FL MORRIS, FMORRIS@STARBULLETIN.COM
Joseph Rodrigues was among those protesting in September outside the Foster Tower, a leasehold condominium built on property owned by the Queen Liliuokalani Trust.
Years ago, when you bought a home in Honolulu you most likely owned the structure and leased the land. Then came land reform, which allowed single-family homeowners to buy their lots. Later, when leasehold reform was applied to condominiums, things got interesting. The "Price of Paradise" asked two experts: Is mandatory condo lease-fee conversion fair and just? Mandatory conversion obsolete | Difficult but necessary
'Price of Paradise' on the radio
Sunday's topic:
Have mandatory lease-fee conversion laws outlived their usefulness, or should owners of leasehold condos still be able to buy the land under their units?Who: Guests: Jim Mee, an attorney for Queen Liliuo-kalani Trust and other landowners; Michael Pang, a real estate broker who specializes in lease-fee conversions. Host: John Flanagan.
When: 8 p.m.
Where: KKEA, 1420-AM
Join in: Call 296-1420 or toll-free from the neighbor islands, 1-866-400-1420 during the show. Cell phones: Star-1420 or Pound-1420.
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THE HONOLULU City Council's recent decision to shelve Bill 53 indicates public opinion is swinging back toward limiting condemnation to situations where there is a true public purpose to be served. Mandatory lease-to-fee
conversion is obsoleteBy James Mee
Bill 53 would have radically expanded the city's mandatory conversion program to allow condemnation of leasehold condominium projects in which only a handful of people who own their units actually live.
Under the bill, any project would qualify for condemnation as long as 50 percent of the owner-occupants applied, no matter how few. For example, a 200-unit project with only four owner-occupants could be converted if two of those owners applied for condemnation.
Bill 53 demonstrated how far government had strayed from the "public purpose" that first justified mandatory conversion.
The first such law, passed by the Legislature in the 1960s and known as the Land Reform Act, was intended to break up the land holdings of large landowners such as Bishop Estate. Supposedly, when land was taken away from the "oligopolistic" control of large landowners, increased market competition would make homes more affordable.
Leasehold condominiums are a far different matter. Small, single-parcel landowners own the land under most of them. Further, in many leasehold condominium projects absentee investors, not homeowners, own most of the units.
These lessee investors rent their properties to short-term renters or, in areas like Waikiki, put their units into vacation-rental pools or condominium-hotel operations.
Ironically, Bill 53 pointed 180 degrees away from the intended public purpose of mandatory conversion. Instead of breaking up large concentrations of leasehold homeownership, it targeted those buildings in which there are only a few resident homeowners.
IN FACT, the fewer the homeowners in the project, the easier it would have been to qualify it for condemnation. Once condemnation starts, it is directed and financed entirely by the lessee applicants.
With Bill 53, the law reached the point where it no longer met the "straight-face test." People realized land reform had evolved into a tool to benefit small special-interest groups rather than the public.
GEORGE F. LEE / GLEE@STARBULLETIN
Tristan Couch peered into an already packed Honolulu City Council chamber last July as the Council heard testimony on Bill 53.
In particular, the public saw that the proposed law was now threatening well-known charities, such as the Queen Liliuokalani Trust, which relies heavily on rental income from its Waikiki properties.
Not surprisingly, public opinion favored a charitable institution that supports thousands of orphaned and destitute children over eight lessees on whose behalf the city proposed to condemn the trust's land.
TODAY, we must ask whether this type of law is still needed. Most projects with substantial numbers of homeowners have already voluntarily converted to fee simple, a process well under way before the city passed the mandatory conversion law in 1991. Those wanting to purchase a fee-simple condo have ample choices in today's market.
Does mandatory conversion really achieve its public purpose to provide affordable fee-simple housing? The empirical evidence indicates the opposite.
For example, forced fee conversion in Kahala created a speculative market, which contributed in significant part to the Japanese investment bubble here in the late 1980s.
