Lease Rent Renegotiation
Representation and Fees
Since 1996, MPI has been representing condo and co-op projects in lease rent renegotiation. Typically, we are hired as the association’s agent (representative) to handle all aspects of the project’s renegotiation. MPI does the work and provides all necessary information, and the association’s board is left with primarily decision-making and oversight functions. This includes communication and coordination with the board, apartment owners, fee owner and other professionals, start to finish. We refer or recommend, and coordinate, all other professionals that may be needed, the best for the task at hand (attorney, appraiser, lender, escrow/title, etc.).
MPI produces and sends periodic reports to all association members (educational, informative and instructive) and collects a reasonable up-front cost contribution from the association to cover the cost of production and mailing the reports and other various costs of representing the association and its members. Our basic fee or commission is usually a flat fee paid when the new lease rent is established.
We are happy to meet with association boards to address their renegotiation situation, how it works best and answer questions. There is no charge for this. Thereafter, the board can make more-informed decisions about how to proceed. If asked, MPI would then make a proposal to represent the association.
Reputation and Track Record
MPI enjoys the same solid reputation for its expertise in renegotiating lease rents as is has in fee conversions. Here is a list of MPI’s completed lease rent renegotiation cases, including the results. We believe it represents more cases than anyone else in the past few years and the results have been excellent.
Typical Renegotiation Terms and Structure
Most leases provide a formula on how to calculate the renegotiated lease rent; usually unencumbered fee simple land value times a rate of return. As straightforward or innocent sounding as these provisions may sound, care must be taken in analyzing the formula’s language as certain terms or words can have a dramatic effect on the process and result.
Most leases also provide for arbitration to set the renegotiated lease rent if the parties are unable to agree and contemplates a period of negotiation beforehand. Also, the responsibility for setting the new lease rent is equally on lessor and lessee. As such, we suggest beginning to organize your lease rent renegotiation effort one year ahead of time. When to start, what to do, how & when to approach the fee owner, what appraiser or arbitrator to select and other key issues must be carefully considered in order to avoid preventable errors and provide the best chance at the fairest result.
The key law pertaining to condominium lease rent renegotiation is §514B-151, Hawaii Revised Statutes. 514B-151 covers an association’s authority and mandate to represent, and assess costs to, its leasehold members in situations where: (1) there have been no fee sales; (2) there have been some fee sales and the residual (unsold) leased fee interests are owned by a fee owner (not the association); and (3) there have been some fee sales and the residual (unsold) leased fee interests are owned by an association.
Click here for complete HRS §514B-151 statute.