Real Estate 2026 Comparisons

Although Hawaiʻi’s real estate jurisprudence, like much of the United States, is grounded in English common law, it also uniquely incorporates some components of traditional Native Hawaiʻian customs and rights. Other sources include constitutional, statutory and administrative law. Hawaiʻi is distinct from other regions in that its body of available statutory and/or common law remains relatively limited and underdeveloped compared to other jurisdictions. Consequently, courts and practitioners often look to decisions from outside of Hawaiʻi for guidance.

The Hawaiʻi real estate market is experiencing a period of rebalancing with additional regulatory oversight. Pressures inherent to the limited availability of real property in the islands leads to high demand and strong pricing. Of particular interest is the regulatory shift to:

• create more high-density, mixed-use developments within urban Honolulu;
• foster transit-oriented development centred around Oʻahu’s new “Skyline” rail system;
• limit short-term vacation rentals to preserve inventory for local residents; and
• stem the impacts of climate change.

The hotel industry continues to be a major driver of development projects across the state, as construction activity within resort zones remains high. For example, major 2026 capital projects include the USD180 million renovation of the Mauna Kea Beach Hotel, the restoration of the Moana Surfrider, and the construction of a new 515-room, 36-storey tower at the Hilton Hawaiʻian Village.

Hawaiʻi’s recent legislative cycle showcased a number of measures targeted toward issues affecting real estate, including affordable housing and climate change in particular.

Bills at both the state and county levels have been introduced seeking to enhance affordability by, for example:

• establishing teacher and workforce housing incentives;
• bolstering low-income hours tax credit programmes; and
• modifying existing density restrictions and permitting barriers to reduce residential development obstacles.

Another shift in Hawaiʻi’s regulatory scheme has been the tightening of short-term rental regulations, which has allowed individual counties – particularly Maui, Honolulu and Hawaiʻi County – to scale back transient vacation rental use in residential areas in order to preserve inventory for residents. These restrictions have begun to fuel litigation as property owners seek to protect their investments.

See the Hawaiʻi Trends & Developments chapter in this guide for a more extensive summary of proposed legislation and recent trends affecting real estate investment, ownership and development.

The most common forms of real property ownership in Hawaiʻi include fee simple, leasehold and life estates. A less common derivative of property ownership is fee simple ownership of air space (typically established by a condominium structure) subject to a ground lease. Title in these ownership forms may be held as tenants in severalty, tenants in common, tenants by the entirety, or joint tenants.

Hawaiʻi also has non-possessory interests in real property such as easements, licences, liens and security interests. Mortgages are the traditional method of effecting security interests in Hawaiʻi real property (see 3.2 Typical Security Created by Commercial Investors).

Anecdotally, long-term leasehold interests are particularly common in Hawaiʻi due to significant portions of land being owned by large trusts or estates established through the former Hawaiʻian monarchy or companies with ties to Hawaiʻi’s plantation era.

The Hawaiʻi laws generally applicable to the transfer of title to real property include the following:

• the conveyance of real property registered in the Land Court (Torrens) system (HRS Chapter 501) (see 2.3 Effecting Lawful and Proper Transfer of Title);

• the recordation of deeds in the Regular (Abstract) system (HRS Chapter 502) (see 2.3 Effecting Lawful and Proper Transfer of Title);

• the presumption of a tenancy in common unless a joint tenancy with the right of survivorship or a tenancy by the entirety is expressly created in the instrument of conveyance (HRS Section 509-1); and
• the payment of conveyance taxes (see 2.10 Taxes Applicable to a Transaction) upon recordation (HRS Chapter 247).

While the application of these laws may differ based on the type of ownership interest (such as fee simple, leasehold, easements, etc), such application generally does not differ based on specific uses of real property (eg, residential, industrial, office, retail or hotel).

