SECTION 1. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

right of first refusal for the sale of residential real Property

§ -1 Purpose and declaration of necessity. The legislature finds that two of the founding purposes of the United States, promoting the public welfare and securing liberty, enumerated in the Constitution of the United States are clearly served by ensuring that as many people as possible secure ownership over the property upon which they reside. The Hawaii State Constitution echoes this objective in its declaration that "all persons are free by nature and are equal in their inherent and inalienable rights. Among these rights are the enjoyment of life, liberty, and the pursuit of happiness, and the acquiring and possessing of property." The legislature finds that the operation of the State's current real estate market does not promote the right of Hawaii's residents to acquire and possess residential property in their home state as guaranteed by the Hawaii State Constitution.

The legislature further finds home ownership by the people of the State deeply impacts the stability of the lives of Hawaii residents and the State's economy, broadens the tax base, and promotes investment in the future of the State. Therefore, overcoming the barriers to homeownership is a high priority of the State.

In recent years, the legislature notes that the growth of Hawaii's population has outpaced that of new home construction. The result is a severe shortage in the supply of available housing for purchase. Concomitantly, demand for residential real property has sharply increased. According to the Hawaii housing finance and development corporation's Hawaii Housing Planning Study, 2011, as many as fifty thousand dwelling units would need to be constructed between 2012 and 2016 to meet new demand for housing generated by changing demographic and economic factors. However, from 1990 to 2010, the number of units added each year ranged from three thousand five hundred to eleven thousand. As reported in 2011, Hawaii ranked number forty-eight in the country for homeownership. With these statistics in mind, it is anticipated that the shortage in available homes for purchase will continue into the future and many Hawaii residents will continue to be unable to purchase homes.

The legislature acknowledges that the participation of out-of-state and foreign buyers in Hawaii's real estate market greatly exacerbates the housing shortage problem. As reported in 2011, out-of-state ownership accounted for large portions of Hawaii's housing market. In the most extreme cases, nonresidents owned nearly seventy and seventy-four per cent of all condo units in Maui and Kauai counties, respectively. While some of these buyers actually move to Hawaii to occupy the real estate they purchase, a large number purchase these properties solely to profit from their resale or rental or for use as seasonal homes, which leaves them vacant the majority of the time. As reported in 2011, almost six per cent of Hawaii's housing stock was reserved for seasonal or occasional use. Properties that are not owner-occupied take ownership opportunities away from local residents.

The legislature further finds that the high cost of living makes it increasingly difficult for Hawaii residents to save enough money for an industry-standard twenty per cent down payment. Furthermore, the United States Census Bureau's 2009-2013 Five-Year American Community Survey shows that over forty per cent of Hawaii residents rent their homes. Many Hawaii residents rent from nonresident investor owners, often with a cost and terms that are disadvantageous to the renter. These high costs prohibit saving and create a further barrier to buying a home in the future.

Meanwhile, the legislature notes that many nonresident real estate buyers are either individuals who benefit from lower costs of living in their home states or countries and favorable exchange rates, or are corporate or commercial investor entities. These buyers are often able to make significant down payments or all-cash offers and offer more than the asking price when competing against Hawaii residents. These factors drive up prices for residential housing statewide and, combined with the veiled offer process, often mean that Hawaii buyers are unable to compete with nonresidents for Hawaii's limited residential properties.

The legislature finds that Hawaii has a unique history of landownership that has been characterized by a concentration of the fee title to lands in the hands of the few. In 1967, the legislature determined that approximately three-fourths of Hawaii lands were held by a few estates, trusts, and other private owners. The use of this land was largely granted by lease agreements that were disadvantageous to developers and private purchasers and, in the face of a growing population, led to serious shortages of residential fee simple property in the State's urban areas and artificially inflated the cost of fee simple and residential lots.

To protect the public and ensure ownership rights to Hawaii land for as many people as possible, the legislature enacted the Land Reform Act of 1967. The Act implemented a mechanism for condemning residential tracts and transferring ownership of the condemned fees simple to existing lessees. The Act was challenged as an illegal taking under the United States Constitution, but was upheld by the United States Supreme Court. In reviewing the issue, the Supreme Court stated that determining public purpose was the province of the legislature, and "the Court has made clear that it will not substitute its judgment for a legislature's judgment as to what constitutes a public use 'unless the use be palpably without reasonable foundation.'" Hawaii Housing Authority v. Midkiff, 467 U.S. 229, 241.

