Unless otherwise clear from the context, as used in this chapter:

"Corporation" means the Hawaii housing finance and development corporation created by chapter 201H.

"Development tract" means a single contiguous area of real property not less than five acres in size which has been developed and subdivided into residential lots, including residential lots which may have been converted to fee simple and streets and roadways developed as an integral part of the development tract. Two or more pieces of real property shall be considered as a single contiguous area if they would be contiguous except for the interposition or existence of a road, street, stream, fee lot, or other like interference.

"Fair market value" means that amount of money that a purchaser willing, but not obliged, to buy an interest in land would pay an owner willing, but not obliged, to sell it, taking into consideration all uses to which the land is adapted or might in reason be applied.

"Fee simple lands" means absolute ownership of land for an indefinite duration, freely transferable and inheritable. For the purposes of this chapter, a lessee shall be deemed to own fee simple lands if such fee simple real property is held under any trust agreement or fiduciary arrangement in which another person holds legal title to the land and where the lessee, whether as trustee, co-trustee or beneficiary, holds or retains the controlling interest and right to direct the trust with regard to management or control of the trust or its assets.

"Fee simple owner" and "fee owner" mean the person who owns the fee simple title to the land which is leased, including a life tenant with a remainder over, vested or contingent, and a holder of a defeasible estate, and the holder's heirs, successors, legal representatives, and assigns.

"Lease" means a conveyance of land or an interest in land, by a fee simple owner as lessor, or by a lessee or sublessee as sublessor, to any person, in consideration of a return of rent or other recompense, for a term, measured from the initial date of the conveyance, twenty years or more (including any periods for which the lease may be extended or renewed at the option of the lessee).

"Leased fee" and "leased fee interest" means all of the interests of the fee owner, lessor, and all legal and equitable owners of the land which is leased, other than the lessee's interest as defined by this chapter.

"Legal and equitable owners" means the fee simple owner and all persons having legal or equitable interests in the fee or in the lessor's leasehold estate, including mortgagees, developers, lienors, and sublessors, and their respective heirs, successors, legal representatives, and assigns.

"Lessee" means any person to whom land is leased or subleased, and the lessee's heirs, successors, legal representatives, and assigns.

"Lessor" means any person who leases or subleases land to another, and the lessor's heirs, successors, legal representatives, and assigns.

The terms "lessor", "lessee", "fee simple owner", "fee owner", and "legal and equitable owners" include individuals, both masculine and feminine, and, except as to the term "lessee", the terms also include corporations, firms, associations, trusts, estates, and the State or its political subdivisions. When more than one person are the lessors, lessees, fee simple owners, fee owners, or legal and equitable owners of a lot, the terms apply to each of them, jointly and severally.

"Lot", "houselot", "residential lot", and "residential houselot" mean a parcel of land, two acres or less in size, zoned for residential use, which is used or occupied or is developed, devoted, intended, or permitted to be used or occupied as a principal place of residence for one or two families.

"Offsite improvements" means all physical improvements such as, but not limited to, roads, sewer lines, sewage treatment plants, gutters, curbs, sidewalks, fire hydrants, street lights, land dedicated for public purposes and underground electric cables, constructed or placed in a subdivision off the lots intended for occupancy, which improvements are to be used in common by occupants of all lots adjoining such improvements or by the occupants of all lots for whose benefit the improvements have been constructed or placed.

"Onsite improvements" means all physical improvements placed on a residential lot intended for occupancy which improvements are for the benefits of occupants of that lot, including, but not limited to, dwelling units, garages, service buildings, stairs, walkways, driveways, walls, trees, shrubs, landscaping, and pools.

"Owner's basis" means the value of the lessor's leased fee interest in the lot that would apply if the interests were normally traded on an open market. The fair market value of the owner's basis shall be established to provide the lessor with just compensation for the lessor's interests in the lot and shall take into consideration every interest and equity of the lessee in establishing that market value. The value may be determined by either of the following methods, or any other method that is normally used by qualified appraisers in establishing the fair market value of a lessor's leased fee interest in land:

1. (1) The sum of:

   1. (A) The future rental income stream for the lot for the term of the lease discounted to present worth from the expiration date of the lease; and

   2. (B) The value of the lessor's reversionary interest in the lot discounted to present worth from the expiration date of the lease.

      The discount rate shall be based on the maximum rate of return for insured passbook demand savings account paid by the savings and loan institutions in Hawaii plus three and three-fourths per cent; provided that the discount rate may be modified by mutual agreement of the lessor, lessee, and the corporation; or

2. (2) The current fair market value of the lot, valued as if it were a fee simple lot and as if the fee title were unencumbered, and excluding onsite improvements, established by a market data approach utilizing comparable sales, less the following:

   1. (A) The value of the lease, including any rights therein, if any, that accrues to the lessee;
   2. (B) That percentage of the general enhancement of the neighborhood that has been paid for or contributed directly or indirectly by the lessee;
   3. (C) The current replacement cost of that portion of existing offsite improvements, including overhead and profit at prevailing rates, that were paid for or otherwise contributed, directly or indirectly, by the lessee;
   4. (D) That percentage of the general enhancement of the development tract and the lot caused by the onsite improvements on the lot paid for, or contributed, directly or indirectly, by the lessee;
   5. (E) That amount, not otherwise deducted herein, allocated to the lot that was paid for or otherwise contributed, directly or indirectly, by the original lessee, computed at prevailing rates for overhead and profit in developing the development tract established by existing practice in the community; and

   6. (F) That amount for fees and costs that would ordinarily be borne by the lessor in transferring interest to the lessee, including but not limited to attorneys' or realtors' commissions, other costs of sale, and similar fee;

      provided that the values established by any one of the provisions in subparagraphs (A) to (F) shall not be duplicated in any one of the other provisions.