Transfer Instruments

Transfers of fee simple title to real property in Hawaiʻi generally occur upon the execution and delivery of a written instrument, typically a deed, establishing the grantor’s present intent to convey. The form of deeds differs according to the warranties given (such as general warranty deeds, limited warranty deeds, and quitclaim deeds) and the real property interest conveyed. For example, an apartment deed may contain provisions relating to the condominium unit conveyed and its condominium project, and a deed conveying a lot located within a master planned development may contain reciprocal easements, reserved rights to facilitate the completion of such development and restrictions, and other provisions to preserve and further the characteristics and standards of such planned development.

Effectiveness

Hawaiʻi has historically maintained two parallel systems for real property registration: the “Regular” or “Abstract” system and the “Land Court” system, with the latter being a traditional “Torrens” system using state-backed certificates of title to evidence land ownership.

For properties registered in the “Land Court” system, conveyance instruments do not bind the registered land until such instruments are “registered” by recordation in the Office of the Assistant Registrar of the Land Court. However, such instruments are effective as a contract between the parties thereto upon their execution and delivery. The Land Court system is a “pure race” system, with the first to record having priority over unrecorded or subsequently recorded interests, notwithstanding having prior notice of such interests absent fraud.

For “Regular System” properties, conveyance instruments are recorded to provide constructive notice thereof. Under this “race-notice” system, a good faith purchaser for value without actual notice of a prior unrecorded conveyance of the same interest has priority over such unrecorded interest.

Title insurance is common for all real estate in Hawaiʻi (residential and commercial) for properties in both systems.

Due diligence involves the investigation of a title review of the subject property coupled with an investigation of the property’s existing physical condition, prior and existing uses, zoning, building code and other regulatory authorisations, permits, approvals, limitations and compliance, its environmental condition or hazardous substances contamination, and the presence of ancient Hawaiʻian burials and cultural and archaeological artifacts and features. A buyer may gather such information through commissioning studies, tests, research of applicable laws and document review.

A buyer that is considering further development, alternative use or construction of the property would typically explore the scope, feasibility, cost and timing of any necessary building code and other regulatory compliance (including non-conforming uses and deferred retro-fitting) and any land use, zoning and other discretionary permits and approvals that may involve environmental impact studies, statements and assessments, public hearings and potential conditions and exactions addressing the impacts of the proposed development, use or construction.

Commercial real estate transactions customarily include representations and warranties relating to the organisation and authority of the parties and the formation and consummation of the transaction, and may address the general status and particular characteristics of the property, such as its physical condition, as well as any real property tax, regulatory and litigation issues and, where applicable, the rights of any third parties in the property. Statutorily mandated disclosures are applicable in residential sales.

Breach

In a commercial real estate transaction, a breach of a party’s representations, warranties or obligations can provide a basis for terminating the purchase agreement, the retention or return of any deposit, and/or monetary damages. A seller’s default may entitle a buyer to require the seller to specifically perform the transaction, although this right can be limited or barred by contract. A buyer asserting a misrepresentation claim against a seller may also initiate claims under Hawaiʻi’s unfair and deceptive acts and practices statute. Contractual indemnity provisions provide the non-defaulting party with a vehicle to hold the defaulting party responsible for its defaults.

Survival

Purchase agreements can include clauses for specific representations to survive closing. The parties may negotiate the length of the survival period with a specific termination date – six months or one year.

Liability Caps

The parties may negotiate maximum liability for defaults or breaches of their obligations to a specific amount or a percentage of the purchase price, depending on the size and nature of the transaction. It is often determined based on a percentage of the purchase price.

Representation and warranty insurance is not commonly used in commercial real estate transactions in Hawaiʻi.

When purchasing real property in Hawaiʻi, investors should consider state land use regulations, county zoning laws, development regulations and restrictions, including those applicable to oceanfront areas, and leasing regulations and restrictions. See 4.1 Planning and Zoning Framework and 4.2 Development Process, Challenges and Enforcement.

Buyers should also consider tax implications, including:

• Hawaiʻi income and general excise tax applicable to rental income;
• transient accommodations tax applicable to certain short-term rentals and vacation stays; and
• income tax withholding regulations imposed on the sale of real property for non-US persons (FIRPTA) and non-Hawaiʻi residents (HARPTA) (see 2.11 Legal Restrictions on Foreign Investors).

