Note here something shocking. This law only applies to leases begun *before* the law, not after. This is the opposite of what is reasonable. Article I, Sections 9 and 10 of the U.S. Constitution say,
"The purpose of this chapter is to establish the right of any person, who is a lessee under any long-term lease of land upon which is situated  residential condominium property regime projects . . . to purchase at a fair and reasonable price the fee simple title to such land." ROH § 38- 1.1.
The ICA concluded that the Ordinance authorized condemnation of residential condominium land so long as no less than 50% of the condominium unit owners applied to the City for condemnation.
Article 2, § 38-2.1 provides that CPR condemnation applies to developments that, at the time of acquisition by the City, are developed into CPRs or "occupied by residential lessees under leases of condominium conveyance documents executed before the effective date of this chapter." The present Property meets both of these requirements. The effective date of chapter 38 is January 1, 1992 (Ord. 91-95), and the conveyance documents were executed before that date, so the Property is presently subject to condemnation.
The Honolulu law says, in effect:
No bill of attainder or ex post facto Law shall be passed.
No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.
That is one problem with this law. Another one is the Fifth Amendment (U.S. Constitution, and Hawaii has a similar clause, I think):
"If you leased out land before 1992, when we passed this law, we've tricked you-- in signing the lease, you've signed away your land! But we don't want to discourage future real estate development, both because it is bad for the economy and because we know real estate developers are big political contributors, so we'll say that now that you've had warning, the won't apply to any future leases."
I read this to imply that it is so hideous a thought, and so obviously contrary to a citizen's rights that their property would be taken not for public but for *private* use that the writers of the Fifth Amendment didn't think to say that explicitly. If so, then we might ask, as courts do, perfunctorily, "Is there a public purpose in the Honolulu law? The Supreme Court of Hawaii does address that. I'll move slowly through this.
No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury, except in cases arising in the land or naval forces, or in the militia, when in actual service in time of war or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.
So, the City Council thought the free market set lease rents too high. Could they legally have just put in a price ceiling? That's bad enough, but it would be a better solution than seizing private land, for more than one reason. First, while violating the rights of landlords, it is perhaps a lesser violation. Second, it is administratively easier. Third-- it would address the perceived problem. Only an idiot would really think that reducing the supply of leased real estate by converting some of it to real estate owned by tenants would *reduce* leases rather than increasing them. I say this advisedly-- I doubt the City Council's was that stupid, and this is just a camouflage reason. Finally, even if "many owner-occupants of leasehold residential condominium units unable to afford to continue living in their homes," the only reason rents are so high is that other people *can* afford it and think it's a price well worth paying-- if nobody wanted to pay rents that high, they wouldn't, vacancies would arise, and landlords would find their incomes collapse unless they reduced rent levels.
In enacting ROH chapter 38, the City Council determined that there was a serious shortage of fee simple residential condominium land, which resulted in artificial inflation in the value of such land on Oahu and increasing lease rents, with many owner-occupants of leasehold residential condominium units unable to afford to continue living in their homes.
The opinion quotes from Hous. Fin. and Dev. Corp. v. Castle, 79 Hawaii 64 (1995) at 85:
In order to alleviate these perceived undesirable economic and social conditions, the City Council deemed it necessary to enact ROH chapter 38 to provide a right to leasehold owners of residential condominium units to purchase at a fair and reasonable price a proportionate share of the fee simple title to the land upon which their condominium units are situated. Coon, 98 Hawaii at 249, 47 P.3d at 364.
In Richardson v. City and County of Honolulu, 124 F.3d 1150 (1997), the United States Court of Appeals for the Ninth Circuit held that Ordinance 91-95 (codified as ROH chapter 38) is constitutional: "[i]n summary, we hold that Ordinance 91-95 (the lease to fee ordinance) is constitutional. The Ordinance admittedly takes private property, but it does so for a sufficiently public purpose and no constitutional deprivation has as yet been established." Richardson, 124 F.3d at 1166.
So it is a "public purpose" to reduce land prices. This is, of course, different from reducing rental rates, the purpose stated earlier, though the court didn't seem to notice the contradiction. A law saying that many leases are to be turned into direct ownership is going to reduce the amount of leased land, thus, raising lease rates, while making it less valuable to own land generally, which will lower land prices. Land is more valuable if you have the option of leasing it out without fear that you will lose it to someone with the force of government on his side.
We therefore hold that once the legislature has spoken on the social issue involved, so long as the exercise of the eminent domain power is rationally related to the objective sought, the legislative public use declaration should be upheld unless it is palpably without reasonable foundation. The crucial inquiry is whether the legislature might reasonably . . . have believed that application of the sovereign's condemnation powers would accomplish the public use goal.
The [Hawaii] Legislature, in comprehensive findings, determined that skewed patterns of land ownership have interfered with the normal functioning of the state’s residential land market and declared that condemnation of certain concentrated private property interests would serve a public use by correcting the perceived social and economic evils of a land oligopoly. Clearly, the legislature reasonably could have believed that condemnation and resale of the fee interest in leasehold land would promote the objectives of increasing the availability of residential property, realigning the residential fee simple market, reducing land prices, and would beneficially impact the state economy and general public welfare. These are legitimate public purposes. The employment of the state’s eminent domain authority to redistribute fees simple to correct socio-economic problems attributed by the legislature to a land oligopoly is a rational means to accomplish these ends.
But is it really a public purpose to reduce land prices? No. It is pure redistribution from one group of people to another. This is not like anti-trust laws, which see, to expand the amount of output of some good by saying that companies cannot take measures such as cartels to restrain their output. The effect of the anti-trust laws is to reduce prices, to be sure, but only because it increases output and helps the economy. Here, the amount of land is fixed--- or, if we talk about leased land, would even decline-- and the legislature is saying that to reduce the wealth of landlords and increase the wealth of tenants is a public purpose.
And the court lets them get away with this, with minimal review. Under this precedent, the courts would also allow a law for the purpose of taking money from Joe's wallet to give to Bob, under the excuse that Bob is more deserving. I know our federal income tax does that to some extent, but this allows it to be a lot more direct-- the law can say that Bob can go to the government and ask for the sheriff to help him pin down Bob while he rifles through his wallet and takes the appropriate amount.
There is still the barrier that the state must pay "just compensation"-- though since the victim is resisting, that is pretty much sufficient evidence that it is *not* just, since there is not a shred of a hold-out problem in the Hawaii cases. Maybe I'll do some academic writing on this, since it is related to Henry Smith's working paper on property rules and liability rules.
To view the post on a separate page, click: at 12/08/2007 04:13:00 PM (the permalink).