[§166-8.5]  Rights of holders of security
interests.  (a)  For the purpose of this section:



"Institutional lender" means a
federal, state, or private lending institution licensed to do business in the
State of Hawaii in making loans to qualified applicants under section 166-7 on
the basis of a lease for security, in whole or in part, together with any other
entity who acquires all or substantially all of an institutional lender's loan
portfolio.



"Making a loan" means lending of new
money after June 28, 1999 or the renewal or extension of indebtedness owing by
a qualified applicant to an institutional lender.



"Security interest" means any
interest created or perfected by a mortgage, assignment by way of mortgage, or
by a financing statement and encumbering a lease, land demised by the lease, or
personal property located at, affixed or to be affixed to, or growing or to be
grown upon the demised land.



(b)  Board action shall be required when an
institutional lender acquires the lessee's interest through a foreclosure sale,
judicial or nonjudicial, or by way of assignment in lieu of foreclosure, or
when the institutional lender sells or causes the sale of the lessee's interest
in a lease by way of a foreclosure sale, judicial or nonjudicial.  The
institutional lender shall convey a copy of the sale or assignment as recorded
in the bureau of conveyances.



(c)  Notwithstanding any provisions of this
chapter or any law to the contrary, if any lease is subject to a security
interest held by an institutional lender, and provided the institutional lender
has given to the board a copy of such encumbrance as recorded in the bureau of
conveyances:



(1)  If the lease is canceled for violation of any
non-monetary lease term or condition, or if the lease is deemed terminated or
rejected under bankruptcy laws, [then] in either event, the institutional
lender shall be entitled to issuance of a new lease in its name for a term
equal to the term of the lease remaining immediately prior to the cancellation,
termination, or rejection, with all terms and conditions being the same as in
the canceled, terminated, or rejected lease, except only for such liens,
claims, and encumbrances, if any, which were superior to the institutional
lender prior to the cancellation, termination, or rejection.  If a lease is
rejected or deemed rejected under bankruptcy law, the lease shall be deemed to
be canceled and terminated for all purposes under state law;



(2)  If the lessee's interest under a lease is
transferred to an institutional lender, including by reason of the provisions
of paragraph (1) by reason of acquisition of lessee's interest pursuant to a
foreclosure sale, judicial or nonjudicial, and by reason of an assignment in
lieu of foreclosure, then:



(A)  The institutional lender shall be liable
for the obligations of the lessee under the lease for the period of time during
which the institutional lender is the holder of lessee's interest but shall not
be liable for any obligations of the lessee arising after the institutional
lender has assigned the lease;



(B)  The provisions of subsections 166-6(a)(1)
and (2) shall not apply to the lease or the demised land during such time the
institutional lender holds the lease; provided, however, that for non-monetary
lease violations, the institutional lender shall first remedy the lease terms
which caused the cancellation, termination, or rejection to the satisfaction of
the board; provided further that the new lease issued to the institutional
lender shall have a sunset date (one hundred twenty days from the effective
date of issuance), when the institutional lender shall either sell or assign
the lease, after which date the provisions of subsection 166-6(a) shall become
applicable to the new lease;



(3)  As long as there is a delinquent loan balance secured
by a security interest, the lease may not be canceled or terminated, except for
cancellation by reason of default of the lessee, and no increase over and above
the fair market rent, based upon the actual use of the land demised and subject
to the use restrictions imposed by the lease and applicable laws, may be
imposed or become payable, and no lands may be withdrawn from the lease, except
by eminent domain proceedings beyond the control of the board, except with
prior written consent by the institutional lender and such consent shall not be
unreasonably withheld; and



(4)  If the lease contains any provision requiring the
payment of a premium to the lessor on assignment of the lease, any premium
shall be assessed only after all amounts owing by any debt secured by a
security interest held by [an] institutional lender shall have been paid in
full.



(d)  Ownership of both the lease and the
security interest by an institutional lender shall not effect or cause a merger
thereof, and both interests shall remain distinct and in full force and effect
unless the institutional lender elects in writing to merge said estates with
the consent of the board.



(e)  The board may include in any consent form
or document such provisions not inconsistent with the intent of this section as
may be required to make a lease mortgageable or more acceptable for
mortgageability by an institutional lender.



(f)  The purchaser, including junior lien
holder, of the institutional lender's security interest, and the same is
assigned to such purchaser, then the rights herein shall be exercisable by such
transferee as successor in interest to the institutional lender, except that
such purchase shall conform with subsection (c)(4) and, further, the transfer
of such rights shall be reserved unto and exercisable only to an institutional
lender.  Other purchasers may not be precluded in acquiring the institutional
lender's security interest but cannot have exercisable rights as successor in
interest to the original institutional lender. [L 1999, c 160, §19]



 



Revision Note



 



  "June 28, 1999" substituted for "the effective
date of this Act".