2016 Volume 81 Issue 727 Pages 2003-2010
A condominium developer in Hawaii has to register the Association of Apartment Owners within 180 days and updates every two years. 476 out of 7,605 condominiums are owned by leasehold in 2014. 700 leasehold condominiums provided between the years 1961 and 1993.
Land Reform Act 1967 granted the single family residence lessees the right to purchase the leased fee interests, if the lease term is 20 years or longer and 50% or more lessees apply to purchase. Honolulu Leasehold Condominium Conversion Law passed by the Honolulu City Council in 1991 to help leasehold owner-occupants gain the leased fee interests. The law allows condominium lessees to petition the city to use its condemnation powers to compel a landowner to sell the leased fee at the price determined by a third party. A landlord filed a suit and the US Supreme Court upheld lease-to-fee conversion in 1998. Even though the Hawaii Supreme Court had affirmed that the city lease-to-fee conversion program was valid and enforceable in 2002, the City Council repealed the 1991 law in 2005.
Still after 2005, some lessors decided voluntarily to offer for sale the leased fee interests to apartment owners. 290 condominiums out of 700 have achieved the lease-to-fee conversion in 2015. 55 thousand leasehold condominium units existed in 1991 decreased to 18 thousand due to the 1991 law and the remaining number now is 13 thousand. Appraisers selected by the lessor and by the lessees valuate the lease-to-fee conversion price. Appraisers typically use the income approach to value the leased fee interest.
The typical length of apartment ground lease is at least 50 years, and usually is within a range of between 55 and 75 years. Most leases have a fixed rent period of between 25 and 30 years. During this period the rent is fixed or predetermined. Lease rent renegotiations are usually scheduled in 10 or 15 year intervals after the initial fixed rent period. Most leases contain a formula for determining the new lease rent. Hawaii law provides that all ground leases for condominium must contain a provision for mandatory arbitration of any renegotiated rent. Three real estate appraisers involved in the impartial party appraise the rent.
At the end of the lease term the lessee must surrender to the lessor possession of the land. What happens at the end of the lease term depends on the language of the surrender clause. Most general surrender clause gives the apartment units and common elements to the lessor. If the lessor desires to remove the apartment unit, the lessor is responsible for any costs involved in demolition. The lessee could attempt to negotiate a new lease or extend the ground lease even though the lessor has no obligation.
In 1988, the Hawaii State Legislature enacted a law to give condominium owners associations a right of first refusal to buy the leased fee interest if the lessor decides to sell to anyone other than the existing individual apartment owners. Addition to the first refusal, the condominium owners association in Hawaii has the right to purchase the leased fee interest as the same price as the lessor is selling. It also has the power to negotiate as an attorney when the condominium owners purchase the leased fee and review the rent.
Hawaii law requires that the seller or the seller's agent provide the documents to a prospective buyer, who then has a specific period of time to review the lease documents, especially key elements pertaining to rent, rent renegotiation, lease term, surrender of the premises, termination, and expiration.
