HAR §4-153-18. Appraisals and setting of lease rents

(a) Public auction. The appraisal of agricultural park lands for the determination of the upset lease rental at public auction may be made by an employee of the department qualified to appraise lands, or by one but not more than three disinterested appraisers contracted for by the administrator; §4-153-18 153-19 provided that the upset lease rental shall be determined by disinterested appraisal when prudent management so dictates. Except as otherwise provided in this subchapter, no such lands shall be leased for a sum less than the rental value fixed by appraisal; provided that for any lease at public auction, the board may establish the upset lease rental at less than the appraisal value set by an employee of the department and the land may be leased at that price. The department shall be reimbursed by the lessee for the cost of any appraisal made by a disinterested appraiser or appraisers contracted for by the department. (b) Drawing or negotiation. The base rental and additional rental of agricultural park lands to be disposed of by drawing or by negotiation shall, except as otherwise provided in this subchapter, be no less than the rental value determined by a disinterested appraiser or appraisers contracted by the administrator, and such appraisal, and any further appraisal which is made at the request of the lessee and with the approval of the department, shall be reimbursed to the department by the lessee. (c) Reopening. In the case of reopenings of the rental for an agricultural park lease, the base rental and additional rental for any ensuing period shall be the rental value at the time of reopening determined in accordance with generally accepted appraisal methods. At least six months prior to the time of reopening, the rental value of the land in the specific use or uses for which the disposition was made shall be determined by an appraiser whose services shall be contracted for by the administrator, and the lessee shall be promptly notified of the determination; provided that should the lessee disagree with the appraised rental, the lessee may appoint the lessee's own appraiser who together with the department's appraiser shall appoint a third appraiser, and the appraised rental shall be determined by arbitration as provided in chapter 658, Hawaii Revised Statutes. In that case the lessee shall pay for the lessee's own appraiser, the department shall pay for its appraiser, and the cost of the third appraiser shall be borne equally by the lessee and the department. Automatic escalation of the appraised rental at reopening may be permitted. The increase shall be §4-153-18 153-20 based on the "Consumer Price Index for all Urban Consumers, U.S. City Average", published monthly by the Bureau of Labor Statistics of the U.S. Department of Labor, labeled as "CPI". The calculation of the escalated value shall be based on a base index and a reopening period index, both of which are arithmetic averages over a set period of time. The quotient of these two indexes will set the rate of increase, which is then multiplied by the existing rental, giving the rental for the ensuing period. In the event publication of the CPI is discontinued or not available, any comparable statistics, equivalent to the CPI, published by an agency of the United States or by a responsible financial periodical of recognized authority, shall be used to calculate the indexes as described in the preceding paragraph. The CPI computation shall be conclusive and binding, but shall not preclude any adjustment in the event of a published amendment to the CPI or an error in the computation; provided the lessee, within thirty days after receipt of notice, shall notify the lessor of the claimed error or dispute therein. (d) Assignment of lease. In the event of an assignment of lease, the base rental and additional rental for any ensuing period may be redetermined by the board pursuant to appraisal conducted by a disinterested appraiser or appraisers contracted by the administrator; provided that the base rental and additional rental shall be the rental value at the time of assignment determined by generally accepted appraisal methods. The cost of redetermining the base rental and additional rental shall be borne by the lessee. (e) When more than one appraiser is appointed each shall prepare and submit an independent appraisal. All appraisal reports shall be available for review by the public. (f) Notwithstanding anything to the contrary contained in this chapter 4-153, the administrator may recommend to the board for approval an adjustment of an appraised value. The administrator may recommend using any of the following adjustments. (1) An adjustment of the fee simple value determined through appraisal as necessary to maintain equitable fee simple values between, among, or throughout the §4-153-18 153-21 department's agricultural park system for parks having the same designated use and which are put out to lease within twelve months of each other. (2) An adjustment of the rental value determined through appraisal by: (A) Applying a percentage of the rate of return used in the appraisal instead of the appraisal's rate of return. An adjusted rate of return may be applied in the following cases: (i) For those uses which require extensive or large capital expenditures to meet lease terms and conditions; (ii) For those uses involving a crop of low yield value; and (iii) For those uses involving a crop or product which does not generate revenues for a substantial period of time after award of the lease, provided that the adjusted rate of return shall apply only for the period of time in which revenues are not generated. (B) Factoring in an agricultural park lot's unproductive acreage, e.g., drainageways, wastelands, restricted easements, common usage, and uncontributory land areas, for those agricultural park lots for which the specified use is for crops to be grown "in the soil or ground." (C) Factoring in extraordinary start-up costs for those crops or uses which require heavy initial capital investments before any returns are realized, e.g., shadehouse crops, wetland crops, etc., or those crops or uses which have unusually little or no return during the initial years of the lease. (D) Delaying collection of the rental for those crops or specific uses where no income is realized during the first five to seven years. Generally, this adjustment would apply to orchard type §4-153-18 153-22 crops where a plant must reach a certain maturity before bearing fruit, e.g., macadamia nut trees and guava and other tropical fruit plants. The proposed rental structure may factor in the no revenue years with low rent and the revenue years with a "catch-up" rent, making a multi-tier rental structure during the initial rental period. (3) An adjustment of the rental determined through appraisal at the time of reopening or conversion, as the case may be, by: (A) Factoring in the income for a particular lessee using a percentage increase that reflects the increase in the agricultural use value of the leasehold since commencement of the lease. (B) Using an appropriate index (e.g., consumer price index, producers' price index, etc.) to calculate an escalation of the rental over a specified period of time. [Eff 3/6/92; am and comp ] (Auth: HRS §§166-6, 166-9) (Imp: HRS §166-6) SUBCHAPTER 8 DISPOSITION OF LEASES