SB2456.DOC

SECTION 1. The legislature finds that ownership of commercial and industrial land in Hawaii is concentrated in the hands of a few landowners who have refused to sell the fee simple titles to their lands, instead choosing to enter into long-term leases. These landowners have raised rents on the basis of artificial fair market values, and when land has been offered for sale, it has been offered at prices reflecting artificially created, speculative land values that do not reflect actual fair market values.

The legislature also finds that Hawaii has an exceptionally high rate of leasehold ownership, with approximately sixty per cent of commercial and industrial land under leasehold. In the very near future, hundreds of commercial and industrial leases will expire. This could potentially lead to thousands of businesses looking for suitable properties to which they can relocate.

The purpose of this Act is to:

(1) Require lessors of commercial and industrial property to afford lessees the option of renewing their leases; and

(2) Require, in leasehold renegotiations, that a rent based on fair market value shall apply even if the value is lower than the existing rent and the contract bars the lowering of rent upon renegotiation.

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

"§519- Commercial and industrial leases; renewal. (a) For all leases of commercial, business, manufacturing, mercantile, or industrial or other nonresidential property, if for a term of five years or more, including extensions, renewals, or any other period accumulating to any particular lease or tenant, the lessor shall afford the lessee the option to renew the lease according to terms that are fair and reasonable to both the lessor and lessee.

(b) For leases renewed under this section:

(1) The rate of return shall be not more than five per cent; provided that if the lessor agrees to subordinate the fee to the lease, the lessor and lessee may agree to any rate of return;

(2) The land value shall be:

(A) Established by an appraiser pursuant to chapter 466K; and

(B) Based upon the tax-assessed valuation from 1985, adjusted by the increase in the consumer price index; and

(3) The renewal shall be for not less than thirty-five years, with a rent that is fixed for the initial fifteen years and renegotiated every ten years thereafter.

(1) Purchase fee simple title to the property based upon the appraisal conducted under this section; or

(2) Decide not to purchase the fee simple title; provided that upon the lessee surrendering the lease and leasehold improvements to the lessor, a one hundred per cent windfall surcharge tax based upon the then tax-assessed valuation of the leasehold improvements made by the lessee shall be assessed to the lessor."

SECTION 3. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

REAL PROPERTY LEASES

§ -1 Definitions. As used in this chapter, unless the context clearly requires otherwise:

"Fee owner" means the person who owns the fee simple title to the real property leased under a property development and the person's heirs, successors, legal representatives, and assigns.

"Lease" means the conveyance of land or an interest in land by a fee simple owner, or other lessor, to a lessee who owns the project situated on the land for an original or extended lease term of thirty years or more in consideration of payment of rent or other recompense.

"Leased fee" or "leased fee interest" means reversionary interests of the fee owner, lessor, and all legal and equitable owners of land that are leased, other than the lessee's or a sublessee's interest.

"Legal and equitable owners" means the fee simple owners and all persons having legal or equitable ownership interests in the leased fee or in the lessor's leasehold estate, including mortgagees, developers, lienors, and sublessors, and their respective heirs, successors, legal representatives, and assigns.

"Lessee" means any person who owns a project and to whom land upon which the project is located is leased, including the person's heirs, successors, legal representatives, and assigns.

"Lessor" means any person who leases or subleases land to another, and the person's heirs, successors, legal representatives, and assigns.

"Lessors", "lessees", "fee owners", and "legal and equitable owners" include individuals, both masculine and feminine; corporations, firms, associations, partnerships, limited liability companies, trusts, and estates; and the State of Hawaii and any county or other political subdivision of the State. When more persons than one are the lessors, lessees, fee owners, or legal and equitable owners of a lot, the terms apply to each of them, jointly and severally.

"Master lease" means the dominant lease in a property development issued or assigned by the fee owner, or the lessor, to the owner of a project, all or portions of which may be subleased to occupants.

"Uniform standards" means the current Uniform Standards of Professional Appraisal Practice approved by the director of commerce and consumer affairs pursuant to section 466K-4(a).

§ -2 Lease renegotiations; calculation of rent; definition. Whenever any agreement or document for the lease of private lands provides for the renegotiation of the rental amount or other recompense during the term of the lease, and the renegotiated rental amount or other recompense is based, according to the terms of the lease, in whole or in part upon the fair market value of the land, or the value of the land as determined by its highest and best use, or words of similar import, such value, for the purposes of determining the amount of rental or other recompense, shall be calculated upon the use to which the land is restricted by the lease document; provided that:

(1) Fair market value per square foot shall be determined in conformance with the uniform standards;

(2) Any disputes over value shall be settled by the procedure selected by the lessee and not by arbitration under chapter 658A; and

(3) Any other provision or remedy afforded any class of lessee in this chapter or in any other law relating to the lease of real property shall be equally available to all lessees; and no provision, right, benefit, or remedy afforded to any class of lessee or tenant by this chapter or in any other law or rule shall be denied to any other class, lessee, or tenant.

§ -3 Rules. The Hawaii housing finance and development corporation shall adopt rules pursuant to chapter 91 as may be necessary to implement this chapter.

§ -4 Applicability. This chapter applies to all property developments that are occupied by lessees pursuant to master leases whether executed before or after the effective date of this chapter.

§ -5 Priority. If this chapter conflicts with another state law, this chapter shall prevail."

SECTION 4. New statutory material is underscored.

SECTION 5. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2456
TWENTY-SIXTH LEGISLATURE, 2012
STATE OF HAWAII