Report Title:

State Agricultural Lease Rent Appraisal; Inflation-based

Description:

Requires lease rent appraisals for reopenings of state agricultural leases to be based on non-compounded inflation, rather than fair market value, provided that the lessees are in compliance with the terms of the lease.

HOUSE OF REPRESENTATIVES

H.B. NO.

167

TWENTY-THIRD LEGISLATURE, 2005

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to state agricultural leases.

 

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

SECTION 1. Article XI, section 10, of the Constitution of the State of Hawaii declares that "public lands shall be used for the development of farm and home ownership on as widespread a basis as possible...." Fulfilling this mandate has become more difficult in recent years, however, as the booming Hawaii real estate market has fueled large increases in the price of state agriculture leases. Lessees with scheduled rental re-openings are faced with significant increases in their lease rents because such re-opening appraisals are currently based on fair market value. This will adversely impact their ability to continue their farming operations.

The legislature finds that to address this growing problem, the appraisal of lease rents for re-opening should not be based on fair market value for all lessees. Alternate methods of appraisal should be used to set rents for leases, methods that better conform to the spirit of the mandate expressed in article XI, section 10, of the Constitution of the State of Hawaii.

The purpose of this Act is to stabilize state agricultural lease rents by requiring lease rents established at lease reopenings to be based on non-compounded inflation instead of fair market value. This alternative method shall only apply to lessees who are in compliance with the terms of their state agricultural leases.

SECTION 2. Section 171-17, Hawaii Revised Statutes, is amended by amending subsection (d) to read as follows:

"(d) In the event of reopening of the rental to be paid on a lease, the rental for any ensuing period shall be the fair market rental at the time of reopening[.] except for state agricultural leases of lessees that are in compliance with the terms of their leases. Notwithstanding any other law to the contrary, the rental on state agricultural leases for any ensuing period shall be determined by:

(1) Multiplying the rental of the lease at inception with the non-compounded sum of inflation rates, expressed as a percentage, resulting from inflation as determined by the federal government's producer price index; and

(2) Adding the product identified in (1) to the rental of the lease at inception.

The non-compounded sum of inflation rates shall be calculated by

adding the inflation rates for each year beginning with the

first year of the lease and ending with the year of the

reopening. Lessees who are not in compliance with the terms of

their state agricultural leases shall be subject to the fair

market rental as described in this subsection. At least six

months prior to the time of reopening, the fair market rental

shall be determined by:

(1) An employee of the department qualified to appraise lands; or

(2) A disinterested appraiser whose services shall be contracted for by the board;

and the lessee shall be promptly notified of the determination; provided that should the lessee fail to agree upon the fair market rental, the lessee may appoint the lessee's own appraiser who together with the board's appraiser shall appoint a third appraiser and the fair market rental shall be determined by arbitration as provided in chapter 658A. The lessee shall pay for the lessee's own appraiser, the board shall pay for its appraiser, and the cost of the third appraiser shall be borne equally by the lessee and the board. Any language in present leases to the contrary notwithstanding, the provisions of this subsection, when possible and notwithstanding the six-month notice required, shall apply to leases with original lease rental reopening dates effective before and after July 1, 1996."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval.

INTRODUCED BY:

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