The legislature declares that the participation of nonresident buyers in Hawaii's real estate market is a significant impediment to home ownership for Hawaii residents and is contrary to the objectives of the state and federal constitutions. Further, promoting owner-occupancy of residential real property in Hawaii is vital for the welfare and security of the people, the effective use of the State's limited resources, and the stabilization and sustainable growth of the State's economy. Safeguarding opportunities for resident home ownership promotes the public interest, health, welfare, security, and happiness.

The purpose of this chapter is to alleviate the significant challenges faced by Hawaii residents in purchasing a home by requiring a seller who wishes to sell their residential real property to a nonresident buyer to first notify Hawaii residents of that intent and grant the right of first refusal to qualifying Hawaii buyers.

§ -2 Definitions. When used in this chapter, unless the context requires otherwise:

"Family member" means an individual who is related to another by blood, marriage, adoption, or as a reciprocal beneficiary.

"Nonresident buyer" means any individual who is not a resident buyer.

"Reside" means to be in the State for other than a temporary or transitory purpose, and that the individual does not maintain a permanent place of residence outside the State.

"Resident buyer" means an individual who:

(1) Resides in the State for at least six continuous months prior to making an offer to purchase a residential real property;

(2) Intends to make the residential real property the individual's primary place of residence upon purchase; and

(3) (A) Is a first-time home buyer; or

(B) Owns or owned real property that is or was used as the individual's most recent primary place of residence; provided that if the individual owns the other real property at the time the residential real property is purchased, the individual shall sell the real property within one year of the transaction.

"Residential real property" means fee simple or leasehold real property located in the State, upon which currently is constructed or is to be constructed a dwelling unit, including a condominium or cooperative apartment, the primary use of which is occupancy as a principal place of residence.

§ -3 Right of first refusal. (a) Except as provided in this chapter, when residential real property is to be sold to a nonresident buyer, the seller shall first publish notice of the seller's intent to sell the residential real property to a nonresident buyer, together with:

(1) A complete and correct copy of the nonresident buyer's written offer, which offer shall contain the full and complete terms thereof; or

(2) A summary that includes the essential elements of the nonresident buyer's written offer and the terms thereof.

Resident buyers shall have a right of first refusal to purchase the residential real property for the same price as is contained in the written purchase offer.

(b) To satisfy the notice requirements of this section, a seller must provide notice within days of receiving the offer of the nonresident buyer to whom the residential real property is to be sold, as follows:

(1) By publication:

(A) In a daily or weekly publication of statewide circulation; or

(B) By publication in separate daily or weekly publications whose combined circulation is statewide; and

(2) By posting on the department of commerce and consumer affairs' website.

The department of commerce and consumer affairs shall maintain a forum on its website where any seller subject to this chapter may post notice as required herein.

(c) Resident buyers shall have days from the time notice appears by publication or posting on the department of commerce and consumer affairs' website, whichever occurs later, to submit an offer in writing. If the seller receives an offer from a resident buyer matching the price of the nonresident buyer's offer, the seller shall accept the resident buyer's offer; provided that where one or more matching offers are received from resident buyers, the seller may select from the resident buyers' offers at the seller's discretion.

(d) The right of first refusal shall be deemed to be rejected if no resident buyer submits an offer in writing after publication of notice in accordance with section -2, or if the sale, through no fault of the seller, has not closed upon within days of such notice. In the event that closing is delayed due to any fault of the seller, the deadline for closing shall be extended for a period of time equal to the delay caused by the seller.

§ -4 Improvements. The right of first refusal to purchase residential real property created by this chapter shall be deemed to include the right to purchase the interest of the seller in any and all improvements on such residential real property.

§ -5 Violations; voidable sale. Any sale made in violation of this chapter shall be voidable at the option of a resident buyer who submitted an offer in conformity with the requirements of this chapter. If any sale is so voided, resident buyers shall then have the right to submit offers for the residential real property that had been conveyed by virtue of such sale for the same price as pertained to the sale so voided.

§ -6 Exception. This chapter shall not apply to the sale of residential real property to a family member."

SECTION 2. This Act shall take effect on January 1, 2016.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	1319
TWENTY-EIGHTH LEGISLATURE, 2015
STATE OF HAWAII