Report Title:

Public Land Leases; Eliminate Loan Prerequisite for Extension

 

Description:

Provides guidelines for the Department of Land and Natural Resources to renegotiate and extend agricultural leases. (SB623 HD1)

 

THE SENATE

S.B. NO.

623

TWENTY-FIRST LEGISLATURE, 2001

S.D. 1

STATE OF HAWAII

H.D. 1


 

A BILL FOR AN ACT

 

RELATING TO PUBLIC LANDS.

 

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

SECTION 1. The legislature finds that with the expiration of thirty per cent of agricultural leases on state land within the next ten years, there is increasing and understandable concern on the part of farmers who may lose their farms by public auction. Families have held many of these leases for generations and over the years substantial improvements have been made to their farms that have accrued significant value.

Despite the understanding that a lessee improves the property at his own peril, the legislature finds that it may not necessarily be in the overall best interest of the State and the lessee to automatically subject state leases to public auction. It would be appropriate and in the best interest of the State to renew certain leases through direct negotiation rather than by public auction.

SECTION 2. Section 166-11, Hawaii Revised Statutes, is amended to read as follows:

"[[]§166-11[]] Lease negotiation. (a) The department of agriculture may negotiate and enter into leases with any person who:

(1) As of July 1, 1996, holds a revocable permit for agricultural purposes; or

(2) Has formerly held an agricultural lease which expired within the last ten years preceding July 1, 1996, and has continued to occupy the state land; and

(3) Does not own agriculturally-zoned land of twenty-five acres or more in the State, individually or jointly with a spouse, or whose spouse does not own twenty-five acres or more of agriculturally-zoned land in the State.

(b) For the purposes of renegotiating a lease, a lessee may petition the department of agriculture in writing no sooner than six months but no more than a year before the expiration of the lease. In addition to the restrictions under subsection (a), the department of agriculture shall also consider the following in determining whether a lease should be renewed:

(1) There is clear evidence that the leased land is and has been well-utilized by the lessee for agricultural purposes;

(2) Agricultural production through sales or tax documents indicate that the agricultural operation is and has been viable;

(3) Infrastructure and other improvements on the land confirm that the agricultural operation is, has been, and in all likelihood will continue to be viable and that failure to renew the lease would result in a substantial loss of time, effort, and capital to the lessee in constructing similar infrastructure improvements to achieve equivalent agricultural production results; and

(4) The availability of other agricultural land in proximity to the leased land, which would satisfy the needs of interested persons who may otherwise bid on the leased land.

Any lease renewed under this section shall be for a period that does not exceed ten years.

Within fifteen days following the renewal of a lease under this section, the department of agriculture shall notify in writing the president of the senate and the speaker of the house of representatives of that action. The renewed lease shall be subject to legislative disapproval by passage of a concurrent resolution during the regular legislative session next following the board's action.

[(b)] (c) The land eligible for lease negotiations under this section are limited to those lands:

(1) Zoned and used for agricultural purposes;

(2) Set aside by governor's executive order to the department of agriculture for agricultural uses only; and

(3) Not needed by any state or county agency for any other public purpose.

[(c)] (d) In negotiating and executing a lease as authorized, the board of agriculture shall:

(1) Require the appraisal of the parcel to determine the fair market value;

(2) Require the payment of annual lease rent based on the fair market value established by appraisal;

(3) Require the payment of a premium, computed at twenty-five per cent of the annual lease rent, with the premium to be added to the annual lease rent for each year of the lease equal to the number of years the lessee has occupied the land, except that the premium period shall not exceed four years; and

(4) Recover from the lessee the costs of expenditures required by the department to convert the parcel into leasehold.

Within six months from July 1, 1996, the department shall notify in writing the permittees of lands eligible for lease negotiations under this section and shall inform the permittees of the terms, conditions, and restrictions provided by this section. Any permittee may apply for a lease; provided that the application shall be submitted to the department in writing within thirty days from the date of receipt of notification; provided further that the department may require documentary proof from any applicant to determine that the applicant meets eligibility and qualification requirements for a lease as specified by this section.

