Hawaii-2021-SB1168-Amended

SECTION 1. The legislature finds that many lessees of state pasture lands have requested the department of land and natural resources to transfer their leases to the department of agriculture for management because the department of agriculture has greater flexibility under chapter 166E, Hawaii Revised Statutes, to amend, extend, and issue new leases by negotiation. The department of land and natural resources has not acted on the requests of its pasture lessees because of the high value of certain natural resources in pasture lands, their proximity to forest reserves, or their importance in providing access to other public lands for hunting or public recreation purposes. Furthermore, the perceived need to transfer pasture leases to the department of agriculture can be relieved by providing the department of land and natural resources with statutory powers similar to those exercised by the department of agriculture in the management of its leases.

The legislature further finds that positive advancement in carbon sequestration challenges, wildlife management, wildfire protection and forest health concerns can be best managed through mutually beneficial practices with ranching, wildlife protection, and native forest restoration.

The purpose of this Act is to authorize the board of land and natural resources to amend and extend existing pasture leases and issue new pasture leases by negotiation, to further protect and enhance the State's pasture lands.

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 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 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;

(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 such 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 has 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) 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 provision of this chapter to the contrary notwithstanding, the board may amend and extend pasture leases in furtherance of public purposes that are the responsibility of the department to promote, including, without limitation, the preservation of existing native forest, reforestation for watershed enhancement and forest carbon sequestration opportunities, facilitation of public hunting, establishment and maintenance of public access to landlocked reserves, enhancement of public recreational opportunities, and protection and propagation of current biological and other significant resources, 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; and

(3) The board may consider key characteristics of public lands most likely to benefit from the amendment and extension of pasture leases, public purposes to be promoted through lease amendment and extension, the types of lessee obligations regarding natural resource conservation and stewardship that will serve to achieve the identified public purposes, the types of lease amendments that are desirable to promote these public purposes, eligibility requirements for pasture lessees, and applicant qualifications.

Lease rents for pastoral and agricultural leases shall be determined based on agricultural use value. The chairperson may set the lease rent for the period of the lease term occurring after an amendment under this subsection, including but not limited to a value that incentivizes or otherwise promotes ranching operations compatible with the public purposes that are the responsibility of the department to promote. In arriving at a rental value, the chairperson may also consider the specified use of the land, any restriction on grazing or other beneficial uses of the land or portions thereof by the lessee, any conservation or stewardship services required to be performed by the lessee under the amended lease, and any withdrawal of lands from the lease premises. If an independent appraisal is procured to determine rent for an amended pasture lease, the chairperson may apply a lower rate of return if warranted after consideration of the public purpose served by the lease, use restrictions thereunder, and any obligation of the lessee to provide conservation or stewardship services."

SECTION 3. Section 171-59, Hawaii Revised Statutes, is amended to read as follows:

"§171-59 Disposition by negotiation. (a) A lease of public land may be disposed of through negotiation upon a finding by the board of land and natural resources that the public interest demands it. Where the public land is being sought under this section by a sugar or pineapple company[,] and the company is the owner or operator of a mill or cannery, then, for the purposes of this section, the economic unit shall be that acreage of public land which when taken together with the lands already owned or controlled or available to the company, when cultivated is found by the board to be necessary for the company's optimum mill or cannery operation. In all other cases, public land to be sold under this section shall be an economic unit as provided in section 171-33(3).

After a determination is made to negotiate the disposition of a lease, the board shall:

(1) Give public notice as in public auction, in accordance with the procedure set forth in section 171-16(a), of its intention to lease public land through negotiation setting forth the minimum conditions thereunder, the use for which the public land will be leased. Any person interested in securing the lease shall file an application with the board not later than forty-five days after the first publication of the notice;

(2) Establish reasonable criteria for the selection of the lessee; provided that where the intended use of the land is agriculture, the department of agriculture shall establish the criteria;

(3) Determine the applicants who meet the criteria for selection set by the board or the department of agriculture, as the case may be, and notify all applicants of its determination. Any applicant may examine the basis of the determination, which shall be in writing, to ascertain whether or not the conditions and criteria established by the board or the department of agriculture were followed; provided that if any applicant does not notify the board of the applicant's objections[,] and the grounds therefor, in writing, within twenty days of the receipt of the notice, the applicant shall be barred from proceeding to seek legal remedy for any alleged failure of the board to follow the conditions and criteria.

If only one applicant meets the criteria for selection of the lessee, the board may, after notice as provided in (3), above, dispose of the lease by negotiation.

If two or more applicants meet the criteria for the selection of the lessee, the board shall select the lessee who submits the highest offer contained in a sealed bid deposited with the board.

