Establishes that for rental reopenings of state agricultural leases, fair market rental shall be determined through an income capitalization approach considering the potential agricultural yield from the property. (HB167 HD2)

A BILL FOR AN ACT

SECTION 1. Article XI, section 10, of the Constitution of the State of Hawaii declares that "public lands shall be used for the development of farm and home ownership on as widespread a basis as possible...." Fulfilling this mandate has become more difficult in recent years, however, as the booming Hawaii real estate market has fueled large increases in the price of state agricultural leases. Lessees with scheduled rental reopenings may be faced with significant increases in their lease rents. Such increases will adversely affect their ability to continue their farming operations.

The legislature finds that to address this growing problem, the appraisal of lease rents on reopening should be based on fair market rental that takes into account the income and potential agricultural yield from the leased lands.

The purpose of this Act is to stabilize state agricultural lease rents by establishing that for rental reopenings of state agricultural leases, fair market rental shall be determined through an income capitalization approach considering the potential agricultural yield from the property.

SECTION 2. Section 171-17, Hawaii Revised Statutes, is amended by amending subsection (d) to read as follows:

"(d) In the event of reopening of the rental to be paid on a lease, the rental for any ensuing period shall be the fair market rental at the time of reopening. For state agricultural leases, fair market rental shall be determined through an income capitalization approach considering the potential agricultural yield from the property.

and the lessee shall be promptly notified of the determination; provided that should the lessee fail to agree upon the fair market rental, the lessee may appoint the lessee's own appraiser who together with the board's appraiser shall appoint a third appraiser and the fair market rental shall be determined by arbitration as provided in chapter 658A. The lessee shall pay for the lessee's own appraiser, the board shall pay for its appraiser, and the cost of the third appraiser shall be borne equally by the lessee and the board. Any language in present leases to the contrary notwithstanding, the provisions of this subsection, when possible and notwithstanding the six-month notice required, shall apply to leases with original lease rental reopening dates effective before and after July 1, 1996."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2010.