REPORT TITLE:
Leasehold


DESCRIPTION:
Establishes a fair market value standard for appraising the value
of the leased fee interest of real property to be purchased by a
lessee.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           876
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO RESIDENTIAL LEASE-TO-FEE CONVERSION.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  The legislature finds that a standard is needed
 
 2 to clarify the conditions in which a fee simple owner offers a
 
 3 leased fee interest in residential real property to be purchased
 
 4 by a lessee.  The appraisal of real property involved should be
 
 5 based on its fair market value to ensure equity and fairness in
 
 6 the process.
 
 7      According to John W. Reilly in his book The Language of Real
 
 8 Estate in Hawaii, "The valuation of a lessor's interest is a
 
 9 complex procedure involving capitalization rates and present
 
10 value tables to ascertain the present value of the landlord's
 
11 reversion interest and the present value of the rented income."
 
12      One method to accomplish this purpose would be to first
 
13 calculate the fair market value of the real property.  After
 
14 determining the total interest of the fee owner, this percentage
 
15 of the property would be assigned to determine proportionate
 
16 percentages of ownership between the fee owner and the lessee.
 
17      The purpose of this Act is to establish a fair market value
 
18 standard for determining the value of the leased fee interest to
 
19 be purchased by a lessee.
 

 
Page 2                                                     
                                     S.B. NO.           876
                                                        
                                                        

 
 1      SECTION 2.  The Hawaii Revised Statutes is amended by adding
 
 2 a new chapter to be appropriately designated and to read as
 
 3 follows:
 
 4                             "CHAPTER
 
 5               FAIR MARKET VALUE CONVERSION STANDARD
 
 6      §    -1 Definitions.  As used in this chapter:
 
 7      "Fair market value" means that amount of money that a
 
 8 purchaser willing, but not obliged, to buy an interest in land
 
 9 would pay an owner willing, but not obliged, to sell it, taking
 
10 into consideration all uses to which the land is adapted or might
 
11 in reason be applied.
 
12      "Fee simple owner" and "fee owner" means the person who owns
 
13 the fee simple title to the land which is leased, including a
 
14 life tenant with a remainder over, vested or contingent, and a
 
15 holder of a defeasible estate, and the holder's heirs,
 
16 successors, legal representatives, and assigns.
 
17      "Lease" means a conveyance of land or an interest in land,
 
18 by a fee simple owner as lessor, or by a lessee or sublessee as
 
19 sublessor, to any person, in consideration of a return of rent or
 
20 other recompense, for a term, measured from the initial date of
 
21 the conveyance, of twenty years or more (including any periods
 
22 for which the lease may be extended or renewed at the option of
 
23 the lessee).
 

 
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                                     S.B. NO.           876
                                                        
                                                        

 
 1      "Lessee" means any person to whom land is leased or
 
 2 subleased, and the lessee's heirs, successors, legal
 
 3 representatives, and assigns.
 
 4      "Property" means residential real property involved in a
 
 5 lease-to-fee conversion under this chapter.
 
 6      "Standard" means the fair market value conversion standard
 
 7 established in section    -2.
 
 8      §   -2 Fair market value conversion standard.  (a)  There
 
 9 is established the fair market value conversion standard by which
 
10 a fee simple owner shall offer the leased fee interest in
 
11 residential real property to be purchased by a lessee.  The
 
12 purpose of this standard is to provide a consistent method
 
13 ensuring equity and fairness to both the fee simple owner and the
 
14 lessee.
 
15      (b)  The value of a lease-to-fee conversion of residential
 
16 real property shall be based on the fair market value conversion
 
17 standard as follows:
 
18      (1)  A qualified real estate appraiser shall complete a
 
19           leased fee analysis of the property to determine the
 
20           fair market value of the property;
 
21      (2)  The fee owner's total interest in the property is
 
22           calculated;
 
23      (3)  After determining the total interest of the fee owner,
 

 
Page 4                                                     
                                     S.B. NO.           876
                                                        
                                                        

 
 1           this percentage of the property would be assigned to
 
 2           determine proportionate percentages of ownership
 
 3           between the fee owner and the lessee; and
 
 4      (4)  The amount for the lease-to-fee conversion would then
 
 5           be calculated based on the percentages set forth in
 
 6           paragraph (3)."
 
 7      SECTION 3.  This Act shall take effect upon its approval.
 
 8 
 
 9                           INTRODUCED BY:_________________________