Kamehameha Schools/Bishop Estate wants to destroy small business farmers in Kamilonui Valley

This letter when out to all the KS Alumni

 From: KS Alumni

Date: November 17, 2010

To: all the KS Alumni

Subject: Background on KS Lease Issues in Kamilonui

Aloha e Nä Hoaloha,

As you may already know, a small group of lessees who hold agriculture leases with Kamehameha Schools in Kamilonui - East Honolulu are protesting lease rent increases that we have proposed and consider to be fair.  We have been negotiating with the lessees since March, and while we continue to meet with them, we are also proceeding with arbitration, which is the process provided for in our lease agreements. We believe the arbitration process is a fair one.  A three-member arbitrator’s panel, selected by the lessees and Kamehameha Schools, will determine a fair lease rent structure based on comparable parcels in the area.  We respect the arbitrators’ expertise and will abide by their findings.

The lessees have taken their cause to the media, suggesting that the proposed lease rent increase is too high and jeopardizes their futures.  The news media appear to have accepted the lessees’ characterization of this process, so we wanted to share our side of the story and hope that you can help us by being advocates.  Here are some facts about the issue:

1.            KS has abides by all of the requirements of the lease contracts signed 38 years ago, even if those requirements did not favor Kamehameha’s interests.

2.            One of those requirements was that rents would not be increased from that time until July 1, 2010.

3.            This has resulted in lease rents for the last 38 years amounting to $15/acre per month (which includes the right to reside on the property).  Clearly this amount is far below market value and far below what is a fair return for KS today.

4.            The lease rent proposed by KS is about $434/acre per month.  Although this is a significant increase from $15/acre, the amount is still low and very fair especially considering the residential element. 

a.            As a comparison, the State Department of Agriculture recently completed a bid process for agricultural acreage in Waimänalo that resulted in leases, for bona fide farmers, of approximately $460/acre per month.

b.            KS has also already settled lease rents with several of the other agricultural lessees in the area who have agreed to KS’ lease rent offers.

5.            A majority of the current lessees are not currently farming the minimum requirement of 50% of their properties.

6.            Although subleasing is not allowed under the current agreement, several lessees are allowing others to use the property – and charging them for it. Two of these sublessees are not farming at all; we’ve also been told that one sublessee pays $1,875/acre per month. That means that their landlord (our lessee) is making a significant profit by subleasing our agricultural land for residential use.

a.            Recognizing that subleasing to bona fide farmers could allow current lessees to generate additional income to offset their new market rent, KS is offering to allow subleasing for bona fide agricultural use in the new leases.

7.            Several leases are in violation – using the land as dumping grounds of abandoned vehicles, scrap metals and discarded plastics.

Unfortunately, a group of the lessees who accepted the favorable terms of the lease agreement for nearly four decades, did not use the long stretch of very low lease rents to prepare for the eventual readjustment to fair market rates. As you know, we have a fiduciary duty to ensure that our lands provide the income critical to our ability to fulfilling our educational mission. We also have kuleana for the stewardship of our lands, and we take our kuleana very seriously.

Please help us be ambassadors for our mission and our children.  We would like to call on you to advocate for a fair and impartial resolution of this issue.  We believe that will be accomplished through the arbitration process.  Please let us know by email at land@ksbe.edu if you are willing to kokua this effort. 

Mahalo nui ia `oukou,

Ann Botticelli, Vice President

Community Relations & Communications Group

P.S.  We’ve also included (below) a quick-reference fact sheet regarding our Kamilonui lease issues. Mahalo for your consideration.

KAMILONUI FACT SHEET

11/17/2010

Lease history and current background

•              For the past 38 years, Kamilonui lessees have paid lease rents that have been far below fair market value; KS has abided by its agreement to not increase lease rents for Kamilonui lessees for that entire time.

•              The average Kamilonui lease rent has been $15/acre per month.

•              The lands have been used by lessees to generate income and for residential use.

•              The leases require at least 50% of the property to be in Agricultural Use; however, fewer than a third of the lessees are currently meeting the agricultural use requirement, and several of the Kamilonui properties have limited or no agricultural activity at all.

•              Although subleasing is not allowed under the current agreement, several lessees are subleasing or allowing others to use the property.

•              One sublessee pays approximately $1,875/acre per month in rent to our lessee.

New Rent Negotiation Efforts

•              The lease renegotiation period has been known since the leases were signed in 1970.

•              KS has granted lessees several extensions of time during the lease negotiation period.

•              KS has been meeting with the lessees and remains open to meeting with the lessees.

•              KS’ offer to the lessees was approximately $434/acre per month:

o        The offer included the right to sublease property for bona fide farm use;

o        A residence is allowed on the property.

Arbitration is Next Step

•              Several of the lessees have rejected KS’ offer; therefore, the new lease rent will be determined by an arbitration process that was contractually agreed upon when the leases were signed.

•              Arbitration requires that the new lease rent be set by a 3-member panel of arbitrators:

o        KS has named its arbitrator;

o        Lessees are required to name their arbitrator by mid November;

o        The two arbitrators will then decide on the third arbitrator.

•              KS believes that its offers were fair but will abide by the result of the arbitration process. 

•              As a comparison, the State of Hawaii recently completed a competitive bid process for Agricultural lands in Waimänalo; the winning bids by bona fide farmers were approximately $460/acre/month.

•              KS is seeking the same return as other comparable agricultural lands for its lands in Kamilonui.

•              KS is seeking fair market rent – nothing more.

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