REPORT TITLE:
Hawaii Land Law


DESCRIPTION:
Provides that any lessee under a long-term lease of residential
or commercial land shall have the right to purchase the fee
simple title to the land by providing for redemption of the land
by the adoption of the Maryland redemption formula.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           1594
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                     A BILL FOR AN ACT

RELATING TO THE LEASEHOLD REDEMPTIONS.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:


 1      SECTION 1.  The purpose of this Act is to bring about
 
 2 fundamental social change by means of a statutory leasehold
 
 3 redemption covenant providing that all leases of residential real
 
 4 property executed after the effective date of this Act, including
 
 5 but not limited to residential condominiums or residential
 
 6 cooperatives, if for a term of three years or more including
 
 7 extensions, renewals, or any other accumulation of lease time to
 
 8 any particular lessee, and all leases of commercial, business,
 
 9 manufacturing, mercantile, industrial, or other nonresidential
 
10 real property executed after the effective date of this Act, if
 
11 for a term of five years or more including extensions, renewals,
 
12 or any other lease term accumulating to any particular lessee,
 
13 may be ended at the option of the lessee or tenant after notice
 
14 of one month to the landowner, upon payment to the landowner of a
 
15 sum equal to the capitalized value of the rent due under or
 
16 reserved by the lease after the expiration of the minimum lease
 
17 terms specified above from the date of such lease, or any
 
18 sublease thereof, at a rate of twelve per cent simple interest
 
19 per year, and upon such payment to have the fee simple title to
 

 
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                                     S.B. NO.           1594
                                                        
                                                        

 
 1 the land vest in the lessee or tenant.  This Act makes unlawful
 
 2 any land lease executed after the effective date of this Act that
 
 3 is for less than ninety-nine years if that lease is not
 
 4 automatically renewable forever.
 
 5      SECTION 2.  The Hawaii Revised Statutes is amended by adding
 
 6 a new chapter to be appropriately designated and to read as
 
 7 follows:
 
 8                             "CHAPTER
 
 9               LANDLORD AND TENANT - HAWAII LAND LAW
 
10         -1  Legislative findings and declaration of necessity;
 
11 purpose.(a)  The legislature finds that:
 
12      (1)  There is a concentration of land ownership in the State
 
13           in the hands of a few landowners who have refused to
 
14           sell the fee simple titles to their lands and who have
 
15           instead engaged in the practice of leasing their lands
 
16           under long-term leases;
 
17      (2)  Landowners have raised rents on the basis of artificial
 
18           fair market values, and when land has been offered for
 
19           sale, it has been offered for sale at prices reflecting
 
20           artificially created, speculative land values which do
 
21           not reflect actual fair market values;
 
22      (3)  Due to the shortage of fee simple residential and
 
23           commercial land and the artificial inflation of
 

 
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                                     S.B. NO.           1594
                                                        
                                                        

 
 1           residential and commercial land values, the people of
 
 2           the State have been deprived of a choice to own or take
 
 3           a lease of land on which their homes, apartments, or
 
 4           businesses are situated and have been required instead
 
 5           to either purchase the fee at artificially inflated
 
 6           prices, or required to accept long-term leases of the
 
 7           land which contain terms and conditions that aid and
 
 8           abet land speculation;
 
 9      (4)  The public health and welfare as well as the economy of
 
10           the State are in peril as a direct result of Hawaii's
 
11           feudal land system that fosters land speculation, and
 
12           in order to remedy this situation, land speculation in
 
13           the State must be restrained;
 
14      (5)  The cost of all land speculation, residential or
 
15           commercial, is ultimately passed on to the consumer.
 
16           The cost of living in Hawaii is and has been very high
 
17           reflecting these costs.  Consumer income is finite.
 
