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Leasehold ConsensusAt its January board meeting the Board of Directors reviewed the proposed consensus statement submitted by local Leagues. The following is the position as formed by the board based on member discussion. The full text will be included in the LWVHI publication Program and Action. Position in Brief Position The League of Women Voters of Hawaii has found that the voluntary conversions for multifamily residential leasehold now in effect have proven to be unsatisfactory. The "take it or leave it" mandate together with the exorbitant prices demanded for the fee or the "renegotiated" lease rents, indicate a need for government intervention. The basis (raw land or as presently developed) for pricing land, extending credit for the remainder value of the lease, appraisals, the use of mediation, extension for time for acceptance of proposals, credit for property taxes and land improvement paid by the lessee, should be subjected to judicious review. A mandatory system should include a process for mediation and a formula to determine a fair and equitable settlement for both the lessee and lessor. The argument, based on hindsight, that the lessors lost substantial investment through low lease rents for a prolonged period of years is not completely justifiable. Generally a substantial premium was paid to the lessors by the developers for the privilege of leasing the land, which was passed on to apartment buyers. Lease rents were based on the future value of land according to a formula set by the lessors which included inflation, cost of living index, etc. Runaway inflation and the corresponding rise in values were unanticipated business risks that lessors took and should not be reason to penalize lessees. Multifamily residential developments contribute to the value of the property they occupied and should be a consideration in renegotiating lease rents. Real property taxes on the land on which these developments were built were paid for by the lessees throughout the period of their leases. The calculation of fair returns to the lessors should take all these factors into consideration. Such a cap on lease rents should be calculated according to a proposed formula and a set of guidelines which are fair and equitable to both the lessees and lessors. The surrender or reversionary clause presumes that there is no value to the land improvements and the buildings at the termination of the lease. It should be emphasized that current zoning rules and regulations would make it impossible for landowners of small lots to replace the number of units that were originally built and now exist on these lots. Even with the expenditure of repair and remodeling costs, the lessor would realize substantial profit. The League believes there should be adequate and fair compensation to the lessees for the purchase of the building, land improvements, and property taxes paid by them. Therefore, if the surrender clause is not abolished, it must be modified so the new surrender clauses in the leases contain some formula for the adequate and fair compensation to the lessees for their assets. If all of the previously mentioned positions are enacted and the present decrease in interest in developing and investing in multifamily residential leasehold projects continues, the prohibition on future multifamily residential leasehold might not be necessary. However, League members foresee many more social and economic problems in the future if the present system of multifamily residential leasehold is maintained. While they agree that there is some question about the desirability of government restrictions in an area that is usually controlled by market forces, such a prohibition may be necessary to protect future home buyers. * Multifamily is used in the position to denote cooperatives and condominiums. January 9, 1993
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