(b) Disposition of public lands for airline, aircraft, airport-related, agricultural processing, cattle feed production, aquaculture, marine, maritime, and maritime-related operations may be negotiated without regard to the limitations set forth in subsection (a) and section 171-16(c); provided that:

(1) The disposition encourages competition within the aeronautical, airport-related, agricultural, aquaculture, maritime, and maritime-related operations;

(2) The disposition shall not exceed a maximum term of thirty-five years, except in the case of:

(A) Maritime and maritime-related operations, which may provide for a maximum term of seventy years; and

(B) Aquaculture operations, which may provide for a maximum term of sixty-five years; provided that aquaculture operations in good standing may seek to renew a lease issued under this section and, during the lease term, may engage in supportive activities that are related to or integrated with aquaculture; and

(3) The method of disposition of public lands for cattle feed production as set forth in this subsection shall not apply after December 31, 1988.

For the purposes of this subsection:

"Agricultural processing" means the processing of agricultural products, including dairying, grown, raised, or produced in Hawaii.

"Airport-related" means a purpose or activity that requires air transportation to achieve that purpose or activity; or an activity that generates revenue for the airport system as provided in section 261-7.

"Aquaculture" means the propagation, cultivation, or farming of aquatic plants and animals in controlled or selected environments for research, commercial, or stocking purposes, including aquaponics or any growing of plants or animals with aquaculture effluents.

"Maritime-related" means a purpose or activity that requires and is directly related to the loading, off-loading, storage, or distribution of goods and services of the maritime industry.

(c) Any provision of this chapter to the contrary notwithstanding, the board may issue pasture leases by negotiation for lands already under pasture use when doing so will further public purposes that are the responsibility of the department to promote, including, without limitation, the preservation of existing native forest, reforestation for watershed enhancement and forest carbon sequestration opportunities, facilitation of public hunting, establishment and maintenance of public access to landlocked reserves, enhancement of public recreational opportunities, and protection and propagation of current biological and other significant resources, subject to the following:

(1) The term of any pasture lease issued under this subsection shall not be for more than sixty-five years; and

(2) The board may consider key characteristics of public lands most likely to benefit from the negotiation of pasture leases, public purposes to be promoted through negotiation of pasture leases, the types of lessee obligations regarding natural resource conservation and stewardship that will serve to achieve the identified public purposes, eligibility requirements for pasture lessees, and applicant qualifications.

Lease rents for pastoral and agricultural leases shall be determined based on agricultural use value. The chairperson may set the rent for pasture leases issued under this subsection, including but not limited to a value that incentivizes or otherwise promotes ranching operations compatible with the public purposes that are the responsibility of the department to promote. In arriving at a rental value, the chairperson may also consider the specified use of the land, any restriction on grazing or other beneficial uses of the land or portions thereof by lessee, and any conservation or stewardship services required to be performed by the lessee under the lease. If an independent appraisal is procured to determine rent for a pasture lease, the chairperson may apply a lower rate of return if warranted after consideration of the public purpose served by the lease, use restrictions thereunder, and any obligation of the lessee to provide conservation or stewardship services.

(d) If at any time the land transferred pursuant to this section is in productive agricultural use under the department of agriculture's authority and the department seeks to alter or convert the existing use to its reserved uses or priorities, then preference shall be given to the department's alternative use; provided that as of the anticipated commencement of the alternative use:

(1) The department has:

(A) Completed a plan of utilization or project plan for the alternative use;

(B) Secured funding to commence the plan; and

(C) Given prior written notice to the department of agriculture and the occupant of the transferred land no later than one year prior to the alteration or conversion.

The occupant shall be responsible for any costs to relocate its operations that are ordinarily associated with reconfiguring existing operations to accommodate the loss of areas removed for the department's alternative use;

(2) The board has:

(A) Analyzed the likelihood and capacity for the department to implement the alternative use; and

(B) Approved the department's completed plan of utilization or project plan for the alternative use;

(3) The department shall:

(A) Be solely responsible for all costs of identification, designation, and subdivision of the land transferred, or any portions thereof, that are required for the implementation of its plan; and

(B) Return the land transferred to agricultural, watershed, or forestry use if the project plan is not completed within the timeframe specified in the approved plan;

(4) The State shall:

(A) Indemnify any lessee required by the department of agriculture to provide certain other activities; and

(B) Provide the lessee with proof of indemnity to the degree acceptable with the level of exposure; and

(5) The lessor shall:

(A) Be responsible for damage or injury caused by the lessor's officers and employees in the course of their employment to the extent that the lessor's liability for such damage or injury has been determined by a court or otherwise agreed to by the lessor; and

(B) Pay for such damage or injury to the extent permitted by law; provided that funds are appropriated, allotted or otherwise properly made available for that purpose.

The lessee acknowledges that this provision, in itself, shall not constitute or be interpreted to be any type of indemnification, defense, or hold harmless obligation of the lessor. The lessor's obligations under this section shall survive the expiration or earlier termination of the lease."

SECTION 4. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect upon its approval.

THE SENATE	S.B. NO.	1168
THIRTY-FIRST LEGISLATURE, 2021		S.D. 1
STATE OF HAWAII