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The Honolulu Advertiser
Posted on: Wednesday, June 2, 2010

Judge sides with industrial landlord

by Andrew Gomes
Advertiser Staff Writer

O'ahu's largest industrial landlord yesterday prevailed in a federal lawsuit over a controversial state law it claimed unfairly changed terms of its leases with roughly 180 businesses in Māpunapuna and Kalihi Kai.

Chief Federal District Judge Susan Oki Mollway sided with Massachusetts-based HRPT Properties Trust by ruling that the law passed last year is unconstitutional.

The law, Act 189, was passed by the Legislature last year after a group of tenants complained that HRPT was being extremely aggressive in renegotiating rental rates and forcing tenants into expensive arbitration. Gov. Linda Lingle allowed the measure to become law without her signature.

Some of the tenants have said that HRPT wants to double and triple current rents and has also sought automatic annual rent increases of 3 percent to 4 percent. Some tenants argue that the proposed rent increases don't reflect recent drops in property values.

The law was passed after "a small group of influential businesses" went to the Legislature to seek protection from an out-of-state property owner, said HRPT attorney Cliff Sloan earlier this month.

Mollway three weeks ago in court said she was inclined to rule the law unconstitutional. The judge made it official with an order filed Monday and a judgment issued yesterday.

HRPT said the law is now unenforceable. It is unclear whether the state or a tenants' group that joined in fighting the lawsuit will appeal.

HRPT in August sued to invalidate the law on grounds that it unfairly modified leases HRPT assumed when the company bought the real estate assets of the local Damon Estate in 2003.

Act 189 required that language known only to exist in HRPT Hawai'i leases referring to "fair and reasonable" rent must be read to apply to both the landlord and its tenants.

HRPT argued that the "fair and reasonable" language crafted by the Damon Estate historically referred to the fair market value of the land leased to its tenants, and that a new definition significantly changed the terms of its leases.

Act 189 also mandated that the type and intensity of use on the property be considered when determining what's fair and reasonable.

Mollway in her order wrote that the new factors imposed by the law "were clearly designed to favor businesses leasing land from HRPT and in fact substantially prejudice HRPT."

The judge also rejected claims by the state that Act 189 served a public purpose of stabilizing Hawai'i's economy.

Act 189 was due to expire at the end of this month, but the Legislature in April voted to extend its effective date to June 30, 2013. That measure remains on the governor's desk.