Potential liability a hurdle
in leasehold-law repeal

Six Councilmembers support
the repeal but some fear legal
action from condo lessees

The City Council is grappling with the potential liability that the city faces should the 13-year-old mandatory condominium lease-to-fee conversion be repealed.

The Council is holding a public hearing today on the repeal bill, which needs to clear several more hurdles -- including gaining approval at today's meeting -- before going into effect. Final Council approval could come as early as Dec. 1.

The city's ordinance, known as Chapter 38, passed in 1991 to help leasehold owner-occupants gain title to the land under their units.

The law allows qualifying lessees to petition to have the city use its powers of eminent domain when a landowner either refuses to sell the fee interest or when no purchase price can be negotiated. The city would condemn the land and turn over the fee interests to the eligible unit owners.

So far, the repeal has the support of six of nine Councilmembers, enough to override a veto. The repeal also has the support of Mayor-elect Mufi Hannemann.

But there are signs that the Council is nervous about legal action that could come from lessees wanting to purchase their units as a result of the measure passing.

Councilman Charles Djou, who supports leasehold conversion and has voted against the repeal bill, has introduced an amendment that would give lessees until Dec. 31, 2005, to get their conversion through the Council approval process.

The current bill would make the repeal effective from the date it becomes law and any leasehold conversion request not already approved by the Council would not be able to move on.

Supporters of the repeal said in an e-mail that Djou's amendments would "open the floodgates for lessees to get qualified." They want the bill passed without any amendments.

Repeal supporters say the leasehold conversion law endangers land held by small landowners and alii trusts such as the Kamehameha Schools and Queen Liliuokalani Trust.

Council Chairman Donovan Dela Cruz, who has voted in favor of the repeal, said yesterday that he hasn't seen anything to change his mind, but he thinks it's important to hear from city attorneys on the potential liability issue.

Djou, who isn't confident his amendment will pass, said his proposal could be a compromise that could help stave off legal challenges by giving lessees a transitional period to finish the process.

The Council has already received a letter from lawyers representing lessees who are in the process of getting qualified for the conversion process but haven't made it to the Council yet.

"Passage of the bill would leave these clients with little alternative but to seek redress in the courts since that would be their only opportunity to own their homes in fee simple," the letter said.

Attorney David Nakashima said the letter was sent as a courtesy to inform the Council of the potential liability. "It wasn't a threat and it wasn't trying to coerce the Council."

Nakashima and attorney Corey Park represent lessee applicants who live in the Wailana, Makiki Manor, Camelot and Discovery Bay condominium buildings.

Nakashima said an amendment like Djou's would "be a step in the right direction," but he said that there are a group of lessees whose leases will be expiring in the next three years who won't have the benefit of the leasehold conversion law to help them gain title to the land.