Hawaii-2017-HB764-Introduced

SECTION 1. The legislature finds that to secure federal funding through the Federal Housing Administration for affordable housing, a land lease must be for at least seventy-five years and current Hawaii law does not mandate that land leases meet that requirement when needed.

The purpose of this Act is to require the extension of land leases to seventy-five years for the purposes of meeting Federal Housing Administration requirements for affordable housing funding. Additionally, this Act requires that contracts on state leased land be subject to the requirements of Chapter 104, Hawaii Revised Statutes.

SECTION 2. Section 171- , Hawaii Revised Statutes, is amended by adding a new section to read as follows:

"All contracts in excess of $2,000 for development, construction, renovation, or maintenance upon state leased land, unless otherwise exempt, are subject to the requirements of Chapter 104, Hawaii Revised Statutes."

SECTION 3. Section 171-36, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(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~~] a mandatory 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 Veterans Administration requirements; provided that the [~~aggregate of the initial term and extension shall in no event~~] extension shall not exceed seventy-five years;

(3) No lease shall be made for any land under a lease which 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 owing 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 of land and natural resources, 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, nor any extension of any such lease, 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 such purposes, unless such 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, which 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."

SECTION 4. Section 171-73, Hawaii Revised Statutes, is amended to read as follows:

"§171-73 Term, rent, and other conditions of residential leases. Residential leases made by the board of land and natural resources may be for an initial term of fifty-five years with [~~the privilege of~~] a mandatory extension to meet Federal Housing Administration requirements, provided [~~the aggregate of the initial terms and extension shall in no event~~] that the extension shall not exceed seventy-five years. It may contain [~~such~~] terms and conditions as the board may in its discretion determine, except that the following shall in any event be complied with in each residential lease:

(1) Rent and taxes. The annual rent shall be not less than an amount representing a fair return on the value of the premises at the inception of the rental period under the lease, which value shall be determined by appraisers. The lessee shall pay all real property taxes, assessments for the lessee's pro rata share of the costs of the improvements of the tract in which the land is located, and [~~such~~] any other charges made against or levied upon the lessee's premises. "Value of premises" as used in this section means the fair market value of the raw land, including [~~in such~~] the value of the pro rata share of the cost of improvements, only if the lessee has not already been assessed or has not already paid the lessee's pro rata share thereof, or if the State has not assumed the costs.

(2) Construction of residence. Each residential lease shall contain requirements that the lessee construct a residence upon the premises, pursuant to plans and specifications approved by the board and using a licensed contractor, within [~~such~~] a time and having [~~such~~] a minimum value or ground floor area as may be determined by the board in its discretion.

(3) Use. Upon the completion of improvements upon the premises, the lessee shall use and occupy the premises as the lessee's residence and shall not rent or use for any business purposes the whole or any part of the premises, except with the written consent of the board.

(4) Alienation. Each residential lease shall contain conditions prohibiting the lessee from subletting or parting with the possession of the whole or any part of the premises and from selling, assigning, transferring, or otherwise disposing of or encumbering, except by way of mortgage as hereinafter permitted, any interest in the lease or any improvements erected on the premises, except with the written consent of the board.

(5) Right of purchase. Each residential lease shall also state that no right or privilege of purchasing the fee title to the land demised shall be created by the lease, except as provided in section 171-79, notwithstanding any other provision of the law to the contrary.

(6) Construction and mortgages. Each residential lease shall provide that the lessee may mortgage the lease and improvements only for the purpose of financing the construction of a residence upon the premises or, after the requirement of construction of a residence upon the premises has been fulfilled, for the purpose of financing the purchase of the lease and improvements. The mortgages shall be made only to recognized lending institutions and may provide for foreclosure and for sale at the foreclosure to any purchaser, without regard to whether the purchaser at the sale is qualified or disqualified to take a residential lease under this part. The mortgagee's interest in any such mortgage shall be freely assignable.

(7) Mortgage qualification. The foregoing provisions to the contrary notwithstanding, the board is authorized from time to time, upon the issuance of any such lease to adopt or modify or eliminate any provision contained in sections 171-70 to 171-83, to the extent necessary to qualify the lease for mortgage lending or guaranty purposes with the Federal Housing Administration, Federal National Mortgage Association, and Veterans Administration, and their respective successors and assigns."

SECTION 5. Section 201H-58, Hawaii Revised Statutes, is amended to read as follows:

"[[]§201H‑58[]] Leases; self-help housing. (a) The [[]corporation[]] may lease parcels that it deems suitable for affordable housing at $1 per year for up to fifty years to organizations or community trusts to develop the parcel with ownership units through self-help development.

(b) The [[]corporation[]] may extend or modify the fixed rental period of the lease or extend the term of the lease[.], and shall extend the lease to no more than seventy-five years to meet Federal Housing Administration requirements for affordable housing.

(c) Parcels leased under this section may be transferred or assigned by devise, bequest, or intestate succession, and may be sublet with the approval of the [[]corporation[]]."

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:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	764
TWENTY-NINTH LEGISLATURE, 2017
STATE OF HAWAII