RELATING TO UPDATING PUBLIC LAND LEASES ISSUED PURSUANT TO CHAPTER 171, HAWAII REVISED STATUTES.

HB1141

HOUSE OF REPRESENTATIVES

H.B. NO.

1141

THIRTY-THIRD LEGISLATURE, 2025

STATE OF HAWAII

A BILL FOR AN ACT

RELATING TO UPDATING PUBLIC LAND LEASES ISSUED PURSUANT
TO CHAPTER 171, HAWAII REVISED STATUTES.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

����
SECTION 1.
�
An audit
conducted by the state auditor at the direction of the legislature made
critical findings regarding the special land and development fund within the department
of land and natural resources.
�
The auditor
'
s
findings and recommendations were contained in Audit Report No. 19-12.
�
Subsequently, a house investigative committee
(committee) was established on April 29, 2021, to review the audit.

����
The purpose of this Act is to require that
lease extensions approved by the board of land and natural resources update the
lease terms and conditions to reflect the most current standard lease form
terms and conditions and ensure that in the event of a conflict or
inconsistency between an updated lease term or condition authorized under chapter
171, Hawaii Revised Statutes, and a term or condition of the lease being
extended, the updated lease term or condition authorized under chapter 171,
Hawaii Revised Statutes, shall control.
�

This Act is intended to address recommendations made by the
committee to require,
upon approval of an extension of a lease, an update to the terms and conditions
of a lease, upon its extension, to reflect the most current lease form.
�
This Act is intended to apply to all leases
issued under chapter 171, Hawaii Revised Statutes, regardless of whether they
were issued by public auction or direct negotiation.
�
The legislature finds that the Hawaii Supreme
Court's decision in
State v. Kahua Ranch, Ltd.
, 47 Haw. 28, 384 P.2d 581
(1963),
aff�d on reh�g
, 47 Haw. 466, 390 P.2d 737, prohibited reforming
leases in a way that would be inconsistent with the terms of the notice of
sale, but that case does not apply to the terms and conditions in an extended
lease.
�
This Act makes clear that extended
lease terms must be drafted using current, board-approved terms and conditions.

����
SECTION 2.
�

Section 171-36, Hawaii Revised Statutes, is amended to read as follows:

���������
"
�171-36
�
Lease restrictions; generally.

�
(a)
�
Except as otherwise provided, 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 Department of Veterans Affairs requirements; 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 that 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 owed to 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, 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;

����
(8)
�
Mineral
and metallic rights and surface and ground water shall be reserved to the
State; and

����
(9)
�
No
lease of public lands, including submerged lands, or any extension of any lease
of public lands shall be issued by the State to any person to construct, use,
or maintain a sunbathing or swimming pier or to use the lands for those
purposes, unless the lease, or any extension thereof, contains provisions
permitting the general public to use the pier facilities on the public lands
and requiring that a sign or signs be placed on the pier, clearly visible to
the public, that indicates the public's right to the use of the pier.
�
The board, at the earliest practicable date,
and where legally possible, shall cause all existing leases to be amended to
conform to this paragraph.
�
The term
"lease", for the purposes of this paragraph, includes month-to-month
rental agreements and similar tenancies.

����
(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; provided that the aggregate of
the initial term and any extension granted shall not exceed sixty-five years; or

����
(3)
�
Extend
the term of the lease,

to the
extent necessary to qualify the lease for mortgage lending or guaranty purposes
with any federal mortgage lending agency, 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, or to amortize the cost of substantial improvements to the
demised premises that are paid for by the lessee without institutional
financing.

����
(c)
�
Any extension authorized pursuant to
subsection (b) shall be based on the economic life of the improvements as
determined by the board or an independent appraiser; provided 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 sixty-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;

����
(4)
�
Any
federal or private lending institution shall be qualified to do business in the
State;

����
(5)
�
Proceeds
of any mortgage or loan shall be used solely for the operations or improvements
on the demised premises;
and

����
(6)
�
Where
improvements are financed by the lessee, the lessee shall submit receipts of
expenditures within a time period specified by the board or else the lease
extension shall be canceled[
; and

����
(7)
�
The
rules of the board setting forth any additional terms and conditions, which
shall ensure and promote the purposes of the demised lands
].

����
(d)
�
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 any 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.

����
(e)
�
The board, from time to time during the term
of any agriculture, intensive agriculture, aquaculture, commercial,
mariculture, special livestock, pasture, or industrial lease, may modify or
eliminate any of the restrictions specified in subsection (a), extend or modify
the fixed rental period of the lease, or extend the term of the lease upon a
showing of significant economic hardship directly caused by:

����
(1)
�
State
disaster, pursuant to chapter 209, including seismic or tidal wave, tsunami,
hurricane, volcanic eruption, typhoon, earthquake, flood, or severe drought; or

����
(2)
�
A
taking of a portion of the area of the lease by government action by eminent
domain, withdrawal, or conservation easement; provided that the portion taken
shall not be less than ten per cent of the entire leased area unless otherwise
approved by the board; and provided that the board determines that the lessee
will not be adequately compensated pursuant to the lease provisions.

