HB2191 HD1

SECTION 1. The legislature finds that many of the leases for commercial, industrial, resort, and government properties on public land statewide may be nearing the end of the lease term. Faced with the uncertainty of continued tenancy, lessees have little incentive to make major investments in infrastructural improvements and to ensure the long-term maintenance of the facilities. As a result, the infrastructure on these properties has been deteriorating.

The legislature finds that business lessees typically sell or assign their leases that are nearing the end of the lease terms at a discount. The legislature further finds that it would be unfair to the prior assignors of the leases if the State granted extensions of leases that previously could not be extended under existing law or extensions of lease terms to the newly assigned lessees who acquired their leases at a discount due to short remaining lease terms.

The purpose of this Act is to authorize the board of land and natural resources to extend commercial, industrial, resort, or governmental leases, other than those to which the University of Hawaii is a party, that have not been sold or assigned within the last ten years, for lessees who commit to making substantial improvements to the existing improvements.

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

"§171‑ Commercial, industrial, resort, or government leases; extension of term. (a) Notwithstanding section 171-36, for leases that have not been assigned or transferred within ten years prior to receipt of an application for a lease extension submitted pursuant to this section, the board may extend the rental period of a lease of public lands for commercial use, industrial use, resort use, or government use upon approval by the board of a development agreement proposed by the lessee or by the lessee and developer to make substantial improvements to the existing improvements; provided that this section shall not apply to public lands controlled by the department of Hawaiian home lands and leased pursuant to the Hawaiian Homes Commission Act of 1920, as amended, unless such lease is for commercial use. For the purposes of this subsection, the term "assigned or transferred" shall not include:

(1) A sale or change in ownership of a lessee that is a company or entity; or

(2) A collateral assignment of lease or other security granted to a leasehold mortgagee in connection with leasehold financing by a lessee.

(b) Prior to entering into a development agreement, the lessee or the lessee and developer shall submit to the board the plans and specifications for the total development proposed. The board shall review the plans and specifications and determine:

(1) Whether the development proposed in the development agreement is of sufficient worth and value to justify the extension of the lease;

(2) The estimated period of time to complete the improvements and expected date of completion of the improvements; and

(3) The minimum revised annual rent based on the fair market value of the lands to be developed, as determined by an appraiser for the board, and if deemed appropriate by an appraiser, the appropriate percentage of rent where gross receipts exceed a specified amount.

No lease extension shall be approved until the board and the lessee or the lessee and developer mutually agree to the terms and conditions of the development agreement.

(c) No construction shall commence until the lessee or the lessee and developer have filed with the board a sufficient bond conditioned upon the full and faithful performance of all the terms and conditions of the development agreement.

(d) Any extension of a lease pursuant to this section shall be based upon the substantial improvements to be made and shall be for a period not longer than forty years. No lease shall be transferable or assignable throughout the first ten years of the extended term, except by devise, bequest, intestate succession, a collateral assignment of lease or other security granted to a leasehold mortgagee in connection with leasehold financing by a lessee, a change in direct ownership of less than fifty per cent of a lessee that is a company or entity, a change in indirect ownership of a lessee that is a company or entity, or by operation of law. The prohibition on assignments and transfer of leases shall include a prohibition on conveyances of leases. During subsequent periods of the extended term of the lease, the lease may be assigned or transferred, subject to approval by the board.

(e) The applicant for a lease extension shall pay all costs and expenses incurred by the department in connection with processing, analyzing, or negotiating any lease extension request, lease document, or development agreement under this section.

(f) As used in this section:

"Government use" means a development undertaken under a lease held by any agency or department of the State or its political subdivisions other than the University of Hawaii or any department, agency, or administratively attached entity of the University of Hawaii system.

"Resort use" means a development that provides transient accommodations as defined in section 237D-1 and related services, which may include a front desk, housekeeping, food and beverage, room service, and other services customarily associated with transient accommodations; provided that no development shall qualify as a resort use under this section unless at least seventy-five per cent of the living or sleeping quarters in the development are used solely for transient accommodations for the term of any lease extension.

"Substantial improvements" means any renovation, rehabilitation, reconstruction, or construction of existing improvements, including minimum requirements for off-site and on-site improvements, the cost of which equals or exceeds thirty per cent of the market value of the existing improvements, that the lessee or the lessee and developer installs, constructs, and completes by the date of completion of the total development."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2050, and shall be repealed on June 30, 2025.

HOUSE OF REPRESENTATIVES	H.B. NO.	2191
THIRTIETH LEGISLATURE, 2020		H.D. 1
STATE OF HAWAII