The largest private owner of industrial land in Hawai'i has begun to feel the sting from a controversial new law intended to give its tenants more leverage renegotiating rents.

HRPT Properties Trust, in a conference call yesterday with investors, said that tenants have been citing the one-month-old law in attempts to avoid paying what the company believes to be market-rate prices.

"We're trying to proceed as if business is normal, but it's obviously created a great amount of burden on the company," said Adam Portnoy, HRPT's managing trustee. "The tenants are interpreting the law as they wish, and they're using it as sort of a hammer to argue back to us how we should be resetting the rents for our properties."

The law affects some of the more than 180 businesses that lease land from Massachusetts-based HRPT in Mapunapuna and Kalihi Kai on O'ahu.

The law requires that a unique phrase in HRPT's Hawai'i leases referring to "fair and reasonable" rent be construed as being fair and reasonable to the lessor and the lessee.

The language was created by prior landowner Damon Estate, and inherited by HRPT when the company bought roughly 10 million square feet of land in Mapunapuna and Kalihi Kai plus a few other parcels from Damon in 2003 for $480 million.

Damon had maintained that its lease language stating "rent shall be such fair and reasonable annual rent for the demised land" means fair market rent for the property. But arbitrators have long argued over the meaning of the phrase.

The law also mandates that the type and intensity of use on the property be considered when determining what's fair and reasonable under the law.

Many tenants formed an association to fight attempts by HRPT to raise rents, in some cases by two or three times, after land values skyrocketed in recent years. A bill passed by the Legislature was a result of the effort. Gov. Linda Lingle let the bill become law without her signature.

Portnoy of HRPT yesterday said the company is contemplating whether it might seek a legal remedy to address what it feels is an unconstitutional law.

During the legislative session, the state attorney general testified that the bill may be found unconstitutional because it alters terms of a lease. An expert retained by the tenant's association argued that the law is constitutional.

Most commercial land leases in Hawai'i tie rental rates to the fee-simple value of the land using a specified or prevailing rate of return in cases where agreement on rent can't be reached and is decided by an arbitration panel of appraisers.

Some local commercial real estate professionals question how appraisers will interpret the new law.

However, the extent of the law's impact is still questionable because the measure is set to be repealed June 10, 2010. The tenant's association said it will be back at the Legislature next year asking to reinstate or modify the law if HRPT doesn't relax its aggressive campaign to raise rents.