����
(f)
�
The
approval of any extension granted pursuant to subsection (e) shall be subject
to the following:

����
(1)
�
The
demised premises have been used substantially for the purposes 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)
�
The
rental shall not be less than the rental for the preceding term;

���
[
(4)
�
The
rules of the board setting forth any additional terms and conditions, which
shall ensure and promote the purposes of the demised lands;
] and

���
[
(5)
]

(4)
�
The length of the extension shall not exceed
a reasonable length of time for the purpose of providing relief and shall in no
case exceed five years.

����
(g)
�

Any lease extended pursuant to this section shall be drafted on the most
current approved lease form, and may include the imposition of a removal bond,
to ensure that the extension of any lease pursuant to this section, as with the
issuance of a new lease, will be subject to the most current leasing practices
and policies of the board, which shall be incorporated into the lease document
prior to its execution.

����
(h)
�

In the event the extension of a lease results in a conflict or
inconsistency between an updated lease term or
condition authorized under this chapter
and an existing
lease term or condition
, the updated
lease
term or condition authorized under this chapter
shall control.
"

����
SECTION 3.
�

Section 171-36.5, Hawaii Revised Statutes, is amended to read as
follows:

����
"[
[
]
�171-36.5
[
]
]

�
Commercial, industrial, resort,
mixed-use, or government leases; extension of term.
�
(a)
�
Notwithstanding section 171-36, for leases that have not been assigned
or transferred within ten years prior to receipt of an application for a lease
extension submitted pursuant to this section, the board may extend the rental
period of a lease of public lands for commercial use, industrial use, resort
use, mixed-use, or government use upon the board's approval of a development
agreement proposed by the lessee or by the lessee and developer to make
substantial improvements to the existing improvements.
�
For the purposes of this subsection,
"assigned or transferred" shall not include:

����
(1)
�
A
sale or change in ownership of a lessee that is a company or entity; or

����
(2)
�
A
collateral assignment of lease or other security granted to a leasehold mortgagee
in connection with leasehold financing by a lessee.

����
(b)
�
Before entering into a development agreement,
the lessee or the lessee and developer shall submit to the board the plans and
specifications for the total development 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 necessary 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,
]

land and existing improvements,
as determined by an appraiser for the
board and, if deemed appropriate by an appraiser, the appropriate percentage of
rent where gross receipts exceed a specified amount.

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

����
(c)
�
No construction shall commence until the
lessee or the
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 forty years.
�
No lease shall be transferable or assignable
throughout the first ten years of the extended term, except by devise, bequest,
intestate
succession, a collateral
assignment of lease or other security granted to a leasehold mortgagee in
connection with leasehold financing by a lessee, a change in direct ownership
of less than fifty per cent of a lessee that is a company or entity, a change
in indirect ownership of a lessee that is a company or entity, or by operation
of law.
�
The prohibition on assignments
and transfer of leases shall include a prohibition on conveyances of leases.
�
During subsequent periods of the extended term
of the lease, the lease may be assigned or transferred, subject to approval by
the board.

����
(e)
�
The applicant for a lease extension shall pay
all costs and expenses incurred by the department in connection with
processing, analyzing, or negotiating any lease extension request, lease
document, or development agreement under this section.

����
(f)
�
Any lease extended pursuant to this section
shall be drafted on the most current approved lease form, and may include the
imposition of a removal bond, to ensure that the extension of any lease
pursuant to this section, as with the issuance of a new lease, will be subject
to the most current leasing practices and policies of the board, which shall be
incorporated into the lease document prior to its execution.

����
[
(f)
]
(g)
�
As used in this section:

����
"Government use" means a
development undertaken under a lease held by any agency or department of the
State or its political subdivisions other than the University of Hawaii or any
department, agency, or administratively attached entity of the University of
Hawaii system.

����
"Mixed-use" means a development
that combines two or more of the following uses in a single project: commercial
use, resort use, multifamily residential use, or government use.

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"Resort use" means a development
that:

����
(1)
�
Provides
transient accommodations as defined in section 237D-1 and related services,
which may include a front desk, housekeeping, food and beverage, room service,
and other services customarily associated with transient accommodations; and

����
(2)
�
Where
at least seventy-five per cent of the living or sleeping quarters are used
solely for transient accommodations for the term of any lease extension.

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"Substantial improvements" means
any renovation, rehabilitation, reconstruction, or construction of existing
improvements, including minimum requirements for off-site and
on-site improvements, the cost of which equals or exceeds thirty per cent of
the market value of the existing improvements, that the lessee or the lessee
and developer installs, constructs, and completes by the date of completion of
the total development.

