Report Title:

Public Land Leases; Eliminate Loan Prerequisite for Extension



Authorizes issuance of a lease extension or new lease to agriculture lessees without a public auction. (SD1)


S.B. NO.



S.D. 1









SECTION 1. 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:

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

(c) 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.

(d) Notwithstanding any other provision of this chapter to the contrary, with regard to any agricultural, aquaculture, mariculture, silviculture, livestock, or pasture lease, the board, without public auction, may enter into a lease extension or a new lease if:

(1) The lease either has 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:

(A) After 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 interested and qualified bidders. For the purpose of this paragraph, "substantially comparable lands" means lands which are in the same general geographic area, of similar size, and, without regard to improvements made by the current lessee, are suitable for similar purposes;

(3) The land is being actively and productively used for the purposes stated in the lease. Therefore, no less than half of the leased land shall be cultivated or in productive use or 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 current lessee is not otherwise in default under the terms of the lease or permit; and

(5) The board has not determined that the public interest dictates that the land should be converted to other uses.

Any lease extension or new lease granted pursuant to this section shall be for a period of not less than ten years and not 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 current lessee. If the current lessee and the board are unable to agree as to the fair market rent, then the rent shall be determined by appraisal as provided in section 171-17(b). Subject to chapter 91, the board may adopt rules to effectuate this subsection."

SECTION 2. New statutory material is underscored.

SECTION 3. This Act shall take effect upon its approval.