      "Sustainable affordable development" means a development tract that satisfies all of the following requirements:

   7. (1) The sales price at the time of initial sale of at least thirty per cent of all the residential lots in the development tract shall be limited in accordance with directly applicable state or county law, regulation, policy, or agreement, such that households earning not more than the required percentages of the median income for the applicable county (according to the directly applicable law, regulation, policy or agreement) will be required to spend no more than the allowable percentage of their gross incomes for housing costs as determined by secondary mortgage market standards or as otherwise agreed, all as determined as of the time of the initial sale of the residential lots;
   8. (2) The sales price at the time of the initial sale of at least fifty-one per cent of the residential lots in the development tract, including the lots subject to the requirements of paragraph (1), and the sales price at the time of a resale of at least fifty‑one per cent of all the residential lots in the development tract, shall be no higher than eighty per cent of the fair market value of the residential lots in fee at the time of initial sale or resale, as appropriate, including all buildings and improvements, unencumbered by the restrictions of the lease;
   9. (3) All residential lots sold in satisfaction of paragraph (1) or (2) shall be leased under sustainable affordable leases;
   10. (4) The state or county agency that approves the sustainable affordable development may reduce the minimum percentage of residential lots to be sold in satisfaction of paragraph (1) or (2) upon a showing that the sustainable affordable development comprises a portion of a housing project that includes other housing, which together with the residential lots comprising the sustainable affordable development, satisfies the state or county agency's affordable housing requirements as set forth in the applicable state or county law, regulation, policy, or agreement; and

   11. (5) For the purposes of this chapter, the residential lots in a development tract comprising a sustainable affordable development are not required to be in a single contiguous area as long as all non-contiguous lots are:

       1. (A) Within a ten-mile radius of each other; and

       2. (B) Leased by the same fee owner under a sustainable affordable lease.

          "Sustainable affordable lease" means a residential lot lease in a sustainable affordable development that satisfies all of the following requirements:

       3. (1) The lease provides for a consideration to the fee owner below a fair market return on the fair market value of the land; provided that compensation to the fee owner for land, including lease rent, shall be either:

          1. (A) Totally capitalized into the initial sales price for the residential lot, including all buildings and improvements; or
          2. (B) Partially capitalized with a share of appreciation paid to the lessor upon resale of the residential lot;

       4. (2) In order to maintain the continued affordability of the residential lot, the lease limits the lessee's maximum sales price on the residential lot upon resale, including all buildings and improvements, to the lesser of:

          1. (A) The fair market value of the residential lot, including all buildings and improvements, encumbered by the restrictions of the lease; or
          2. (B) The sum of:
          3. (i) The lessee's purchase price for the residential lot, including all buildings and improvements;
          4. (ii) Any appreciation on the residential lot, including all buildings and improvements as measured by multiplying the amount in clause (i) by the increase in the consumer price index for all urban consumers as determined by the United States Department of Labor for the applicable county (or if not published for the county, then for the State), from the date of the purchase to the date of the contract for resale; and
          5. (iii) The fair market value of all lessor‑approved capital improvements made by the lessee; and
       5. (3) The lease may allow the lessor to receive a share of the appreciation in accordance with paragraph (2), as agreed to by the lessor and lessee, and as set forth in the sustainable affordable lease.

[L 1967, c 307, §2; HRS §516-1; am L 1968, c 46, §2a to d; am L 1975, c 184, §2(1); am L 1976, c 242, §1; am L 1978, c 140, §1; am L 1979, c 227, §1; am L 1980, c 39, §2 and c 107, §2; gen ch 1985; am L 1986, c 165, §1; am L 1988, c 104, §1; am L 1992, c 158, §1; am L 1997, c 350, §§14, 15; am L 2003, c 29, §1; am L 2005, c 196, §26(b) and c 197, §3; am L 2006, c 180, §16; am L 2007, c 249, §27; am L 2018, c 18, §36]

Attorney General Opinions

Computation of area of development tract; "residential lot", what constitutes. Att. Gen. Op. 85-16.

Law Journals and Reviews

Hawaii's Land Reform Act: Is it Constitutional? 6 HBJ, no. 2, at 31 (1969).

For discussion of an approach to concentration of land ownership, see The Antitrust Laws and Land: An Answer to Hawaii's Housing Crisis? 8 HBJ, no. 1, at 5 (1971).

Case Notes

Portions of definition of "owner's basis" are invalid but are severable. 471 F. Supp. 871 (1979).

An "open market", as referred to in the definition of "owner's basis", means "an unrestricted competitive market in which any buyer and seller is free to participate". 79 H. 321 (App.), 901 P.2d 1300 (1995).