����
(h)
�

In the event the extension of a lease results in a conflict or
inconsistency between an updated lease term or condition authorized under this
chapter and an existing lease term or condition, the updated lease term or
condition authorized under this chapter shall control.
"

����
SECTION 4.
�

Section 171-192, Hawaii Revised Statutes, is amended to read as follows:

����
"[
[
]
�171-192
[
]
]

�
Lease restrictions.
�
(a)
�

The board, from time to time, upon the issuance or during the term of
any intensive agricultural, aquaculture, commercial, mariculture, special livestock,
pasture, hotel, resort, or industrial lease of public lands within the Hilo
community economic district, may:

����
(1)
�
Modify
or eliminate any of the restrictions specified in section 171-36(a);

����
(2)
�
Extend
or modify the fixed rental period or the term of the lease upon approval by the
board of a development agreement proposed by the lessee to make substantial
improvements to the existing improvements or to construct new substantial
improvements so long as the length of any extension granted does not extend the
original lease term by more than forty years; or

����
(3)
�
Extend
the term and modify any provisions of the lease,

to the
extent necessary to qualify the lease for mortgage lending or guaranty purposes
with any federal mortgage lending agency; 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; or to amortize
the cost of substantial improvements to the demised premises that are paid for
by the lessee without institutional financing.

����
(b)
�

Prior to entering into a development agreement, the lessee or the 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, in determining whether to
approve the development agreement pursuant to subsection (a)(2), consider:

����
(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 the percentage of
rent where gross receipts exceed a specified amount.

����
(c)
�

An extension of the fixed rental period or term of the lease shall be
based on the economic life of the substantial improvements as determined by the
board or an independent appraiser; provided 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
length of any extension granted for the fixed rental period of the lease shall
not extend the fixed rental period of the original lease by more than forty
years;

����
(3)
�
The
length of any extension granted for the term of the lease shall not extend the
original lease term by more than forty years;

����
(4)
�
If
a reopening occurs, the rental for any ensuing period shall be the fair market
rental as determined under section 171-17(d) at the time of reopening;

����
(5)
�
Any
federal or private lending institution shall be qualified to do business in the
State;

����
(6)
�
Proceeds
of any mortgage or loan shall be used solely for the operations or substantial
improvements on the demised premises;
and

����
(7)
�
Where
substantial improvements are financed by the lessee, the lessee shall submit
receipts of expenditures within a time period specified by the board, otherwise
the lease extension shall be canceled[
; and

����
(8)
�
The
rules of the board, setting forth any additional terms and conditions, which
shall ensure and promote the purposes of the demised lands
].

����
(d)

The
board, from time to time, during the term of any agriculture, intensive
agriculture, aquaculture, commercial, mariculture, special livestock, pasture,
hotel, resort, or industrial lease of public lands within the Hilo community
economic district, may modify or eliminate any of the restrictions specified in
section 171-36(a), extend or modify the fixed rental period of the lease, or
extend the term of the lease upon a showing of significant economic hardship
directly caused by:

����
(1)
�
State
disaster, pursuant to chapter 209, including seismic or tidal wave, tsunami,
hurricane, volcanic eruption, typhoon, earthquake, flood, or severe drought; or

����
(2)
�
A
taking of a portion of the area of the lease by government action by eminent
domain, withdrawal, or conservation easement; provided that the portion taken
shall not be less than ten per cent of the entire leased area unless otherwise
approved by the board; provided that the board determines that the lessee will
not be adequately compensated pursuant to the lease provisions.

����
(e)
�

The approval of any extension granted pursuant to subsection (d) shall
be subject to the following:

����
(1)
�
The
demised premises has been used substantially for the purposes for which they
were originally leased;

����
(2)
�
The
rental shall not be less than the rental for the preceding term;

���
[
(3)
�
The
rules of the board, setting forth any additional terms and conditions which
shall ensure and promote the purposes of the demised lands;
] and

���
[
(4)
]

(3)
�
The length of the extension shall not exceed
a reasonable length of time for the purpose of providing relief and shall in no
case extend the original lease's fixed rental period by more than forty years.

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

����
(g)
�

Any lease extended pursuant to this section shall be drafted on the most
current approved lease form, and may include the imposition of a removal bond,
to ensure that the extension of any lease pursuant to this section, as with the
issuance of a new lease, will be subject to the most current leasing practices
and policies of the board, which shall be incorporated into the lease document
prior to its execution.

����
(h)
�

In the event the extension of a lease results in a conflict or
inconsistency between an updated lease term or condition authorized under this
chapter and an existing lease term or condition, the updated lease term or
condition authorized under this chapter shall control.
"

����
SECTION 5.
�

This Act does not affect rights and duties that matured or leases or
extensions of leases that are fully executed before its effective date.

����
SECTION 6.
�

Statutory material to be repealed is bracketed and stricken.
�
New statutory material is underscored.

����
SECTION 7.
�

This Act shall take effect upon its approval.

INTRODUCED BY:

_____________________________

BY REQUEST

Report Title:

Land and Natural
Resources; Public Land; Lease Terms and Conditions; Lease Extensions

Description:

Requires that lease extensions approved by the Board of Land and
Natural Resources be drafted on forms that reflect contemporary leasing
practices and policies of the Board, and which shall control over conflicting
or inconsistent provisions in the lease being extended.

The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.