HB575 SD1.DOC

SECTION 1. The legislature finds that public land leases are statutorily limited to sixty-five years without the possibility of renewing the terms of the lease, which leaves businesses that have existed in the community for decades with limited options. Additionally, in Act 142, Session Laws of Hawaii 2015, the legislature expressed concern that one of the consequences of the State's public land lease law is that existing lessees may have little incentive to make, or the ability to finance, major repairs or improvements to their leasehold properties during the last five to fifteen years of the lease, which sometimes results in the deterioration of infrastructure and facilities.

The legislature therefore concludes that creating a mechanism to assist these lessees and encourage economic development in leasehold properties is in the public interest. Allowing lessees to relinquish their lease in the final decade of the lease term will incentivize lessees to maintain the land and buildings at a high standard. Furthermore, allowing the relinquishing lessee to bid on a new lease encourages long-term business growth and development, which benefits communities. Finally, requiring lands to be disposed of at public auction ensures that the State meets its fiduciary duty to manage state lands in the best interests of the public.

The purpose of this Act is to best serve the public use and public purpose of state lands that are being used for commercial purposes by allowing the lessees of state lands who are within the last ten years of their land lease to voluntarily request that the lease be put up to bid at a public auction and by allowing the lessee to bid on a new lease.

SECTION 2. Chapter 171, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§171- Leases; relinquishment. (a) Notwithstanding any provision of law to the contrary, a lessee of public land that is subject to the management, administration, or control of the department may relinquish a lease during the last ten years of the term of the lease, as provided in this section.

(b) Prior to relinquishing the lease, the lessee shall:

(1) Provide the board with no less than ninety days' written notice of the intent to relinquish the lease;

(2) Contract with a real estate appraiser licensed or certified pursuant to chapter 466K to determine the current depreciated or residual value of any improvements to the land; and

(3) Contract with a real estate appraiser licensed or certified pursuant to chapter 466K to determine the fair market value of the land.

If the board fails to agree to the appraised value determined pursuant to paragraph (2) or (3), the department may contract with an appraiser licensed or certified pursuant to chapter 466K and agreed to by the lessee, and the value or values not agreed to by the board shall be determined by arbitration as provided in chapter 658A. If the lessee disagrees with the department's selection of the appraiser, the board shall select the appraiser. The cost of contracting with the appraiser shall be borne entirely by the lessee.

(c) Unless specifically required to do so by the board, a relinquishing lessee shall not be required to remove improvements or restore the land to a vacant condition; provided that, without prejudice to any other rights or remedies that either party may have, this subsection shall not alter any obligation of a relinquishing lessee to indemnify, defend, and hold the State harmless from any claims regarding pollution or contamination of the land with potentially hazardous substances.

(d) Upon relinquishment of the lease, the board shall dispose of the land by public auction as provided in section 171-14; provided that the auction upset price shall be the greater of the current ground rent or the appraised fair market rent, as if the land were vacant and unimproved. The relinquishing lessee may bid on the new lease at the public auction; provided that, if the relinquishing lessee does not bid or is not awarded the lease after the public auction, the relinquishing lessee shall vacate the land within one hundred twenty days, unless the department agrees to allow a longer term to vacate.

(e) Lease terms for the new lease shall be determined by the board; provided that if the lease is awarded after public auction to any party other than the relinquishing lessee, the lease rent shall include a premium equal to the residual value of any improvements to the land, as determined pursuant to subsection (b), which shall be paid to the relinquishing lessee prior to transfer of the land and improvements to the new lessee.

(f) The lease rent established in any new lease issued pursuant to this section shall not be less than the greater of the current ground rent or the appraised fair market rent of the lease being relinquished pursuant to this section.

(g) This section shall not apply to:

(1) Any lessee who is in arrears in the payment of taxes, rents, or other obligations owing to the State or any county or who has had, during the five years preceding the anticipated disposition of the public land at a public auction, a sale, lease, license, permit, or easement covering other public lands canceled for failure to satisfy the terms and conditions thereof; or

(2) Any lease that is subject to cancellation for failure to satisfy the terms or conditions of a lease, license, permit, or easement covering the public lands.

(h) As used in this section, "improvements" means all physical improvements constructed, owned, or constructed and owned by the lessee during the lease term and shall exclude all infrastructure constructed, owned, or constructed and owned by third parties, such as water and sewer pipes, electricity and telephone lines and cables, or other infrastructure."

SECTION 3. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2017-2018 and the same sum or so much thereof as may be necessary for fiscal year 2018-2019 for costs incurred in the implementation of this Act.

The sums appropriated shall be expended by the department of land and natural resources for the purposes of this Act.

SECTION 4. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

SECTION 5. If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the invalidity does not affect other provisions or applications of the Act that can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 6. New statutory material is underscored.

SECTION 7. This Act shall take effect on March 15, 2099.

HOUSE OF REPRESENTATIVES	H.B. NO.	575
TWENTY-NINTH LEGISLATURE, 2017		H.D. 1
STATE OF HAWAII		S.D. 1