SHOULD government use the heavy power of eminent domain to achieve private, rather than public goals? The city essentially has sold its eminent-domain power to special- interest groups, something that I think would have horrified those who drafted our Bill of Rights.
Whatever public need may have supported the first Land Reform Act of the 1960s, it is long gone. Mandatory conversion has become a hammer that harms charities and small landowners for the private gain of a few.
It is time we got these outdated laws off our books.
James K. Mee is a Honolulu attorney and a founding member of the Small Landowners Association. He has advised the Queen Liliuokalani Trust and other landowners with regard to Bill 53, but the opinions expressed here are his own. BACK TO TOP
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HAWAII'S residential leasehold system was ill conceived because it was patterned on commercial leasehold concepts. This misapplied system has and will continue to displace people from their homes. From its inception in the 1950s, the system was doomed to fail. Leasehold conversion
is difficult but necessaryBy Michael Pang
Residential leases typically include terms providing for rent increases, which are sometimes unaffordable, and the surrender of the property by the lessee at the end of the lease.
Lessees want relief from the adverse social and economic effects of leasehold ownership. At the same time, lessors want their contracts honored. This is why residential property leases are such a difficult issue. Both sides have good points.
Mandatory fee conversion is not new. By 1967, enough people recognized the social flaws in our residential leasehold system that government began to respond.
The Legislature passed a law to compel the sale of the leased fee via condemnation for single-family homes. The city followed suit, enacting an ordinance to extend condemnation to condos, co-ops and planned-unit developments.
Despite this, landowners kept leasing land and home buyers kept buying leasehold properties. The apparent shortsightedness of all involved -- those who created residential leasehold, lessees and lessors -- is another error built into the system.
FEDERAL and state supreme courts have upheld the constitutionality and public purpose of both mandatory fee conversion laws. The courts agree that we must get out of our antiquated residential leasehold system.
Honolulu's leasehold conversion ordinance recog- nizes the adverse social and economic conditions caused by our residential leasehold system. These include displacing people from their homes, social instability and economic distress, for individuals and for the public as a whole.
The ordinance states: "acquisition ... at a fair and reasonable price ... will alleviate these conditions." Its public purpose is not to create public lands, which is usually the purpose of condemnation actions, but to alleviate the cause of social and economic harm that is occurring on a public scale.
Although mandatory fee conversion is the law of the land and serves a compelling pubic purpose, lessors will understandably continue to complain that it violates their rights. As compelling as those rights are in most other contexts, social responsibility prevails in this one. It typically does when the public good is at stake.
SALE of the leased land at a fair price may be the only win-win resolution to the leasehold dilemma. It is not the perfect solution for everyone, especially for lessors who prefer not to sell or lessees who cannot afford to buy their leased fee.
When considering both sides, however, it is better than anything else. Lessees gain security and needn't fear being displaced and, at today's fair prices, lessors can make a profit.
Prudent reinvestment of the sale proceeds can reap benefits exceeding the total lease rent lessors could collect, plus the redevelopment value of the land at the end of the lease.
The controversy will not likely end until we no longer have residential leasehold. After all, people's homes are at stake.
Voluntary fee conversion is preferable to mandatory conversion. However, if it does not occur voluntarily, mandatory lease-to-fee conversion serves the public good. We should stop blaming each other and kokua to get out of a difficult situation.
Michael Pang is president and principal broker of Monarch Properties Inc., which has represented owners in more than 150 Hawaii condominium projects in fee conversions and lease rent renegotiations.
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The Price of Paradise appears each week in the Sunday Insight section. The mission of POP is to contribute lively and informed dialog about public issues, particularly those having to do with our pocketbooks. Reader responses appear later in the week. If you have thoughts to share about today's POP articles, please send them, with your name and daytime phone number, to pop@starbulletin.com, or write to Price of Paradise, Honolulu Star-Bulletin, 7 Waterfront Plaza, Suite 210, 500 Ala Moana, Honolulu, HI 96813.
John Flanagan
Contributing Editor
