Airports; Airport Concessions; Leases
Allows for certain adjustments and modifications to airport concession leases. Effective 07/01/09. (SB1224 HD1)
TWENTY-FIFTH LEGISLATURE, 2009
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO AIRPORT CONCESSIONS.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that the State of Hawaii, along with the rest of the nation, is facing an economic recession that is sudden, extraordinary, and severe and one that may result in greater hardship and economic suffering than has ever been faced by the State. This is especially true for airport concessionaires who rely on air travelers for their business. Passenger counts, already weakened due to the recent history of rising fuel and ticket prices, have now dropped off even further. This decrease in the number of air travelers, coupled with the heightened security measures following the events of September 11, 2001, which restricts access to airport concessionaires to ticketed passengers, has caused airport concessionaires to realize a decline in business similar to that realized immediately after September 11, 2001.
As a result of the events of September 11, 2001, the legislature passed legislation granting relief to airport concessionaires due to the financial hardship they were suffering so that they could remain open and continue serving Hawaii’s tourists and residents.
Further, the continued economic downturn after September 11, 2001, along with other global events that affected Hawaii's economy such as the Severe Acute Respiratory Syndrome epidemic that took place in March 2003, required additional action by the legislature to assist airport concessionaires. Act 128, Session Laws of Hawaii 2006 (Act 128), temporarily suspended Hawaii's statutes requiring airport concessions to be put out to sealed bid and gave the state department of transportation (DOT) the sole discretion to discuss and negotiate fixed, short-term lease extensions, under certain conditions. The legislature finds that conflicting opinions exist as to the intent of Act 128 but hereby finds and clarifies that it was not the intent or purpose of the legislature, through the passage of Act 128, to remove any rent-relief provisions then existing in any concession leases or contracts that included improvements in accordance with Act 128.
While DOT has sought to be a reasonable landlord by providing various economic relief provisions to airport concessionaires, the interdependence of our global economy has increased economic uncertainty. The fluctuations experienced in the economy due to this uncertainty have caused various concessions to suffer financial losses, losses they continue to suffer. One concession in particular has suffered and continues to suffer a loss of gross receipts of more than thirty per cent with monthly operating losses.
Obviously such losses cannot continue. Some relief provisions previously given to concessionaires must be clarified or amended, such as those provisions applicable only during times of economic emergency. DOT should also consider making relief provisions, such as a self-adjusting eighty-five per cent formula that provides relief to all concessions and not just some concessions during slow economic times. This provision allows all airport concessionaires' guaranteed rent payments to DOT to rise or fall each year depending on the concession’s level of success, to avoid undue hardship and the likelihood of default on airport concession contracts due to reasons beyond their control.
Unlike many local businesses which have survived during this current economic recession by cutting expenses and offering kamaaina discounts and incentives, airport concessionaires can only provide services for passengers arriving or departing on daily flights. This fact severely restricts the economic base for airport concessionaires. Furthermore, unlike some airport tenants such as airlines that are able to make up for lost revenue through other means such as fuel surcharges and baggage fees, or are able to cut expenses by reducing their number of flights, Hawaii’s airport concessions can only appeal to the legislature for relief.
Unless relief is provided, concessionaires suffering losses will no longer be economically viable and will face the harsh consequences of defaulting on their concession contract, forfeiting their performance bond, and being barred from doing business with the State of Hawaii for five years in accordance with section 171-13, Hawaii Revised Statutes. These penalties place a tremendous hardship on these businesses. Such results would not only be devastating for the concessionaire but for the State as well since the State likely will only be able to find a replacement concessionaire who will pay the State significantly-reduced rents for years to come. As relief for airport concessionaires cannot be simply applied or amended by DOT, legislative direction and authorization is necessary.
Economic hardship for the state, as well as airport concessions, is likely to increase in future months and it will take years for an economic rebound to occur. However, these businesses must continue to provide services to our visitors, for the sake of our tourist industry and to our residents. Measured economic relief must be provided to these businesses.
The major purposes of this Act are to:
(1) Give DOT the discretion and authority to provide relief to airport concessionaires:
(A) Whose leases or contracts with the department were entered into on or after November 1, 2006, and who spent capital improving the concession premises; or
(B) Who, as a result of any agreement with the department pursuant to Act 128, spent capital improving the concession premises;
provided that if the department and a concessionaire, through negotiations, cannot agree on modifications granting relief within one hundred twenty days following the effective date of this Act or any agreed extension between the department and a concessionaire, then after this period, if requested by the concessionaire, the concession shall be withdrawn by the department and rebid, or opened to negotiation if applicable, with the concessionaire being allowed to participate in the rebid or negotiation within six months without any penalty, undue hardship, or forfeiture of a performance bond by the concessionaire;
(2) Give the department the discretion to grant fair and reasonable relief to a concessionaire whose concession has suffered operating losses for any period starting on or after November 1, 2006, considering the following factors:
(A) Profit and loss of the concession; and
(B) Capital improvement investments of the concession;
(3) Give the department the discretion of providing relief to airport concessionaires by granting annual adjustments in their guaranteed rents to be paid to the State similar to other concessions;
(4) Give the department the discretion of clarifying the economic emergency relief provisions for airport concessions that are designed to aid concessions during dire economic times and provide optional relief;
(5) Give the department the discretion of requiring that in granting economic emergency relief, the director of transportation shall take into account the concession’s economic circumstances and whether the concession received rent relief by way of annual adjustment in guaranteed rents or other governmental rent relief for purposes of avoiding duplicate economic relief benefits to a concessionaire; and
(6) Provide that in seeking relief pursuant to this Act, qualified concessionaires may only seek relief for losses of gross receipts or loss of business which occurred during periods of time starting November 1, 2006, or later.