For the purposes of renegotiation, the department of agriculture shall give public notice in the county in which the leased property is located inviting comments in support of or opposition to the lease renewal."

SECTION 3. Section 171-36, Hawaii Revised Statutes, is amended to read as follows:

"§171-36 Lease restrictions; generally. (a) Except as otherwise provided by law, the following restrictions shall apply to all leases:

(1) Options for renewal of terms are prohibited;

(2) No lease shall be for a longer term than sixty-five years, except in the case of a residential leasehold which may provide for an initial term of fifty-five years with the privilege of extension to meet the requirements of the Federal Housing Administration, Federal National Mortgage Association, Federal Land Bank of Berkeley, Federal Intermediate Credit Bank of Berkeley, Berkeley Bank for Cooperatives, or Veterans Administration; provided that the aggregate of the initial term and extension shall in no event exceed seventy-five years;

(3) No lease shall be made for any land under a lease which has more than two years to run;

(4) No lease shall be made to any person who is in arrears in the payment of taxes, rents, or other obligations owing the State or any county;

(5) No lease shall be transferable or assignable, except by devise, bequest, or intestate succession; provided that with the approval of the board of land and natural resources, the assignment and transfer of a lease or unit thereof may be made in accordance with current industry standards, as determined by the board; provided further that prior to the approval of any assignment of lease, the board shall have the right to review and approve the consideration to be paid by the assignee and may condition its consent to the assignment of the lease on payment by the lessee of a premium based on the amount by which the consideration for the assignment, whether by cash, credit, or otherwise, exceeds the depreciated cost of improvements and trade fixtures being transferred to the assignee; provided further that with respect to state agricultural leases, in the event of foreclosure or sale, the premium, if any, shall be assessed only after the encumbrances of record and any other advances made by the holder of a security interest are paid;

(6) The lessee shall not sublet the whole or any part of the demised premises except with the approval of the board; provided that prior to the approval, the board shall have the right to review and approve the rent to be charged to the sublessee; provided further that in the case where the lessee is required to pay rent based on a percentage of its gross receipts, the receipts of the sublessee shall be included as part of the lessee's gross receipts; provided further that the board shall have the right to review and, if necessary, revise the rent of the demised premises based upon the rental rate charged to the sublessee including the percentage rent, if applicable, and provided that the rent may not be revised downward;

(7) The lease shall be for a specific use or uses and shall not include waste lands, unless it is impractical to provide otherwise; and

(8) Mineral and metallic rights and surface and ground water shall be reserved to the State.

(b) The board, from time to time, upon the issuance or during the term of any intensive agricultural, aquaculture, commercial, mariculture, special livestock, pasture, or industrial lease, may:

(1) Modify or eliminate any of the restrictions specified in subsection (a);

(2) Extend or modify the fixed rental period of the lease; or

(3) Extend the term of the lease

to the extent necessary to qualify the lease for mortgage lending or guaranty purposes with the Federal Housing Administration, Federal National Mortgage Association, Department of Veterans Affairs, Small Business Administration, United States Department of Agriculture, Federal Land Bank of Berkeley, Federal Intermediate Credit Bank of Berkeley, Berkeley Bank for Cooperatives, or any other federal mortgage lending agency qualified to do business in the State, and their respective successors and assignees, or to qualify the lessee for any state or private lending institution loan, private loan guaranteed by the State, or any loan in which the State and any private lender participates; provided that the private lender shall be qualified to do business in the State[; provided further that the approval of any extension shall be subject to the following:].

