A new state law is giving some businesses in O'ahu industrial neighborhoods of Mapunapuna and Kalihi Kai a bit of leverage to negotiate leases with the largest private owner of industrial land in the state.

Gov. Linda Lingle let a controversial bill become law last week without her signature, expressing both support and reservations for Senate Bill 764. The bill became law as Act 189, affecting some of the more than 180 businesses that lease land from Massachusetts-based HRPT Properties Trust.

However, the extent of the law's impact is questionable because of its somewhat vague language and a June 10, 2010, repeal date.

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.

Also, the type and intensity of use on the property must be considered when determining what's fair and reasonable under the law, which also applies to sublessees if sublessors benefit from the law.

Lingle, in a message to the Senate, said she supports the principle of an open market where private contracts are freely negotiated without government intrusion, but acknowledged the purpose cited by lawmakers to intervene between one landlord and its tenants.

"This bill addresses a case where the free market between lessor and lessee is not functioning," the governor wrote. "We have seen a concentration of land ownership of urban commercial and industrial properties become centered in a few large firms that distort market forces and leave businesses in Hawai'i with little recourse."

Michael Steiner, who led the push for the legislation as executive director of the HRPT tenant alliance Citizens for Fair Valuation, said the law helps level the playing field for lease negotiations.

"HRPT is a monopolistic owner and their (efforts to double or triple tenant rents) threaten the economic viability of local businesses that employ hundreds of workers," he said.

HRPT officials in Hawai'i and Massachusetts could not be reached for comment yesterday.

Businesses with HRPT land leases are big and small, ranging from equipment repair firms to distribution companies. Some of the more well-known tenants include Servco Pacific, Ben Franklin Crafts, 'Olelo Community Television, Grace Pacific, Plywood Hawaii and Inter-Island Solar Supply.

The subject of land monopolies is deeply rooted in Hawai'i, though HRPT is a relative newcomer to the state and the issue.

The company entered the market in 2003 when it paid the local Damon Estate $480 million for about 10 million square feet of land in Mapunapuna and Kalihi Kai plus a few other parcels.

The company has previously said that its tenants, which typically have 50-year leases that require the rent be re-set every 10 years, have enjoyed low rent for the past ten years, and that it is trying to maximize its income by raising rents based on property values that have more than doubled this decade.

In some cases, tenants have been offered new rental rates that are double or triple existing rates, with an added provision for automatic annual increases of 3.5 percent to 4.5 percent.

Some HRPT tenants have renegotiated rents, while others are fighting the publicly traded real estate investment trust that owns $6.7 billion worth of office and industrial property nationwide.

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.

Damon Estate 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 argued over the meaning of the phrase.

Some local commercial real estate professionals tracking SB764 question whether the new law will lead HRPT to seek rental rates that aren't tied to appraised land values, and how appraisers will interpret the law.

Others expect HRPT to challenge the law in court as unconstitutional, especially because the state attorney general testified that the bill may be found unconstitutional because it alters lease terms with the intent to save businesses from having to close or move farther from the urban core.

Steiner said the tenant association expects to 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.

"Passage of this bill shows the governor's and Legislature's strong level of support and concern for local businesses that are fighting economic eviction by a Mainland landowner," he said.