Farm lease dispute goes to arbitration

The fate of 10 farmers in Hawaii Kai looks like it will be in the hands of three arbitrators after a recent breakdown in negotiations over rent with landowner Kamehameha Schools.

The roughly $8 billion private charitable trust recently called off negotiations in favor of arbitration to settle the issue of resetting rents for the last 15 years on the farmers’ leases that cover their farms and homes spread over 87 acres in Kamilo Nui Valley.

For both sides, the matter is particularly aggravating because many of the farmers are in their 80s and can’t farm too actively. But rents haven’t changed since they were established in the early 1970s.

Kamilo Nui farmers, who lease parcels from three to 10 acres, pay an average $185 an acre per year, which Kamehameha Schools seeks to raise to $5,200 — a 28-fold increase.

Kamehameha Schools believes the farmers should have prepared for the hike knowing that adjusting rents to present market rates would happen this year. The trust, which benefits Hawaiian children and has a fiduciary duty to maximize the revenue from its assets, also emphasizes that it is committed to farming uses of the land for the next 15 years.

The farmers, who were relocated to the valley to make way for industrialist Henry J. Kaiser developing Hawaii Kai, say they are willing to pay more but not beyond what they reasonably can afford from farming. Jacking up rents to market rates, they say, would put them out of business.

Both sides contend the other is being unreasonable in the matter, which was the subject of a Star-Advertiser story in August after the old rental rates expired July 1.

Since then, the group of farmers commissioned a study from an agricultural economist to assess what they could reasonably afford to pay in rent based on what they can produce on their property by themselves or with hired labor.

Terry Lee, a Honolulu attorney retained by the farmers to help them negotiate, said Kamehameha Schools rejected the report based on its conclusion, and moved ahead with arbitration.

“They said we’re too far apart,” Lee recalled. “That’s the big disconnect.”

Many of the farmers produce nursery plants. One grows vegetables. The study concluded a reasonable rent would be about $1,000 a year per acre — about five times more than present rents but one-fifth of what Kamehameha Schools is asking.

Judy Nii, who operates R&S Nii Nursery on six acres with her husband, Richard, said Kamehameha Schools is being irrational by demanding “outrageous” rent that no farmer can afford while refusing to look at the merits of the economic analysis.

“They have to recognize the validity and importance of the study,” she said.

The study’s author, Sabry Shehata, a professor of agricultural economics at the University of Hawaii at Hilo, is recognized for producing a similar study that helped about 200 Kona Coffee farmers amicably negotiate rents with Kamehameha Schools.

Shehata said the coffee farmers represented a larger, more organized and homogenous group, but that he is surprised the trust opted for arbitration without discussing his analysis in negotiations.

“It’s a shame that they did that,” he said.

Kamehameha Schools spokeswoman Ann Botticelli said the trust has met with farmers since March, extended deadlines and renewed leases at its proposed rates with two tenants who decided not to be part of the group represented by Lee.

“We are headed into arbitration on the lease negotiations, which is the process provided for in the leases if written agreement can’t be reached,” Botticelli said in a statement. “We believe that the arbitration process will determine a fair price, and we will abide by the arbitrator’s decision.”

Arbitration allows Kamehameha Schools and the farmers group to each pick one appraiser. The two appraisers mutually agree on a third.

So far, only Kamehameha Schools has made its selection. The farmers face a deadline to make their selection by tomorrow. Arbitration proceedings could take three or four months.

The farmers, who began a sign-waving campaign on Sunday along Kalanianaole Highway, hope their economic study tying rent to farm income will be used to help make the arbitration decision.

However, Hawaii commercial property rental rates typically have been settled in arbitration based on a rate of return tied to the value of the land, or by using comparable lease rents.

Kamehameha Schools argues that the state recently leased agricultural land in Waimanalo that includes home sites through a competitive bid process for a little more than what the trust is seeking. The trust also said it has negotiated similar rents with several farmers not far from Kamilo Nui Valley behind Kaiser High School.

“We still believe our expired offer was fair,” Botticelli said.

Farm lease dispute goes to arbitration – Hawaii Business –

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