In January 2015, Mr. Kealoha purchased a small 2 bedroom 1960’s plantation style home in a VE zone in Kailua-Kona. Although the non-conforming structure was advertised to have been recently remodeled, he has his own plans to add additional bedrooms, completely renovate the kitchen and bathrooms for his family of five.

Hawaii County’s Real Property Tax Office established a 2015 market value for the structure at $250,000. So Mr. Kealoha assumed that he could proceed with his renovation plans without having to bring the entire existing structure to present day flood code if he kept his improvement cost below $125,000 (50% of the 2015 Market Value).

However, Hawaii County has a three year cumulative substantial improvement rule. Mr. Kealoha didn’t know this prior to purchasing the property. Consequently, when he applied for his building permit, he was informed by Hawaii County Planning Department that the $50,000 of improvements that occurred in the prior year, initiated the County’s cumulative substantial improvement tracking. At that time in 2014, the structure’s market value was $225,000 and that first improvement had already depleted 22% of the 50% allowance. Mr. Kealoha was further informed by the County that his proposed improvements, estimated to cost $100,000, would be considered a substantial improvement since the cumulative improvement cost would exceed 50% of the 2014 market value ($225,000).

The substantial improvement determination requires Mr. Kealoha to elevate the entire existing 1960’s plantation style structure above the current BFE identified on the effective FEMA FIRM. Because the structure is located in the VE flood zone, the lowest horizontal structural member must be elevated at or above the BFE.

2014 2015
Improvement Cost $50,000 $100,000
Market Value $225,000
Cumulative improvement/Market Value 22% 67%

 

Previous Improvements ($50,000) + Mr. Kealoha’s Improvements ($100,000)        = 67%

Market Value in 2014 ($225,000)

So in order for Mr. Kealoha to stay below the 50% threshold he can only do up to $62,500 worth of improvements BEFORE he will be required to bring the entire house up to present day flood code. However, since the Hawaii County tracking period is only three years, he could carry out his renovations in phases. He can do up to $62,500 worth of renovations over 2015/2016. Then the three year tracking period will reset in 2017 after which he could carry out the remaining renovations.