STAND. COM. REP. NO. 2639

Honolulu, Hawaii

RE:    S.B. No. 3196

Honorable Colleen Hanabusa

President of the Senate

Twenty-Fourth State Legislature

Regular Session of 2008

State of Hawaii

Madam:

     Your Committee on Commerce, Consumer Protection, and Affordable Housing, to which was referred S.B. No. 3196 entitled:

"A BILL FOR AN ACT RELATING TO LEASE TO FEE CONVERSION,"

begs leave to report as follows:

     The purpose of this measure is to ensure that the association of apartment owners or cooperative housing corporation has a right of first refusal to purchase the leased fee interest in land under the condominium or cooperative project if the owner of the fee interest intends to sell it.

     Specifically, this measure preserves the intent of chapter 514C, Hawaii Revised Statutes, by granting the association of apartment owners or the cooperative housing corporation the right of first refusal when a lessor has displayed an objective intent to sell, or has accepted a written offer to purchase prior to or within two years after the termination of the lease.

     Testimony in support of this measure was submitted by the Hawaii Council of Associations of Apartment Owners; Monarch Properties, Inc.; The Kailuan, Inc.; and one private individual.

     In January 2008, the leasehold owners of The Kailuan cooperative project were ordered to move out of their units by February 15, 2008, pursuant to a Circuit Court judge's ruling in favor of Kaneohe Ranch Co., owner of the expired groundlease under The Kailuan.  Kaneohe Ranch argued that the law gave The Kailuan a right of first refusal only if Kaneohe Ranch was going to sell the property when The Kailuan's lease was still in effect, but since there was never any offer to sell the property, The Kailuan never had a right of first refusal.

     Your Committee finds that chapter 514C, Hawaii Revised Statutes, currently reads that the right of first refusal law is in place when the leased fee interest in land under a condominium or cooperative project "is to be sold."  Your Committee recognizes that amending the law so that the association of apartment owners or the cooperative housing corporation is entitled to the right of first refusal on the purchase of a property when the owner has displayed an objective intent to sell, or accepted a written offer to purchase the property, not only before expiration, but also within two years afterward, will not help The Kailuan owners, whose dispute was handled under existing law, but will prospectively affect some 1,500 or more leasehold property owners whose leases expire over the next decade.

     As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection, and Affordable Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 3196 and recommends that it pass Second Reading and be placed on the calendar for Third Reading.

Respectfully submitted on behalf of the members of the Committee on Commerce, Consumer Protection, and Affordable Housing,

____________________________

RUSSELL S. KOKUBUN, Chair