(c) Any law to the contrary notwithstanding, an agricultural lessee may petition the board in writing to renew a lease no sooner than six months but no more than a year before the expiration of the lease. The board shall consider the following in determining whether a lease should be renewed:

(1) There is clear evidence that the leased land is and has been well-utilized by the lessee for agricultural purposes;

(2) Agricultural production through sales or tax documents indicate that the agricultural operation is and has been viable;

(3) Infrastructure and other improvements on the land confirm that the agricultural operation is, has been, and in all likelihood will continue to be viable and that failure to renew the lease would result in a substantial loss of time, effort and capital to the lessee in constructing similar infrastructure improvements to achieve equivalent agricultural production results; and

(4) The availability of other agricultural land in proximity to the leased land, which would satisfy the needs of interested persons who may otherwise bid on the leased land.

Any lease renewed under this section shall be for a period that does not exceed ten years.

Within fifteen days following the renewal of a lease under this section, the board shall notify in writing the president of the senate and the speaker of the house of representatives of that action. The renewed lease shall be subject to legislative disapproval by passage of a concurrent resolution during the next regular legislative session following the board's action.

(d) The board shall also ensure that:

(1) The demised premises have been used substantially for the purpose for which they were originally leased;

[(2) The aggregate of the initial term and any extension granted shall not be for more than fifty-five years;

(3)] (2) In the event of a reopening, the rental for any ensuing period shall be the fair market rental at the time of reopening; [and

(4)] (3) The rules of the board, setting forth any additional terms and conditions[, which] shall [ensure and] promote the purposes of the demised lands[.]; and

(4) Public notice is provided in the county in which the leased property is located inviting comments in support of or opposition to the lease renewal.

[(c)] (e) The board at any time during the term of any intensive agricultural, aquaculture, or mariculture lease and when justified by sound economic practices or other circumstances, may permit an alternative agricultural, aquaculture, or mariculture use or uses for any portion or portions of the land demised. As a condition to permitting alternative uses, the board may require such other modifications, including rental adjustments or changes in the lease as may be necessary to effect or accommodate the alternative use or uses. An alternative use or uses may be allowed by the board upon:

(1) The application of the lessee;

(2) Consent of each holder of record having a security interest in the leasehold; and

(3) A finding by the board that the alternative use or uses are in the public interest."

(f) Notwithstanding any other provision in this chapter, with regard to any agricultural, aquaculture, mariculture, silviculture, livestock, or pasture lease, the board may without public auction enter into a lease extension or a new lease under the following circumstances:

(1) The lease has either expired or will expire within five years. This shall include leased lands held under a revocable permit issued pursuant to section 171-55;

(2) The board has determined that either:

(A) Following a reasonable process of advertising and solicitation, there are no other qualified bidders interested in submitting bids on the land; or

(B) There are other substantially comparable lands available for lease to such interested and qualified bidders. For the purposes of this section, "substantially comparable lands" shall mean lands which are in the same general geographic area, of similar size, and without regard to improvements made by the tenant, are suitable for similar purposes;

(3) The land is actively and productively used for the purposes stated in the lease. This shall mean that not less than half of the leased land shall be cultivated or in productive use or that the gross farm revenue from the leased land for each of the prior three years shall have been equal to or greater than three times the annual lease rent;

(4) The tenant is not otherwise in default under the terms of the lease or permit; and

(5) The board has not determined that it would be in the public interest to convert the land to other uses.

Any new lease or lease extension granted under this subsection shall be for a period of not less than ten nor more than twenty years and shall provide for the payment of rent at the fair market value of the land. The fair market value of the land shall be determined without consideration of the value of improvements made to the land by the tenant. In the event that the tenant and the board are unable to agree as to the fair market rent, then such rent shall be determined by appraisal as provided in section 171-17 (b). The board may adopt rules to effectuate the provisions of this subsection."

SECTION 4. The department of land and natural resources and the department of agriculture shall:

(1) Identify all agricultural leases that expire prior to July 1, 2011;

(2) Determine the availability of farmlands under paragraph (1) with appropriate infrastructure;

(3) Ascertain the projected need for agricultural lands; and

(4) Determine the ability of the State to meet the projected need under paragraph (3).

The departments shall submit their findings and recommendations to the legislature twenty days before the convening of the 2002 legislative session.

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect upon its approval.