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The remainder of the Talk Story section of the newsletter discusses leasehold ownership of condos where the fee has never been offered. Most ground leases on Oahu have a reversionary clause where the improvements (buildings) revert back to the lessor at the end of the lease. The ground leases expired on the first two such complexes in 2007. It was anticipated that the two of them would establish precedence; however, that didn’t occur, as each condo was handled in a different manner. Some background follows.
The U.S. Supreme Court provided judicial approval of the Hawaiian Land Reform Act in 1984 for the mandatory conversion of single-family houses from leasehold to fee simple ownership via eminent domain. After several court cases provided precedence, most of the subsequent conversions of single-family houses were handled via negotiations between groups of lessees and their applicable lessor. Today, there are only a few leasehold houses remaining on Oahu.
The Hawaii Land Reform Act deliberately omitted condos in view of concern that the different type of ownership of condos with their common elements would create problems in the judicial review process. In 1991, Honolulu passed City Ordinance 91-95 applicable to condos that basically mirrored the Hawaii Land Reform Act. In 1998, this law also received judicial approval from the U.S. Supreme Court.
The mandatory conversion of condos, though, created a different situation than the mandatory conversion of houses. With houses, large estates such as Bishop Estate and Campbell Estate owned most of the underlying land. With condos, many were relatively small buildings owned by Hawaiian families. The underlying land often had been in the family for years. Its potential loss created a huge emotional issue, as owning land has significant cultural ties to Hawaiians. Complicating matters further, the larger lessors began to offer the fee voluntarily to the lessees in most of their leasehold condos.
When a flaw was discovered in the condo law making it non-applicable to most leasehold condos, the City facing ongoing pressure from the Hawaiian community and with the fee having been offered voluntarily in most of the larger complexes decided to negate City Ordinance 91-95. They further decided not to start the legal process all over again. So, currently there is no law providing for the mandatory conversion of Oahu condos. The fee is available in most leasehold condos, but not all of them. There are a number of buildings where the fee has never been offered and may never be offered.
So, what happens when the ground lease on a condo expires where the fee has never been offered? Answer: no one knows. The first lessor (Kam Schools) facing community pressure changed their position and agreed last July to sell the fee to the lessees. The second lessor (Kaneohe Ranch) owned the land under the Kailuan, an 18-unit complex located in Kailua. The units were old, dilapidated and in need of upgrading. Moreover, the complex violated EPA regulations by continuing to use a cesspool for sewage. It would have been impractical to shift to city sewage without modernizing the complex.
The Kailuan ground lease expired 12/31/07, however, the lessees refused to vacate. Rather, they initiated a campaign to mobilize community support to preclude their eviction. While some of the lessees had owned for a lengthy period of time, 12 of the 18 lessees had purchased since 2000, most of them at huge discounted prices. These recent buyers were betting that the lessor would eventually offer the fee. Kaneohe Ranch, though, proceeded with a formal eviction process. The lessees then attempted to have the Hawaii Supreme Court intervene but the Court denied their petition. The lessees were forcibly evicted in mid-February.
There will now be a hiatus for a couple of years. The next expiration of a ground lease will be in 2010 involving six condos and 160 total units. Over the next decade, the ground leases on 35 more condos will expire representing about 1,500 units. If you own a condo unit where the ground lease will be expiring shortly, we suggest you contact us to discuss your options.
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Leasehold Ownership of Condos
Click here to view the entire newsletter.
The remainder of the Talk Story section of the newsletter discusses leasehold ownership of condos where the fee has never been offered. Most ground leases on Oahu have a reversionary clause where the improvements (buildings) revert back to the lessor at the end of the lease. The ground leases expired on the first two such complexes in 2007. It was anticipated that the two of them would establish precedence; however, that didn’t occur, as each condo was handled in a different manner. Some background follows.
The U.S. Supreme Court provided judicial approval of the Hawaiian Land Reform Act in 1984 for the mandatory conversion of single-family houses from leasehold to fee simple ownership via eminent domain. After several court cases provided precedence, most of the subsequent conversions of single-family houses were handled via negotiations between groups of lessees and their applicable lessor. Today, there are only a few leasehold houses remaining on Oahu.
The Hawaii Land Reform Act deliberately omitted condos in view of concern that the different type of ownership of condos with their common elements would create problems in the judicial review process. In 1991, Honolulu passed City Ordinance 91-95 applicable to condos that basically mirrored the Hawaii Land Reform Act. In 1998, this law also received judicial approval from the U.S. Supreme Court.
The mandatory conversion of condos, though, created a different situation than the mandatory conversion of houses. With houses, large estates such as Bishop Estate and Campbell Estate owned most of the underlying land. With condos, many were relatively small buildings owned by Hawaiian families. The underlying land often had been in the family for years. Its potential loss created a huge emotional issue, as owning land has significant cultural ties to Hawaiians. Complicating matters further, the larger lessors began to offer the fee voluntarily to the lessees in most of their leasehold condos.
When a flaw was discovered in the condo law making it non-applicable to most leasehold condos, the City facing ongoing pressure from the Hawaiian community and with the fee having been offered voluntarily in most of the larger complexes decided to negate City Ordinance 91-95. They further decided not to start the legal process all over again. So, currently there is no law providing for the mandatory conversion of Oahu condos. The fee is available in most leasehold condos, but not all of them. There are a number of buildings where the fee has never been offered and may never be offered.
So, what happens when the ground lease on a condo expires where the fee has never been offered? Answer: no one knows. The first lessor (Kam Schools) facing community pressure changed their position and agreed last July to sell the fee to the lessees. The second lessor (Kaneohe Ranch) owned the land under the Kailuan, an 18-unit complex located in Kailua. The units were old, dilapidated and in need of upgrading. Moreover, the complex violated EPA regulations by continuing to use a cesspool for sewage. It would have been impractical to shift to city sewage without modernizing the complex.
The Kailuan ground lease expired 12/31/07, however, the lessees refused to vacate. Rather, they initiated a campaign to mobilize community support to preclude their eviction. While some of the lessees had owned for a lengthy period of time, 12 of the 18 lessees had purchased since 2000, most of them at huge discounted prices. These recent buyers were betting that the lessor would eventually offer the fee. Kaneohe Ranch, though, proceeded with a formal eviction process. The lessees then attempted to have the Hawaii Supreme Court intervene but the Court denied their petition. The lessees were forcibly evicted in mid-February.
There will now be a hiatus for a couple of years. The next expiration of a ground lease will be in 2010 involving six condos and 160 total units. Over the next decade, the ground leases on 35 more condos will expire representing about 1,500 units. If you own a condo unit where the ground lease will be expiring shortly, we suggest you contact us to discuss your options.
Back to Useful Newsletter Articles