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The Honolulu Advertiser
Posted on: Sunday, December 1, 2002

Council takes final vote on leasehold conversions

By Treena Shapiro
Advertiser Staff Writer

Recent challenges to the city's condominium leasehold conversion law are putting the focus on the City Council's final vote Wednesday on whether to condemn three properties and clear the way for the condo leasehold owners to purchase the land.

Long struggle over conversion

The ordinance allows condominium lessees to purchase the land under their buildings at a price set by the courts. Under the ordinance, the city condemns the land to pave the way for the sale. A history of the controversial measure:

• Dec. 4, 1991: City Council passes an ordinance authorizing mandatory leasehold conversion for residential condominiums, cooperative housing and residential planned development.

• Dec. 18, 1991: Kamehameha Schools Bishop Estate files a lawsuit in federal court challenging the constitutionality of the ordinance. Small Landowners of O'ahu later also files a federal challenge.

• Jan. 1, 1992: The ordinance takes effect.

• Sept. 16, 1992: U.S. District Judge David Ezra finds the ordinance constitutional. U.S. District Judge Harold Fong also upholds the constitutionality a year later. KSBE and the Small Landowners of O'ahu appeal.

• July 12, 1995: The city Department of Housing and Community Development designates the Kuapa Isle condominium development in Hawai'i Kai for lease-to-fee conversion, but the City Council defers the condemnation until the legal challenge is resolved.

• Sept. 8, 1997: The U.S. 9th Circuit Court of Appeals upholds the constitutionality of the ordinance.

• March 11, 1998: The Council approves the condemnation of leased-fee interests to 34 Kuapa Isle condo units. More condemnations in Kuapa Isle and other condominium projects follow.

• May 30, 2002: The Hawai'i Supreme Court upholds the constitutionality of the ordinance, but rules the city had been misinterpreting the minimum number of applicants required to initiate the conversion.

• June 5, 2002: In response to the high court's ruling, Councilman John Henry Felix introduces Bill 53, which would lower the petition threshold so conversion could be triggered by 50 percent of a condo's owner-occupants.

• Oct. 9, 2002: The Council's Executive Matters Committee kills Bill 53. Councilman John DeSoto introduces Bill 82 to repeal the ordinance; it, too, dies.

• Dec. 4, 2002: The City Council is to consider conversions at the Kahala Beach, Admiral Thomas and Camelot condominium projects.

Source: Honolulu City Council

Despite emotional protests, landowners and religious and cultural groups will have a difficult time persuading lawmakers not to condemn the properties.

If the landowners succeed in swaying council members not to initiate the condemnations, it will be the first time the council has turned down qualified applicants since the ordinance was fully implemented in 1997.

The case is the first since the initial condemnation at the Kuapa Isle townhouse complex in the mid-1990s in which the proceedings have been so loudly protested. In addition to suing in federal court over the Kuapa Isle property in 1995, Kamehameha Schools Bishop Estate turned out hundreds of protesters in an attempt to save its Hawai'i Kai property.

The City Council votes Wednesday on Kamehameha Schools' prime beachfront real estate beneath the Kahala Beach Apartments; the parcel shared by First United Methodist Church and the Admiral Thomas Apartments; and the land under the Camelot condominium in Makiki owned by the Kekuku family estate and the Catholic church's Sisters of the Sacred Heart.

Landowners and groups opposed to leasehold conversion are expected to turn out by the dozens to testify against the condemnation resolutions and deliver an open letter to the council asking for a deferral of action until new council members take their seats Jan. 2.

Kamehameha Schools' stance against lease-to-fee conversion is so pronounced that trustee Diane Plotts, who applied to have her Admiral Thomas penthouse condominium converted in 1998, before being considered for a trusteeship, withdrew her application Nov. 18 when questions arose over whether it created a conflict of interest.

"As soon as it became apparent that my application was creating an issue for Kamehameha Schools, I voluntarily withdrew," she said.

In response, Douglas Ing, chairman of the board of trustees, said: "This board commends Trustee Plotts' integrity and loyalty to Kamehameha Schools, as demonstrated by her actions."

Councilman Jon Yoshimura, who led the council's Policy Committee when the Kuapa Isle condemnation came up, recalled that protests ended, mostly, after federal and state courts upheld the constitutionality of the ordinance.

With a few exceptions, he said, "the landowners basically left the picture, and this became almost a ministerial type of thing the council did ... until two things happened."

First, the Hawai'i Supreme Court in May found the city's lease-to-fee ordinance constitutional, but said the city had misinterpreted the minimum number of applicants necessary to initiate eminent domain proceedings.

The city had understood the ordinance to mean conversion could begin if 50 percent of the owner-occupants wanted to buy the land. The high court said the 50 percent figure applied to all the owners, not only those who live in the units — making it more difficult for owner-occupants to buy the fee interest.

When Councilman John Henry Felix introduced Bill 53 to amend the language and maintain the lower threshold, the Queen Lili'uokalani Trust mobilized community groups and launched passionate protests, leading to the bill's demise in October.

Council Chairman John DeSoto counterattacked by introducing Bill 82, which would have repealed the law. That proposal also was killed without being heard in committee.

Aimee Tang, president of the owners association at the Alika condominiums in Makiki, owns a two-bedroom condo in one of the eight projects that became ineligible to convert after the Supreme Court decision and demise of Bill 53.

In addition to paying her mortgage, she has invested about $50,000 in improvements to her apartment. Now she faces the prospect of having to turn over the home to the landowners at the end of her lease. Because she is disabled and on a fixed income, she worries that the lease rent — about $50 a month — will increase to the point where she cannot afford it.

Tang, 57, said that for many leasehold condominium owners "that was the only affordable way many of us could purchase (a home)." It didn't occur to them that they would have to turn it over at the end of the lease, she said. Paying a mortgage and property taxes, they felt like owners. But if lessees cannot purchase the fee, "we lose everything," she said. "They don't buy it from us. They take it back."

Qualified lessees petitioning to purchase the fee simple title to the land beneath their condos have the law at their back, with state and federal court decisions upholding their claims.

But as Yoshimura pointed out, when the ordinance was passed in 1991, lessees were organized and motivated. Many have since bought their fee, "so you don't see them in as many numbers and as emotional as they used to be in the past."

Lessors, meanwhile, seeing an opportunity to overturn the ordinance, have turned out in droves. Vicky Holt Takamine, president of the '?lio'ulaokalani Coalition and a spokesperson for civic groups protesting the condemnations, argued at a press conference Monday that the eminent domain proceedings were legal only because the City Council made them so.

"While this manipulation of our laws by council members and individuals for their own private gain has been deemed legal by the Supreme Court, our courts have not always done what is right or legal. We believe the Supreme Court is wrong in this instance."

Leasehold conversion is akin to stealing, according to those who reject arguments that the lessees pay a fair price for the fee interest, or that the cash from sale of the title can be used for other investments.

The First United Methodist Church has argued, for instance, that it will lose about $1.9 million in lease rent for the time remaining on leases for the 27 Admiral Thomas units seeking to convert. They say the $1.2 million offered by lessees is nowhere near the fair market value of the property. In a letter to the City Council, lessees' attorney James Case explained that the church already had been paid $1.5 million in lease rent.

Case's letter also states that the council cannot pick and choose which properties to condemn, and that it is required to initiate conversion for qualified applicants.

Reach Treena Shapiro at tshapiro@honoluluadvertiser.com or 525-8070.