SB764 SD2.DOC

SECTION 1. In an editorial published in the Honolulu Advertiser on February 15, 2009, United States Senator Daniel K. Inouye stated, "Americans are struggling with the painful effects of an economic crisis, the likes of which have not been experienced since the Great Depression. If we are to renew the promise of prosperity and opportunity in our nation, we must first halt the downward economic spiral we now confront." The national and state economies are in free-fall.

Businesses in Hawaii are very vulnerable during this time of crisis. The State's primary industry, tourism, has been hard-hit by this recession. Visitor arrivals to the State have reached the lowest levels in thirty years with no relief in sight until the end of next year. Hotel room rates are down 13.7 per cent. This affects not only the hotels, but also restaurants, entertainment, retail, and transportation businesses throughout the state that support the travel industry or rely upon tourism.

During the fourth quarter of 2008, there were ten mass layoffs in Hawaii that resulted in 1,217 workers losing their jobs for at least thirty-one days. The current unemployment rate of 4.9 per cent is the highest in nine years. Every day, there are newspaper headlines about another layoff or business closure. Local businesses are considering cutting their employees' hours.

Hawaii's general fund tax collection in January 2009 was down 4.9 per cent and transient accommodation tax collections for the same month were down eight per cent. The Hawaii Employees Retirement System has lost millions in value. The State is considering furloughing employees.

Foreclosures and job losses are at record levels. Many families are losing all income sources. There were 3,346 home foreclosures in Hawaii last year and that number keeps rising. The Honolulu Star-Bulletin recently reported that residential foreclosures are up by one hundred seventy four per cent over last year. The number of consumer bankruptcy filings in Hawaii has nearly doubled in the last three years and repossessions of automobiles and other personal property are at an all-time high.

It is very clear that unless our State government acts quickly and decisively, our economic downward spiral will continue. While many commercial, industrial, and retail landlords have been working with their tenants to survive this recession by making adjustments to rent on an ad hoc basis, some landlords are increasing the rents for these properties.

The legislature finds that it is in the public interest that its citizens remain employed, that businesses continue to operate and pay wages and taxes, and that financial failures be reduced. The legislature also finds that allowing unfair and unreasonable rent increases for commercial, industrial, and retail leases during this economic crisis will lead to more unemployment and business closures and financial failures. Accordingly, the legislature finds that there is a need to alleviate the economic consequences of allowing unfair and unreasonable rent increases for these properties until the local economy improves.

SECTION 2. Chapter 519, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§519‑ Leases of commercial and industrial property. (a) Notwithstanding any other law to the contrary and unless expressly stated to the contrary in the lease, any lease of commercial or industrial leasehold property shall be subject to the following terms and conditions:

(1) Whenever a lease existing on July 1, 2009, or entered into thereafter, provides for the renegotiation of rent during the term of the lease and the renegotiated rent is based, according to the terms of the lease, on fair and reasonable annual rent as of the commencement of the term, that provision shall:

(A) Be construed to require that the rent shall be fair and reasonable to both the lessor and the lessee to the lease; and

(B) Take into account the uses and intensity of use approved by the lessor, and the surface and subsurface characteristics of the site and the neighborhood on the renegotiation date; and

(2) Unless as otherwise specified in the lease, if the lessee has subtenants with subleases that provide for recovery by the lessee of ground lease rent, those subtenants shall be charged their pro-rata share of the fair and reasonable annual rent as renegotiated pursuant to this paragraph.

(b) For purposes of this section:

"Commercial or industrial leasehold property" means any ground lease of real property:

(1) Situated in the State;

(2) Zoned by a county for commercial or industrial use;

(3) That is subject to a lease with a term of ten years or more and an unexpired term of five years or more; and

(4) Where the lessor is the owner, directly or indirectly, of an aggregate of fifty thousand square feet or more of industrial and commercial property in the State.

"Lease" means a conveyance leasing privately owned land by a fee simple owner as lessor, or by a lessee as sublessor, to any person, for a term exceeding ten years in consideration of a return of rent or other remuneration."

SECTION 3. This Act applies to any lease in effect on its effective date, but does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.

SECTION 4. New statutory material is underscored.

SECTION 5. This Act shall take effect on July 1, 2050.

THE SENATE	S.B. NO.	764
TWENTY-FIFTH LEGISLATURE, 2009		S.D. 2
STATE OF HAWAII