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August 1990

September 1990

Political Debates to Air
President's Message (Arlene Ellis)
City Council Review Committee Meetings Scheduled with Poli-Sci Profs (Jean Aoki)
Counting Center Workers Needed
Council to Make Additional Transit Study (Astrid Monson)
City's Master Plan for Waikiki
Honolulu League Members Seek Political Office
Leasehold Condominiums (Ah Jook Ku)
We'll Participate in Recycling Survey
League of Women Voters Presents (Katherine Loew)
Welcome New Members
You Are Invited

Leasehold Condominiums

A Gargantuan Problem of the 90's

Leasehold Conversion
Lease Rent Renegotiations
Surrender Clauses

There is no question these issues will be argued hard and loud in our legislative halls and in the courts during the coming years. Already leasehold condominium and cooperative owners are mobilizing their faces for a titanic battle.

What triggered the outrage and mobilization was a front page story carried in the July 3 Honolulu Advertiser Condo owners face 1,450% lease rent hike." It described the plight of the owners of the 95-unit Sandalwood Condominium on Ahana St near the Pagoda Hotel, built in 1965 with a 55-year lease from Bishop Estate. Sandalwood is the first Bishop Estate condo lease to reach its 25-year point that mandates renegotiation that reflects current land values.

Attorney Bruce Dinman, who represents some 800 homeowners' associations, including the Sandalwood, believes that leasehold land is the issue of the 1990's. "I think people will be in for a shock as more condo ground leases come up for renewal. It's been an abstract problem until now."

The first residential condos in Hawaii were constructed in 1962, followed by these two spurts: 34,171 units between 1973-76 and 34,756 in 1979-82. Today, approximately 62% of all residential condos are in leasehold.

At a July 21 conference in the State Capitol Auditorium convened by these six State Representatives: Joan Hayes, James Shon, Mazie Hirono, Kenneth Hiraki, David Hagino and David Stegmaier, former Senator Dennis O'Connor called for a battle to end leaseholds. He had successfully led the land reform movement in the 70's that forced Bishop Estate and other landowners to sell leasehold land under single family homes to individual lessees.

"Residential leasehold has to end. My solution is to convert everything to fee. You as lessees of condos are second class citizens. The time has come to stop this. Mandatory conversion of land under apartments to fee simple will move you out of the category of second class citizens. It is unfair and discriminatory that single family leaseholders have the option of acquiring the leased fee interest in the land under their homes while leasehold condo and coop owners do not. Such discrimination flies in the face of the constitutional requirements of equal protection of the law."

O'Connor had reference to these statutes:

In 1967, the State Legislature enacted "The Land Reform Act", which permits leaseholders to purchase the leased fee interest in their property through condemnation or the threat of condemnation. The constitutionality of that law was upheld by the U. S. Supreme Court in Hawaii Housing Authority v. Midkiff, 407 U. S. 229 (1984) and by the Hawaii Supreme Court

The Legislature further reaffirmed its findings and declarations by enacting in 1975 'The Hawaii Lease Rent Renegotiation Relief Act", which established a formula for determining the maximum lease rent payable by a lessee of leasehold land of 2 acres or less and used for one or two family residences upon renegotiation of the lease agreement. In 1982, it added provisions regulating renegotiated lease rents for cooperative corporations.

State law stops there. It does not provide a lease rent ceiling under the Condominium Property Regime.

O'Connor exhorted the packed auditorium attendees there are some 70,000 condo owners in the State plus thousands of condo renters who will be affected by the upcoming renegotiations: "You have the political clout by virtue of your numbers to convince legislators you are a heck of a lot more lessees and renters than landlords."

The previous Wednesday - July 21 - condo owners filled the Honolulu Council chamber to testify in support of Bill 81, "Relating to the Renegotiation of Residential Lease Rents". Speaker after speaker pleaded for equal treatment under the law. A goodly number were retirees who confided they were subsisting on fixed incomes. The escalation of their rentals would mean selling their leasehold interest and moving away or - like the Sandalwood victims - joining Hawaii's growing ranks of the homeless, if help is not on its way.

Richard Port, a board member of the Hawaii Council of Associations of Apartment Owners, cited another condo lessee dilemma: Surrender clauses. After a lease expires, the building and its improvements revert to the landlord. Through the years, lessees must maintain/improve their property and pay all the taxes as well as the lease rent Expiration time rolls around, they must surrender their home. This is going to create a new class of homeless people, Port added.

On July 25, Port arranged a conference with Governor John Waihee to solicit his support for legislation for condo leaseholders. Attending this conference with him were these three Honolulu Leaguers: Secretary Jean Aoki, Board Member James Koshi and this writer.

Dr. Nicholas Ordway, Hawaii Chair of Real Estate, University of Hawaii - Manoa, writes in his paper entitled: "Hawaii's Leasehold Condominiums in the Future" about this long term marketing impact: "It is estimated by the year 2000 nearly one third to one half of today's existing condominium units will become very difficult to sell in the resale market. The primary reason will be the unwillingness of most lenders to make long term loans that are secured by condominium units on leases with short remaining terms. Generally, lenders require the lease term to extend 5 to 14 years past the term of the loan... A hint of the marketing problems may start being felt by 1992 when approximately 4,000 units will have lease terms of 30 years or less."

As for the economic impact he predicts a decline in maintenance expenditures to preserve property and this could lead to blight and possible health hazards. "The temporary overall value of the condominium projects will drop and a greater share of property taxes will be shifted to fee simple properties."

Finally, Dr. Ordway sees this long term social impact "It is projected that a greater percentage of dwellers in leasehold condominiums would be the elderly. As units become more difficult to sell, mobility also would become more difficult and many would not move rather than to take a financial loss on a unit. Some of the elderly and others would not have sufficient savings or incomes to start over again.

"Unless appropriate public or private charitable housing programs were in place, some of these former condominium owners would join the ranks of Hawaii's homeless."

Ah Jook Ku

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