HB518 HD1.DOC

SECTION 1. The legislature finds that creating mechanisms and incentives to help lessees of public lands obtain financing to construct improvements upon those lands will support small businesses and concomitantly facilitate the maximization of revenue from public land leases. For example, a lessee securing a new lease with the intent to make substantial capital improvements to the land or replace existing improvements needs assurance that the time period of the new lease conforms, at a minimum, to any applicable financing agreement obtained by the lessee to finance the new lease or improvements. The legislature is committed to ensuring fair and equitable access in the leasing of public lands through public auction and to protecting the State from the expense of future remediation requirements or legal claims that may result from the actions of lessees.

The purpose of this Act is to establish a four-year pilot project in counties with a population between 170,000 and 200,000 that:

(1) Enables lessees of public lands to obtain financing to construct improvements upon those lands;

(2) Enables lessees of public lands to relinquish leases during the second half of a lease; and

(3) Ensures fair and equitable valuations and disposition of capital improvements in conjunction with the establishment of lease rents and public auctioning of relinquished leases.

SECTION 2. (a) There is established within the department of land and natural resources a four-year pilot project to be known as the public land lease pilot project. The pilot project shall:

(1) Be conducted in counties with a population between 170,000 and 200,000 where leases of public land are being utilized; and

(2) Examine the benefits to both the State and to lessees of public lands of:

(A) Allowing lessees of public lands to relinquish a held lease during the second half of the lease period;

(B) Allowing the sale of such relinquished leases at public auction; and

(C) Not requiring relinquishing lessees to remove improvements on leased land for valuation purposes under certain conditions.

(b) Notwithstanding any other provision of law to the contrary, in fulfilling the purposes of subsection (a), a lessee of public land that is within the jurisdiction of the pilot project and subject to the management, administration, or control of the department, may relinquish a lease during the last half of the term of the lease, as provided in this Act.

(1) Provide the board with not less than ninety days written notice of the intent to relinquish the lease; and

(2) Contract with a real estate appraiser licensed or certified pursuant to chapter 466K, Hawaii Revised Statutes, to determine the current depreciated or residual value of any improvements to the land.

If the board fails to agree to the appraised residual value of the improvements, the department may contract with an appraiser licensed or certified pursuant to chapter 466K, Hawaii Revised Statutes, and agreed to by the lessee, and the value shall be determined by arbitration as provided in chapter 658A, Hawaii Revised Statutes. In the event that the lessee disagrees with the department's selection of the appraiser, the board shall select the appraiser. The cost of contracting with the appraiser shall be borne entirely by the lessee.

(d) Unless specifically required to do so by the board, a relinquishing lessee shall not be required to remove improvements or restore the land to a vacant condition; provided that, without prejudice to any other rights or remedies that either party may have, this subsection shall not indemnify a relinquishing lessee from any claims regarding pollution or contamination of the land with potentially hazardous substances.

(e) Upon relinquishment of the lease, the board shall dispose of the land by public auction as provided in section 171-14, Hawaii Revised Statutes; provided that the auction upset shall be the greater of the current ground rent or the appraised fair market rent, as if the land were vacant and unimproved. The relinquishing lessee may bid on the new lease at the public auction; provided that if the relinquishing lessee does not bid or is not awarded the lease after the public auction, the relinquishing lessee shall vacate the land within one hundred twenty days, unless the department agrees to allow a longer term.

(f) Lease terms for the new lease shall be determined by the board; provided that if the lease is awarded after public auction to any party other than the relinquishing lessee, the lease rent shall include a premium equal to the residual value of any improvements to the land, as determined pursuant to subsection (c), which shall be paid to the relinquishing lessee prior to transfer of the land and improvements to the new lessee.

(g) In the event that the relinquishing lessee is the sole bidder on a new lease, the lease rent established in any new lease issued pursuant to this section shall be not less than the lease rent established in the lease being relinquished pursuant to this section.

(h) This section shall not apply to:

(1) Any lessee who is in arrears in the payment of taxes, rents, or other obligations owing to the State or any county or who has had, during the five years preceding the anticipated disposition of the public land at a public auction, a previous sale, lease, license, permit, or easement covering other public lands canceled for failure to satisfy the terms and conditions thereof; or

(2) Any lease that is subject to cancellation for failure to satisfy the terms or conditions of a lease, license, permit, or easement covering the public lands.

(i) As used in this section, "improvements" means all physical improvements to the land that are for the benefit of the lessee, including but not limited to:

(1) Buildings, structures, driveways, roads, or fences erected on or affixed to the land; and

(2) Water and sewer pipes, electricity and telephone lines and cables, or other infrastructure necessary to the utility of the land.

(j) The public land lease pilot project shall end on June 30, 2019.

(k) The department of land and natural resources shall submit:

(1) A progress report of the pilot project, including analysis of the issues set forth in subsection (a) and recommendations on whether the project shall be expanded to other counties, no later than twenty days prior to the convening of the regular session of 2017; and

(2) A final report on the operations and findings of the pilot project, including any recommendations for legislation, no later than twenty days prior to the convening of the regular session of 2019.

SECTION 3. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

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 that can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 5. This Act shall take effect on July 1, 2050.

HOUSE OF REPRESENTATIVES	H.B. NO.	518
TWENTY-EIGHTH LEGISLATURE, 2015		H.D. 1
STATE OF HAWAII