18           Land speculation competes directly with consumer food
 
19           and health care budgets.  To the extent that land
 
20           speculation takes money out of the State's economy, the
 
21           health and welfare of this society are at risk.  The
 
22           interests of all of the people of Hawaii are best
 
23           served by legislative recognition that land speculation
 

 
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                                     S.B. NO.           1594
                                                        
                                                        

 
 1           is not in the public interest.  Stabilizing the costs
 
 2           of land, or at least slowing artificial inflation of
 
 3           land values, will help control the rising cost of
 
 4           living in Hawaii and ultimately contribute to the
 
 5           welfare of all the people of the State by improving the
 
 6           people's standard of living;
 
 7      (6)  The Constitution of the State of Hawaii provides the
 
 8           State with the power to protect the public health and
 
 9           welfare.  The rising cost of residential and commercial
 
10           land tied to other cost of living increases is swelling
 
11           the ranks of those persons unable to maintain a decent
 
12           and healthful standard of life.  The inflationary trend
 
13           of artificially created land values is jeopardizing the
 
14           health and welfare of the citizens of this State.  The
 
15           pervasive and substantial contribution made to
 
16           inflation by high land values caused by land
 
17           speculation creates a potential for economic
 
18           instability and disruption of the social order.
 
19           Economic inflation, instability, and social disruptions
 
20           have real and potentially damaging consequences for all
 
21           members of this society.  Checking inflation, improving
 
22           the stability of the economy, and forestalling economic
 
23           and social disruption are productive of general benefit
 

 
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                                     S.B. NO.           1594
                                                        
                                                        

 
 1           to all members of Hawaii's society.  The legislature
 
 2           has enacted this chapter in order to forestall the
 
 3           further adverse impact of land speculation on the
 
 4           public health and welfare;
 
 5      (7)  The right to own land is not an irrevocable grant of a
 
 6           special privilege where it operates against the general
 
 7           welfare of the many for the particular benefit of a
 
 8           few.  The concentration of land ownership in the hands
 
 9           of a small number of persons or entities is not in the
 
10           public interest;
 
11      (8)  Land, in common with other natural resources such as
 
12           air and water, is of finite quantity, a fact
 
13           particularly obvious in Hawaii.  Land, like air and
 
14           water, is essential to the social order.  The State has
 
15           a responsibility to ensure that land, air, or water are
 
16           not subjects of speculation or monopoly.  The
 
17           legislature has already recognized the special status
 
18           of water pursuant to chapter 174C, the State Water
 
19           Code, which provides that the waters of the State are
 
20           held for the benefit of the citizens of the State.  In
 
21           recent decades there has been growing general agreement
 
22           that the wise conservation, preservation, use, and
 
23           management of exhaustible natural resources such as
 

 
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                                     S.B. NO.           1594
                                                        
                                                        

 
 1           land, air, or water are matters mandating an active
 
 2           governmental role;
 
 3      (9)  There is an intimate relationship between the monetary
 
 4           values accorded land in Hawaii and the stability and
 
 5           strength of the State's economy as a whole.  Land
 
 6           values, artificially inflated by the high concentration
 
 7           of ownership, skew the State's economy toward
 
 8           unnecessarily high levels.  The sound and wise
 
 9           conservation, preservation, use, and management of land
 
10           cannot be separated from patterns of land ownership.
 
11           To accomplish the public purposes of wisely conserving,
 
12           preserving, using, and managing the land in the State
 
13           requires changing present patterns of land ownership.
 
14           Public laws, programs, and policies which contribute to
 
15           the realization of these public purposes serve a public
 
16           use since they ultimately benefit the entire community.
 
17           Changing present patterns of land ownership by allowing
 
18           residential and commercial lessees under long-term
 
19           leases of land to purchase in fee simple, absolute or
 
20           otherwise, the land on which their homes and businesses
 
21           are situated, through governmental intervention
 
22           including the government's exercise of its health and
 
23           safety power is in the public interest;
 

 
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                                     S.B. NO.           1594
                                                        
                                                        