SECTION 2. Notwithstanding any laws or provisions to the contrary, including chapters 102 and 267, Hawaii Revised Statutes (HRS), the governor, or director of transportation, if so directed by the governor, with respect to airport concessions:
(1) Shall have the discretion and authority to provide relief to airport concessionaires:
(A) Whose leases or contracts were granted pursuant to chapter 102, HRS, and were entered into on or after November 1, 2006, and who spent capital improving the concession premises; or
(B) Who, as a result of any agreement with the department pursuant to Act 128, spent capital improving the concession premises;
provided that if the department and a concessionaire, through negotiations, cannot agree on modifications granting relief within one hundred twenty days following the effective date of this Act or any agreed extension between the department and a concessionaire, then after this period, if requested by the concessionaire, the concession shall be withdrawn by the department and rebid, or negotiated as may be applicable, within six months without penalty, undue hardship, or forfeiture of performance bonds by the concessionaire; provided further that the concessionaire shall not be allowed to request a withdrawal and rebid, or a withdrawal and renegotiation if the concessionaire has refused to accept relief from the department that was effective as of November 1, 2006, or as of the start of the concessionaires lease or contract if after November 1, 2006, the eighty-five per cent annual adjustment rent formula and economic emergency relief formula now in various concession contracts that were issued by the department after November 1, 2006;
(2) Shall have the discretion and authority, without limitation, to reach a relief agreement with the concessionaire to extend the term of the lease or contract, grant or modify existing relief provisions, reduce or waive rent, and otherwise modify and amend any of the terms of the concession lease or contract;
(3) Shall have the discretion and authority to grant fair and reasonable relief to a concessionaire whose concession has suffered operating losses for any period starting on or after November 1, 2006;
(4) Shall consider in its discretion, granting lease or contract provisions in keeping with the following:
(A) For the second and each successive twelve-month period from the start of the concession lease or contract to the end of its term, including any holdover or extension period as set forth in the concession lease or contract, the annual guaranteed rents to be paid to the State shall be eighty-five per cent of the rents (the greater of guaranteed rents or percentage rents as applicable), paid by the concessionaire for the just-ending twelve-month period. Thus, such annual guaranteed rents may be adjusted upward or downward for each succeeding twelve-month period depending on the concession’s gross receipts and rents paid during the prior twelve-month period; and
(B) Each airport concession lease or contract not having an economic emergency provision similar to other concession leases or contracts issued following the events of September 11, 2001, shall be modified and adjusted to contain such provisions. Further, in part for each such concession lease or contract, as well as for economic emergency relief provisions in any existing concession lease, shall provide, or be adjusted and modified to provide in part, that the director of transportation shall grant optional additional relief allowing the concessionaire to recoup the amount lost by such reduction in gross receipts to the concession whenever:
(i) The average gross receipts for a concession for a sixty-day period is fifteen per cent or more less than the average gross receipts for the concession for the twelve months prior to the month the bid was submitted for the concession or month of contract award, which event occurred first, or other comparable information if information as to twelve months of prior gross receipts is not available; and
(ii) Such reduction of fifteen per cent or more loss in gross receipts is due to circumstances beyond the control of the concessionaire;
(5) Shall take into account any prior rent relief granted to a concessionaire pursuant to this Act or by any governmental agency to avoid the duplication of relief benefits; and
(6) A concessionaire who qualifies for relief pursuant to this Act shall only be entitled to relief for periods of time on or after November 1, 2006, that the concession lease or contract was in effect.
SECTION 3. The relief provided for by this Act shall be provided as long as and to the extent that such relief does not violate any applicable federal laws and regulations and does not jeopardize the receipt of any federal aid or impair the obligation of Hawaii’s department of transportation to the holders of any bond issued by Hawaii’s department of transportation.
SECTION 4. If any provision of this Act, or the application thereof to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the Act, which can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.
SECTION 5. To the extent necessary to take action, effectuate, and fulfill the purpose and intentions of this Act including the relief to be provided, the effects of section 171-13, Hawaii Revised Statutes, as well any other statutory provisions that may be in conflict with this Act, shall be deemed waived and not applicable.
SECTION 6. This Act shall take effect on July 1, 2009, and shall be repealed on July 1, 2011.