A dispute between the federal government and Hawaii over land leases could stretch into next year and beyond, likely requiring the intervention of state lawmakers and possibly congressional approval.
The disagreement between the Federal Department of the Interior and the State Department of Hawaiian Lands stems from a law adopted in 2021 it would allow state tenants — some of whom already have 55- or 65-year leases — to apply for lease extensions of up to 40 years if they agree to make substantial improvements to their properties.
The law, known as Law 236, was intended for tenants of the Department of Lands and Natural Resources to provide businesses with long-term stability to facilitate obtaining funding. Questions about how this applies to DHHL’s commercial leases recently arose during a series of Hawaiian Homes Commission meetings that were considering extending the lease of the Prince Kuhio Plaza mall in Hilo.
While the Hawaiian Homes Commission Act of 1921 reserved more than 200,000 acres of land for home ownership, DHHL made some of that land deemed unsuitable for homes available for commercial leases. Leasing this land has at times been controversial, as the department has struggled to build enough homes to house Native Hawaiians on a waiting list that has grown to more than 28,000.
The mall’s owner, Brookfield Properties, is so far the only DHHL tenant to seek a 40-year lease extension, even though the mall’s lease does not expire until 2042. Opponents have raised concerns. concerns that the rush to extend those leases could prevent the state from finding a different tenant, charging more for rent or reallocating the land.
Other large tenants who could benefit from the new law also have leases that don’t expire for decades. Meanwhile, tenants and small businesses whose leases expire this year fear they could find themselves in limbo as the DHHL president is expected to step down and a new governor will be elected in the Nov. 8 election.
Interior Department officials said the state must pass new legislation if it wants DHHL commercial tenants to be eligible for 40-year lease extensions. But state prosecutors argued that the law is fine as it is and that DHHL could already be using it. DHHL President William Aila and other officials are in talks with the DOI about concerns the federal agency raised in letters to the state this year.
While lawmakers could tackle the issue next year, there is no consensus three months before the start of the next session on how the legislature will move forward.
Senator Lorraine Inouye, who is running for office, was a supporter of the 2021 law and believes it should apply to DHHL leases. Inouye said the issues the DOI raised about congressional approval never came up when lawmakers discussed the bill in 2021.
“There were discussions about how this bill would apply to Hawaiian lands. At the time, it seemed like a ‘yes, it might apply,'” Inouye said.
She also supported lease extensions for the Hilo Mall. Although Inouye is a supporter of the state’s long-term lease extensions, she said she was not ready to introduce a bill in the next session of the Legislative Assembly.
If she retains her seat and position as chair of the Senate Water and Lands Committee, Inouye said she plans to hold a series of legislative briefings on this leasing issue with department officials. and the state attorney general’s office.
Even if Inouye pushes for another lease extension bill, the proposal could meet some resistance in the House.
Representative David Tarnas, who chairs the House Water and Land Committee, said he believed Bill 236 focused on DLNR land leases. DHHL did not testify on the measure as it moved through the Legislature, although one of its tenants, Prince Kuhio Plaza, testified in support of it.
If re-elected in November, Tarnas said he does not plan to introduce a bill to extend DHHL’s leases.
“We have already heard that this action concerns the DLNR, and we will not take any explicit action towards DHHL unless DHHL asks us to do so,” said Tarnas.
Cedric Duarte, a spokesperson for DHHL, said the Hawaiian Homes Commission believes it has the authority to extend leases under Law 236, based on direction from the state’s AG. He said any proposal to the Legislative Assembly would also have to be voted on and approved by the committee.
Even if the legislature passes a new law in the next session, a timetable for consultation described in the federal rules could push back federal review of the law until the second half of next year.
Once the next governor signs new legislation, the DHHL director would have 120 days to submit a package of documents to the Secretary of the Interior, who would then determine whether the proposal should be approved by Congress.
The Secretary’s review must include a consultation process that gathers input from the Hawaiian community before determining whether a proposed amendment has a positive or negative impact on beneficiaries.
This process did not occur after the Legislature approved and the Governor signed Bill 236 in 2021.
David Kopper, attorney and general counsel for the Native Hawaiian Legal Corp.said legally required consultation with Hawaiian communities has been lost in the debate over lease extensions.
“By avoiding this process, you’re not just avoiding bureaucracy, you’re avoiding the community,” Kopper said, adding that if “the process is done right, it could take a while.”
In his view, there is no need to rush the process since many of DHHL’s large tenants do not end until the 2040s and later.
DHHL’s leases are one of the few ways, outside of public funds, that the department can make money for itself. In 2020, annual rent from its 123 general leases brought in more than $15 million.
The Hilo mall lease brings in over $290,000 a year. Rent negotiations for this lease are expected to reopen in 2030.
It’s not the only major tenant who may one day seek to take advantage of long-term lease extensions.
DHHL’s biggest source of annual revenue from its general leases totals about $4.7 million from the Kapolei Hawaii Property Co., a partnership between Florida-based real estate investment trust DeBartolo Development and other companies that operate the Ka Makana Ali’i shopping center in Kapolei. The lease on this property does not expire until 2079.
Target and Safeway also hold a joint lease for their stores in Hilo with rent set at around $500,000 per year. This lease ends in 2069.
About 16 leases on Oahu, Molokai and the Big Island will expire at the end of the year or have already expired. These leases combined represent over $2 million in annual revenue for the department.
Most of this revenue comes from warehouses and industrial land that DHHL leases in Mapunapuna on Oahu. These were due to expire in early October, but the commission granted 10-year lease extensions to a dozen tenants in July.
Lease renewal or extension terms depend on the individual lease agreements between a tenant and DHHL. Some companies whose leases are expiring soon still don’t know where they stand.
Jackie DeLuz, president of Big Island Toyota, said she had already applied to extend her company’s lease, but the department told her ‘action won’t happen quickly’ and nothing would happen. at least until the administration changes. hands. Governor David Ige is barred by term limits from seeking re-election.
One of Big Island Toyota’s leases in Hilo expires Dec. 31. The other expires on April 30, 2023.
“It’s down to the wire, pretty nerve-wracking,” DeLuz said. “We made our request, we want to do more, but we cannot move forward.”
Not knowing the status of the ground lease makes it difficult to plan for the future. Licenses for auto dealerships and contracts with automakers require physical space to sell cars, DeLuz said.
“We’re not just planning for next year,” DeLuz said. “And we want to make more improvements. It’s hard to do that if you don’t know if you’ll have a lease.