REPORT TITLE:
Condominium; Leasehold


DESCRIPTION:
Establishes a fair market value standard (FMVS) for appraising
the leased fee interest of condo and co-op housing corp. for
leases that do not specify an appraisal standard and for leases
on or after effective date of this Act; allows FMVS if lessor and
lessee agree for leases prior to date of this Act.  (SD2)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        876
THE SENATE                              S.B. NO.           S.D. 2
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO RESIDENTIAL LEASE-TO-FEE CONVERSION.



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

 1      SECTION 1.  The legislature finds that a standard is needed
 
 2 to clarify the conditions in which a fee simple owner offers a
 
 3 leased fee interest in condominiums and cooperative housing
 
 4 corporations to be purchased by a lessee.  The appraisal of these
 
 5 properties should be based on their fair market value to ensure
 
 6 equity and fairness in the process.
 
 7      One method to accomplish this purpose would be to first
 
 8 calculate the fair market value of the real property.  After
 
 9 determining the total interest of the fee owner, this percentage
 
10 of the property would be assigned to determine proportionate
 
11 percentages of ownership between the fee owner and the lessee.
 
12      The purpose of this Act is to establish a fair market value
 
13 standard for determining the value of the leased fee interest to
 
14 be purchased by a lessee.
 
15      SECTION 2.  Chapter 519, Hawaii Revised Statutes is amended
 
16 by adding a new section to be appropriately designated and to
 
17 read as follows:
 
18      "§519-     Appraisal method for cooperative housing
 
19 corporation lease-to-fee conversion.  (a)  All leases, including
 

 
Page 2                                                     876
                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1 subleases executed by a cooperative housing corporation as
 
 2 lessee, and subleases acquired by a cooperative housing
 
 3 corporation by assignment, executed prior to the effective date
 
 4 of this Act, that establish within the lease or sublease an
 
 5 appraisal method for determining the value of the lease-to-fee
 
 6 conversion, may use the following fair market value conversion
 
 7 appraisal method to compute the value of a lease-to-fee
 
 8 conversion:
 
 9      (1)  A qualified real estate appraiser shall complete a
 
10           leased fee analysis of the property to determine the
 
11           fair market value of the property;
 
12      (2)  The fee owner's total interest in the property is
 
13           calculated;
 
14      (3)  After determining the total interest of the fee owner,
 
15           this percentage of the property would be assigned to
 
16           determine proportionate percentages of ownership
 
17           between the fee owner and the lessee; and
 
18      (4)  The amount for the lease-to-fee conversion would then
 
19           be calculated based on the percentages set forth in
 
20           paragraph (3);
 
21 so long as all parties to the lease agree to the use of this
 
22 method.
 
23      (b)  All leases, including subleases executed by a
 
24 cooperative housing corporation as lessee and subleases acquired
 

 
Page 3                                                     876
                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1 by a cooperative housing corporation by assignment executed: 
 
 2      (1)  On or subsequent to this Act; or 
 
 3      (2)  Prior to this Act that do not specify an appraisal
 
 4           method in the lease;
 
 5 shall use the fair market value conversion appraisal method set
 
 6 forth in subsection (a) to compute the value of a lease-to-fee
 
 7 conversion.
 
 8      (c)  For purposes of this section:
 
 9      "Cooperative housing corporation" has the meaning set forth
 
10 in section 519-3(d).
 
11      "Fair market value" means that amount of money that a
 
12 purchaser willing, but not obliged, to buy an interest in land
 
13 would pay an owner willing, but not obliged, to sell it, taking
 
14 into consideration all uses to which the land is adapted or might
 
15 in reason be applied.
 
16      "Lease" or "sublease" means a conveyance of land or an
 
17 interest in land, by a fee simple owner as lessor, or by a lessee
 
18 or sublessee as sublessor, to any person, in consideration of a
 
19 return of rent or other recompense, for a term, measured from the
 
20 initial date of the lease or sublease, of twenty years or more,
 
21 including any periods for which the lease may be extended or
 
22 renewed at the option of the lessee.
 
23      "Lessee" means any person to whom land is leased or
 

 
Page 4                                                     876
                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1 subleased, and the lessee's heirs, successors, legal
 
 2 representatives, and assigns.
 
 3      (d)  This section shall not apply to lease-to-fee conversion
 
 4 through condemnation."
 
 5      SECTION 3.  Chapter 514A, Hawaii Revised Statutes is amended
 
 6 by adding a new section to be appropriately designated and to
 
 7 read as follows:
 
 8      "§514A-     Appraisal method for condominium lease-to-fee
 
 9 conversion.  (a)  All condominium leases, including subleases,
 
10 executed prior to the effective date of this Act, that establish
 
11 within the lease or sublease an appraisal method for determining
 
12 the value of the lease-to-fee conversion, may use the following
 
13 fair market value conversion appraisal method to compute the
 
14 value of a lease-to-fee conversion:
 
15      (1)  A qualified real estate appraiser shall complete a
 
16           leased fee analysis of the property to determine the
 
17           fair market value of the property;
 
18      (2)  The fee owner's total interest in the property is
 
19           calculated;
 
20      (3)  After determining the total interest of the fee owner,
 
21           this percentage of the property would be assigned to
 
22           determine proportionate percentages of ownership
 
23           between the fee owner and the lessee; and
 

 
Page 5                                                     876
                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1      (4)  The amount for the lease-to-fee conversion would then
 
 2           be calculated based on the percentages set forth in
 
 3           paragraph (3);
 
 4 so long as all parties to the lease agree to the use of this
 
 5 method.
 
 6      (b)  All condominium leases, including subleases, executed: 
 
 7      (1)  On or subsequent to this Act; or 
 
 8      (2)  Prior to this Act that do not specify an appraisal
 
 9           method in the lease;
 
10 shall use the fair market value conversion appraisal method set
 
11 forth in subsection (a) to compute the value of a lease-to-fee
 
12 conversion.
 
13      (c)  For purposes of this section:
 
14      "Fair market value" means that amount of money that a
 
15 purchaser willing, but not obliged, to buy an interest in land
 
16 would pay an owner willing, but not obliged, to sell it, taking
 
17 into consideration all uses to which the land is adapted or might
 
18 in reason be applied.
 
19      "Lease" or "sublease" means a conveyance of land or an
 
20 interest in land, by a fee simple owner as lessor, or by a lessee
 
21 or sublessee as sublessor, to any person, in consideration of a
 
22 return of rent or other recompense, for a term, measured from the
 
23 initial date of the lease or sublease, of twenty years or more,
 

 
Page 6                                                     876
                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1 including any periods for which the lease may be extended or
 
 2 renewed at the option of the lessee.
 
 3      "Lessee" or "sublease" means any person to whom land is
 
 4 leased or subleased, and the lessee's heirs, successors, legal
 
 5 representatives, and assigns.
 
 6      (d)  This section shall not apply to lease-to-fee conversion
 
 7 through condemnation."
 
 8      SECTION 4.  New statutory material is underscored.
 
 9      SECTION 5.  This Act shall take effect upon its approval.