H.B. NO.














relating to public lands.





     SECTION 1.  The legislature finds that the State of Hawaii owns a large amount of land that is currently leased to businesses for commercial, industrial, hotel, and resort purposes.  The legislature further finds that these leases are statutorily limited to sixty-five years without the possibility of renewing the terms of the lease.  In previous years, the legislature has identified significant problems caused by these restrictions on leasehold tenancy and has tried to address the deficiencies by allowing existing lessees of resort properties to renew or extend their leases.

     The legislature finds that the uncertainty of future tenure has had a catastrophic effect on Hawaii's tourism industry, especially to hotel lands in east Hawaii such as in the Banyan Drive area.  During the regular session of 2011, the legislature successfully addressed the restrictions on leasehold tenancy by passing Act 219, Session Laws of Hawaii 2011, which authorized the board of land and natural resources to extend leases of public lands for hotel or resort use upon approval of a proposed development agreement to make substantial improvements to the existing improvements.  This change eliminated the "wasting asset" nature of state leasehold properties by incentivizing lessees to invest in infrastructural improvements which promoted the State's economy and the most efficient use of these state lands.  While effective, Act 219, Session Laws of Hawaii 2011, was repealed in 2015, and the future tenure of these public lands is once again uncertain.

     The legislature recognizes that the amount of state land sited and zoned for commercial purposes is small, and great economic harm is caused by not keeping such properties at their highest and best use.  It is important that lessees be able to respond to constantly changing communities and community needs by investing immediately and avoiding economic obsolescence.  The legislature concludes that while lease restrictions may be productive for certain classes of state lands, the purpose of commercial leases is to be economically productive and the current lease restrictions result in the opposite.

     The purpose of this Act is to serve the public use and public purpose of state lands used for commercial purposes by authorizing the board of land and natural resources to authorize the extension of commercial, hotel, resort, and industrial leases for the lessees' substantial improvement to the leased premises.

     SECTION 2.  Chapter 171, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§171-    Commercial, hotel, resort, or industrial leases; extension of term.  (a)  Notwithstanding section 171-36, the board may extend the lease term of public lands for commercial, hotel, resort, or industrial use upon the approval by the board of a development agreement proposed by the lessee or lessee and developer to make substantial improvements to the demised premises.

     (b)  Prior to entering into a development agreement, the lessee or lessee and developer shall submit to the board the plans and specifications for the total development being proposed.  The board shall review the plans and specifications and determine:

     (1)  Whether the development proposed in the development agreement is of sufficient worth and value to justify the extension of the lease;

     (2)  The estimated period of time to complete the improvements and expected date of completion of the improvements; and

     (3)  The minimum revised annual rent based on the fair market value of the lands to be developed, as determined by an appraiser for the board, and percentage rent where gross receipts exceed a specified amount.

No lease extension shall be approved until the board and the lessee or lessee and developer mutually agree to the terms and conditions of the development agreement.

     (c)  No construction shall commence until the lessee or lessee and developer have filed with the board a sufficient bond conditioned upon the full and faithful performance of all the terms and conditions of the development agreement.

     (d)  Any extension of a lease pursuant to this section shall be based upon the substantial improvements to be made and shall be for a period no longer than fifty-five years.

     (e)  Similar to the issuance of a new lease, any extension of a lease granted pursuant to this section shall be effectuated, documented, and executed using the most current lease form and leasing practices and policies of the board.

     (f)  The applicant for a lease extension shall pay all costs and expenses incurred by the department in connection with processing, analyzing, and negotiating any lease extension request and document, and the development agreement in subsections (a) and (b).

     (g)  As used in this section "substantial improvements" means any renovation, rehabilitation, reconstruction, or construction of the demised premises, including minimum requirements for off-site and on-site improvements, the cost of which equals or exceeds fifty per cent of the market value of the demised premises, that the lessee or lessee and developer shall install, construct, and complete by the date of completion of the total development."

     SECTION 3.  New statutory material is underscored.

     SECTION 4.  This Act shall take effect on July 1, 2017.








Report Title:

Public Lands; Leases; Board of Land and Natural Resources



Authorizes the board of land and natural resources to extend commercial, hotel, resort, and industrial leases when the lessee makes qualifying substantial improvements to the leased land.




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