 
 1     (10)  A spiraling cost of living lessens the quality of life
 
 2           of all members of this afflicted society and is
 
 3           particularly indivious in its impact on the increasing
 
 4           numbers of this society who are in poverty and low
 
 5           through middle income groups.  The State has a limited
 
 6           number of opportunities to curb speculative inflation
 
 7           and perhaps the only practical means available is the
 
 8           State's power to control land value.  There is a
 
 9           pressing public necessity for the State to do whatever
 
10           it can to curb inflation and to keep the cost of living
 
11           at a level where it is possible and manageable in order
 
12           to enhance the public health and welfare.  The
 
13           obligation of the legislature to protect the public
 
14           health and welfare is best served by the ability of
 
15           lessees to redeem the fee ownership of land under a
 
16           formula first applied by the State of Maryland before
 
17           the turn of the century in order to resolve a similar
 
18           social dilemma;
 
19     (11)  Legislation providing lessees under long-term leases of
 
20           residential and commercial land on which their homes
 
21           and businesses are situated the ability to enjoy the
 
22           land through ownership of the land in fee simple,
 
23           absolute or otherwise, is a public purpose in the
 

 
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                                     S.B. NO.           1594
                                                        
                                                        

 
 1           public interest of the entire State's society;
 
 2     (12)  The concept of fair market value with regard to lease
 
 3           redemption or lease rent renegotiations is an unfair
 
 4           burden on society since the concept is based upon
 
 5           artificial market conditions caused by too much land in
 
 6           the hands of too few owners.  The concept of fair
 
 7           market value applied to rent renegotiations requires
 
 8           the lessee to negotiate a rent escalation in the middle
 
 9           of the lease when the lessee is captive and has no real
 
10           bargaining power, a process that is completely one-
 
11           sided;
 
12     (13)  Commercial percentage leases where the tenant never
 
13           stops paying the rent, "sandwich" leases, and leases
 
14           involving "key money" leases encourage land
 
15           speculation.  All land speculation costs are ultimately
 
16           passed on to the consumer and thereby raise the cost of
 
17           living excessively and are not in the public interest;
 
18     (14)  The interests of society are best served when those who
 
19           make land productive have the statutory right to
 
20           purchase the fee simple interest in their land leases
 
21           through statutory redemption;
 
22     (15)  Offshore, absentee land ownership tends to accelerate
 
23           land speculation which is not in the public interest;
 

 
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                                     S.B. NO.           1594
                                                        
                                                        

 
 1     (16)  The purpose of this chapter is to break up long,
 
 2           irredeemable leases rather than provide any special
 
 3           consideration for lessors or lessees;
 
 4     (17)  This chapter is enacted for the benefit of the public
 
 5           and not out of consideration for the parties to the
 
 6           lease;
 
 7     (18)  The rights created by this chapter are as fully
 
 8           enforceable as if the lease creating the rents had
 
 9           contained a formal covenant on the part of the lessor
 
10           to permit such redemption or the right of redemption is
 
11           read into the lease;
 
12     (19)  This chapter shall be liberally interpreted to prohibit
 
13           irredeemable leases for long-terms;
 
14     (20)  This chapter draws no distinction between leases of the
 
15           ground and leases of buildings or building leases
 
16           because generally the lease of a house or building
 
17           carries with it the land on which the building stands;
 
18     (21)  This chapter is prospective in its character and effect
 
19           and has no application to leases made prior to its
 
20           adoption;
 
21     (22)  This chapter shall be liberally interpreted against
 
22           land speculators and land speculation; and
 
23     (23)  Land leases of less than ninety-nine years executed
 

 
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                                     S.B. NO.           1594
                                                        
                                                        

 
 1           after the effective date of this chapter that are not
 
 2           automatically renewable are against the public
 
 3           interest.  This chapter creates a covenant attached to
 
 4           all leases dated after the effective date of this
 
 5           chapter creating an automatically renewable ninety-nine
 
 6           year lease in all such leases.  All conflicting
 
 7           language in any lease dated after the date this chapter
 
 8           is enacted is void, but without effect to lease
 
 9           language that does not conflict with this chapter.
 
