavit stating that we would reside in the home for a year,” said Wallace, who signed one when she agreed to purchase her Phase I home in February of last year.

The buyer, Wallace felt at the time, would be free to rent the home after a year.

But that has all changed now. The rental provision revealed in the final public report requires a seven-year occupancy period. County council member Jimmy Tokioka said there is a hardship clause that allows exceptions if the homeowner can prove economic difficulty.

Deal of Diamond Pacific, implies in the letter to the county council dated Jan. 12 that the original ordinance made no reference to renting and that the Kaua’i County Housing Agency contacted him after the ordinance was developed to add the occupancy/rental provision. “Simply put, the ordinance does not restrict renting,” states the letter.

The provision barring renting until after seven years became an amendment after the ordinance was developed and that is why it suddenly appears in the final public report on the ordinance, Deal states. But he also makes clear that he was aware of the amendment as far back as March of last year.

Many of the Phase I buyers who showed up to the council meeting Thursday were not made aware of the amendment until December.

From this point on there is nothing the county can do for the buyers of Phase I, says Tokioka. “There’s nothing we can do now, because after the meeting it was clear, the misrepresentations to the people in Phase I were made clear,” Tokioka said. “What the seller needs to do now is make sure all these people (in the process of buying Villas homes) get called and made aware of this.”

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