[166-8.5] Rights of holders of security interests. (a) For the purpose of this section:

"Institutional lender" means a federal, state, or private lending institution licensed to do business in the State of Hawaii in making loans to qualified applicants under section 166-7 on the basis of a lease for security, in whole or in part, together with any other entity who acquires all or substantially all of an institutional lender's loan portfolio.

"Making a loan" means lending of new money after June 28, 1999 or the renewal or extension of indebtedness owing by a qualified applicant to an institutional lender.

"Security interest" means any interest created or perfected by a mortgage, assignment by way of mortgage, or by a financing statement and encumbering a lease, land demised by the lease, or personal property located at, affixed or to be affixed to, or growing or to be grown upon the demised land.

(b) Board action shall be required when an institutional lender acquires the lessee's interest through a foreclosure sale, judicial or nonjudicial, or by way of assignment in lieu of foreclosure, or when the institutional lender sells or causes the sale of the lessee's interest in a lease by way of a foreclosure sale, judicial or nonjudicial. The institutional lender shall convey a copy of the sale or assignment as recorded in the bureau of conveyances.

(c) Notwithstanding any provisions of this chapter or any law to the contrary, if any lease is subject to a security interest held by an institutional lender, and provided the institutional lender has given to the board a copy of such encumbrance as recorded in the bureau of conveyances:

(1) If the lease is canceled for violation of any non-monetary lease term or condition, or if the lease is deemed terminated or rejected under bankruptcy laws, [then] in either event, the institutional lender shall be entitled to issuance of a new lease in its name for a term equal to the term of the lease remaining immediately prior to the cancellation, termination, or rejection, with all terms and conditions being the same as in the canceled, terminated, or rejected lease, except only for such liens, claims, and encumbrances, if any, which were superior to the institutional lender prior to the cancellation, termination, or rejection. If a lease is rejected or deemed rejected under bankruptcy law, the lease shall be deemed to be canceled and terminated for all purposes under state law;

(2) If the lessee's interest under a lease is transferred to an institutional lender, including by reason of the provisions of paragraph (1) by reason of acquisition of lessee's interest pursuant to a foreclosure sale, judicial or nonjudicial, and by reason of an assignment in lieu of foreclosure, then:

(A) The institutional lender shall be liable for the obligations of the lessee under the lease for the period of time during which the institutional lender is the holder of lessee's interest but shall not be liable for any obligations of the lessee arising after the institutional lender has assigned the lease;

(B) The provisions of section 166-6(a)(1) and (2) shall not apply to the lease or the demised land during such time the institutional lender holds the lease; provided, however, that for non-monetary lease violations, the institutional lender shall first remedy the lease terms which caused the cancellation, termination, or rejection to the satisfaction of the board; provided further that the new lease issued to the institutional lender shall have a sunset date (one hundred twenty days from the effective date of issuance), when the institutional lender shall either sell or assign the lease, after which date the provisions of section 166-6(a) shall become applicable to the new lease;

(3) As long as there is a delinquent loan balance secured by a security interest, the lease may not be canceled or terminated, except for cancellation by reason of default of the lessee, and no increase over and above the fair market rent, based upon the actual use of the land demised and subject to the use restrictions imposed by the lease and applicable laws, may be imposed or become payable, and no lands may be withdrawn from the lease, except by eminent domain proceedings beyond the control of the board, except with prior written consent by the institutional lender and such consent shall not be unreasonably withheld; and

(4) If the lease contains any provision requiring the payment of a premium to the lessor on assignment of the lease, any premium shall be assessed only after all amounts owing by any debt secured by a security interest held by [an] institutional lender shall have been paid in full.

(d) Ownership of both the lease and the security interest by an institutional lender shall not effect or cause a merger thereof, and both interests shall remain distinct and in full force and effect unless the institutional lender elects in writing to merge said estates with the consent of the board.

(e) The board may include in any consent form or document such provisions not inconsistent with the intent of this section as may be required to make a lease mortgageable or more acceptable for mortgageability by an institutional lender.

(f) The purchaser, including junior lien holder, of the institutional lender's security interest, and the same is assigned to such purchaser, then the rights herein shall be exercisable by such transferee as successor in interest to the institutional lender, except that such purchase shall conform with subsection (c)(4) and, further, the transfer of such rights shall be reserved unto and exercisable only to an institutional lender. Other purchasers may not be precluded in acquiring the institutional lender's security interest but cannot have exercisable rights as successor in interest to the original institutional lender. [L 1999, c 160, 19]


Revision Note


"June 28, 1999" substituted for "the effective date of this Act".



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