10      (b)  It is therefore declared to be necessary and it is the
 
11 purpose of this chapter to alleviate the conditions enumerated in
 
12 subsection (a) by providing for the right of any person who is a
 
13 lessee under a long-term lease of residential or commercial land
 
14 in the State to purchase the fee simple title to such land by
 
15 providing for redemption of such land by the adoption of the
 
16 Maryland redemption formula for Hawaii.
 
17       -2 Definitions.  As used in this chapter, unless the
 
18 context requires otherwise:
 
19      "Fee simple owner" or "fee owner" means the person who owns
 
20 the fee simple title to the land which is leased, including a
 
21 life tenant with a remainder over, vested or contingent, and a
 
22 holder of a defeasible estate, and the holder's heirs,
 
23 successors, legal representatives, and assigns.
 

 
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                                     S.B. NO.           1594
                                                        
                                                        

 
 1      "Lease" means a conveyance of land or an interest in land,
 
 2 by a fee simple owner as lessor, or by a lessee or sublessee as
 
 3 sublessor, to any person, in consideration of a return of rent or
 
 4 other recompense, for a term, measured from the initial date of
 
 5 the conveyance, of three or five years or more as provided in
 
 6 this chapter, including any periods for which the lease may be
 
 7 extended or renewed at the option of the lessee, for all leases
 
 8 executed after the effective date of this chapter.
 
 9      "Lessee" means any person to whom land is leased or
 
10 subleased, and that person's heirs, successors, legal
 
11 representatives, and assigns.
 
12      "Redemption" means the option extended by this chapter to
 
13 any land lessee to buy the fee-simple estate.  Redemption means
 
14 that all leases of residential real property including but not
 
15 limited to residential apartment cooperatives, if for a term of
 
16 three years or more including extensions, renewals, or other
 
17 lease period accumulating to any particular lessee or tenant.
 
18 Redemption as defined herein refers to redemption of all leases
 
19 of residential real property including but not limited to
 
20 residential apartment condominiums and residential apartment
 
21 cooperatives, if for a term of three years or more including
 
22 extensions, renewals, or any other lease period accumulating to
 
23 any particular lessee or tenant.  Redemption also refers to
 

 
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                                     S.B. NO.           1594
                                                        
                                                        

 
 1 redemption of all land leases of commercial, business,
 
 2 manufacturing, mercantile, industrial, or any other
 
 3 nonresidential property, if for a term of five years or more
 
 4 including extensions, renewals, or any other lease period
 
 5 accumulating to any particular lessee.  Redemption permits a land
 
 6 lease to be ended at the option of the lessee or tenant, after
 
 7 notice of one month to the landowner, upon payment to the
 
 8 landowner of a sum equal to the capitalized value of the rent due
 
 9 under or reserved by the land lease after the expiration of the
 
10 minimum lease terms specified above from the date of such lease,
 
11 or any sublease thereof, at a rate of twelve per cent simple
 
12 interest per year, and upon such payment to have the fee simple
 
13 title to the land vest in the lessee or tenant.  The application
 
14 of this definition is intended to mean if a lessee pays $100 a
 
15 month rent for land, the redemption price is calculated by
 
16 multiplying the rent by twelve ($100 x 12 = $1,200 in this
 
17 example) and then by dividing by twelve per cent (monthly lease
 
18 payment (P) times twelve months divided by the rate of interest
 
19 (.12); [P x 12/.12 = redemption price]).  The net payment to the
 
20 landowner in order to redeem the fee simple ownership in this
 
21 example is $10,000.
 
22      The terms "lessor", "lessee", "fee simple owner", and "fee
 
23 owner" include individuals both masculine and feminine, and,
 

 
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                                     S.B. NO.           1594
                                                        
                                                        

 
 1 except as to the term "lessee", the terms also include
 
 2 corporations, firms, associations, trusts, estates, and the State
 
 3 or its political subdivisions.  When more than one person is the
 
 4 lessor, lessee, fee simple owner, or legal and equitable owner of
 
 5 leased land, the terms apply to each of them, jointly and
 
 6 severally.  The additional definitions of chapter 514A are
 
 7 adopted and made a part of the definitions provided in this
 
 8 section for all purposes to the extent that they do not conflict
 
 9 with the purposes of this chapter.
 
10       -3  Applicability.  This chapter applies to all leased
 
11 land including but not limited to land leased for such purposes
 
12 as single-family residential, residential or commercial
 
13 condominium, residential cooperative, commercial, office,
 
14 manufacturing, mercantile, and industrial purposes, or to land
 
15 leased for any other purpose.  This chapter applies to all leased
 
16 lands which are owned or held privately or owned by the State and
 
17 its political subdivision, except Hawaiian home lands which are
 
18 subject to Article XII of the Constitution of the State and lands
 
19 owned or held by the federal government.  This chapter supersedes
 
20 chapter 516.  This chapter is not meant to supersede or preclude
 
21 any additional remedy at law available to lessees not specified
 
22 herein.  Where the definitions, rights, or the benefits of this
 
23 chapter conflict with those of any other statute, the
 

 
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                                     S.B. NO.           1594
                                                        
                                                        

 
 1 definitions, rights, or benefits of this chapter shall prevail.
 
 2         -4  Redemption.  All leases of residential real
 
 3 property, if for a term of three years or more including
 
 4 extensions, renewals, or any other lease period accumulating to
 
 5 any particular lessee or tenant, and all leases of commercial,
 
 6 business, manufacturing, mercantile, or industrial or other
 
 7 nonresidential property, if for a term of five years or more
 
 8 including extensions, renewals, or any other period accumulating
 
 9 to any particular lessee or tenant, may be ended at the option of
 
10 the lessee or tenant after notice of one month to the landowner,
 
11 upon payment to the landowner of a sum equal to the capitalized
 
12 value of the rent due under or reserved by the lease after the
 
13 expiration of the minimum lease term specified above from the
 
14 date of such lease, or any sublease as applicable thereof, at a
 
15 rate of twelve per cent simple interest per year, and upon such
 
16 payment to have the fee simple title to the property vest in the
 
17 lessee or tenant.
 
18         -5  No estoppel or waiver.  The rights granted to
 
19 lessees by this chapter shall be effective, notwithstanding any
 
20 provision in any lease or contract to the contrary.  No lessee
 
21 shall be estopped by any covenant, term, condition, or contract,
 
22 however worded, from claiming the rights granted to the lessee by
 
23 this chapter, or otherwise be deemed to have waived such right.
 

 
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                                     S.B. NO.           1594
                                                        
                                                        

 
 1 Any provision in any lease or contract which is contrary to the
 
 2 intent of purpose of this chapter is void.
 
 3         -6  Trusts and estates.  The rights granted to lessees
 
 4 by this chapter shall be effective, notwithstanding any condition
 
 5 or provision to the contrary in any instrument creating any life
 
 6 tenancy, defeasible fee, estate, or trust, regardless of whether
 
 7 such tenancy, fee, estate, or trust was in effect prior to the
 
 8 effective date of this chapter or created thereafter; and the
 
 9 life tenant, holder, officer, or trustee of any such tenancy,
 
10 defeasible fee, estate, or trust may convey automatically
 
11 renewable leases forever for ninety-nine years or more, and shall
 
12 perform all acts required of the life existence or thereafter
 
13 executed which shall be construed to be in conformity with the
 
14 intent and purpose of this chapter.  No trustee, officer, or
 
15 agent of a lessor or other legal or equitable owner, while acting
 
16 pursuant to this chapter, shall be deemed to be acting in bad
 
17 faith or to have committed a breach of trust.
 
18         -7  Discrimination.  No person shall be denied the right
 
19 to become a lessee of any real property because of the person's
 
20 race, religion, sex, ancestry, political affiliation or opinions,
 
21 or physical handicap.
 
22         -8  Free assignability.  Except as otherwise provided in
 
23 this chapter, a lessee may assign the lessee's lease at any time
 

 
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                                     S.B. NO.           1594
                                                        
                                                        

 
 1 without the approval or consent of the lessor, and the assignee
 
 2 shall have the same rights and obligations under the lease as the
 
 3 original lessee; provided that no such assignment shall be
 
 4 effective to transfer any interest in the lease unless the lessor
 
 5 has received:
 
 6      (1)  Either a true executed copy of the assignment or
 
 7           written notice thereof;
 
 8      (2)  A reasonable service charge, except in case of an
 
 9           assignment by way of mortgage or assignment to or by
 
10           the Federal Housing Administration, the Department of
 
11           Veterans Affairs, or the Federal National Mortgage
 
12           Association, or a foreclosure of mortgage of assignment
 
13           in lieu of foreclosure; and
 
14      (3)  The written undertaking of the assignee to perform all
 
15           obligations of the lessee under the lease, which
 
16           undertaking may be incorporated in such assignment.
 
17 No assignment shall release the assignor from liability under the
 
18 lease unless the lessor consents in writing to the assignment.  A
 
19 consent to the assignment shall be deemed a consent to the
 
20 release of the assignor from liability under the lease.  The
 
21 lessor shall not require payment of any money for the lessor's
 
22 consent except the service charge, nor withhold such consent
 
23 unreasonably.  Any person acquiring the leasehold estate in
 

 
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                                     S.B. NO.           1594
                                                        
                                                        

 
 1 consideration of the extinguishment of a debt secured by mortgage
 
 2 of the lease or through foreclosure sale, judicial or otherwise,
 
 3 shall be liable to perform the obligations imposed on the lessee
 
 4 by the lease only during the period such person has possession or
 
 5 ownership of the leasehold estate.
 
 6         -9  Forfeiture.  No forfeiture of the lessee's interest
 
 7 in a leasehold shall be declared by the lessor for the lessee's
 
 8 failure to pay the rent or otherwise to perform the lessee's
 
 9 obligations under the lease, unless the lessor has given written
 
10 notification to the lessee of the default and given the lessee at
 
11 least thirty days within which to correct the default.
 
12         -10  Penalty.  Any person who violates this chapter
 
13 shall be fined not more than $5,000 or the amount of the lease
 
14 redemption price of the lease whether ripe for redemption or not,
 
15 whichever is higher, nor less than $1,000; or imprisoned not more
 
16 than one year, or both.  The civil penalty may be enforced by any
 
17 party to a real property lease by civil suit.
 
18         -11  No recovery on illegal documents.  Any covenant or
 
19 clause contained in any lease made by any person, association,
 
20 firm, or corporation in violation of this chapter is declared to
 
21 be illegal, and to recovery thereon shall be had; provided that
 
22 the illegal covenant or clause shall not affect the validity of
 
23 the remainder of the lease.
 

 
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                                     S.B. NO.           1594
                                                        
                                                        

 
 1         -12  Zoning changes.  A lessor, fee owner, or any legal
 
 2 or equitable owner applying for a change in zoning in any area
 
 3 shall notify all of the lessor's, fee owner's, or legal or
 
 4 equitable owner's lessees within three-fourths miles of the land
 
 5 proposed to be rezoned of the application and its contents at
 
 6 least thirty days before filing the same before any public zoning
 
 7 authority.
 
 8         -13  Severability.  If any part, section, sentence,
 
 9 clause, or phrase of this chapter, or its application to any
 
10 person or transaction or other circumstances, is for any reason
 
11 held to be unconstitutional or invalid, the remaining parts,
 
12 sections, sentences, clauses, and phrases of this chapter, or the
 
13 application of this chapter to other persons or transactions or
 
14 circumstances, shall not be affected.  The legislature hereby
 
15 declares that it would have enacted this chapter and each part
 
16 section, clause, or phrase thereof, irrespective of the fact that
 
17 any one or more parts, sections, sentences, clauses, or phrases
 
18 of this chapter, or its application to any person or transaction
 
19 or to other circumstances, is declared unconstitutional or
 
20 invalid.
 
21         -14  Lawful lease terms.  Leases of real property dated
 
22 after the enactment of this chapter are for a period of ninety-
 
23 nine years if written for any period less than ninety-nine years,
 

 
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                                     S.B. NO.           1594
                                                        
                                                        

 
 1 and are automatically renewable forever whether the lease so
 
 2 specifies or not."
 
 3      SECTION 3.  This Act shall take effect upon its approval.
 
 4 
 
 5                           INTRODUCED BY:  _______________________