United States and Hawaiʻi environmental and hazardous substances laws, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and other federal and Hawaiʻi laws, establish a strict liability statutory structure by which the government may hold all past and present parties in the chain of title of the property (including a buyer of property that was previously contaminated) responsible for any environmental contamination, without needing to determine when the contamination actually occurred or which owner is responsible for it and its remediation. Consequently, purchase agreements, leases, mortgages and other agreements contain extensive provisions allocating responsibility for the compliance with applicable laws, the prevention of releases and contaminations, remediation and damages. Notably, CERCLA limits the liability of bona fide prospective purchasers who do not “impede the performance of a response action or natural resource restoration”.

Hawaiʻi’s version of CERLA is the Hawaiʻi Environmental Response Law (HRS Section 128D), which authorises the Hazard Evaluation and Emergency Response (HEER) Office to manage hazardous substance releases.

Buyers concerned with potential environmental contamination may purchase pollution liability insurance policies to obtain coverage for unknown contamination.

State land use law and county zoning regulations (discussed in greater detail in 4.1 Planning and Zoning Framework) provide a framework for buyers to evaluate the permitted uses of a particular parcel of land, the process for obtaining any necessary administrative and discretionary permits and permits and approvals, and the process for changing existing land use classifications and zoning designations.

The counties are authorised under HRS Section 46-121 to enter into development agreements with any person having a legal or equitable interest in property. HRS Section 46-142 also authorises counties to assess, impose and collect necessary impact fees for public facility capital improvements as a condition for approval of a real estate development. Historically, these agreements have not commonly been used.

The takings clause of the Hawaiʻi Constitution prohibits the taking of, or damage to, private property without just compensation. The process by which the state exercises its eminent domain powers has been codified and allows proceedings by the state or the counties, as well as public utilities and certain designated corporations. An action for inverse condemnation may also be available to aggrieved property owners where a taking has occurred but eminent domain proceedings have not been instituted.

HRS Chapter 247 imposes a conveyance tax on deeds, agreements of sale, leases, subleases and other instruments conveying an interest in real property, unless expressly exempted. This tax is calculated on the consideration for the transfer of the real property interest (commonly based on the real property’s purchase price or fair market value) or, in the case of leases, the rental rate over the leased term. The applicable tax rate increases as the consideration for the subject property increases, and the rate can be impacted by the type of property and/or residency status of the grantee. Common exemptions include transfers between spouses, transfers between parents and children, testamentary gifts, transfers to grantor revocable trusts, and correction deeds. While conveyance taxes are imposed by statute on the transferor, the parties may contractually agree to share or allocate this cost between them.

A transfer of shares or interests in a company owning Hawaiʻi real property does not trigger the payment of conveyance tax under HRS Chapter 247.

Restrictions on Foreign Investors

Foreign investors are not prohibited from purchasing property in Hawaiʻi, though they and other non-residents may be subject to higher real property tax rates and special withholding requirements upon sale. Specifically, the federal Foreign Investment in Real Property Tax Act (FIRPTA) generally mandates a 15% withholding from the sale price by non-US persons, which serves as a prepayment of the federal capital gains tax. The Hawaiʻi Real Property Tax Act (HARPTA – Hawaiʻi’s version of FIRPTA) mandates a 7.25% withholding from the sale price by non-Hawaiʻi resident sellers. This Hawaiʻi-specific withholding can often be avoided or reduced with careful transaction structuring, such as use of a domestic Hawaiʻi corporate entity as the title holder, or obtaining a withholding certificate from the Department of Taxation before closing.

FIRRMA

Under the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), CFIUS jurisdiction has expanded to include “covered real estate transactions” near sensitive sites, which has significant implications for Hawaiʻi due to its high density of military installations and strategic air and maritime ports. Numerous Hawaiʻi facilities are specifically listed in 31 C.F.R. Part 802, Appendix A, including Joint Base Pearl Harbor-Hickam, Marine Corps Base Hawaiʻi (Kaneohe Bay), and the Pacific Missile Range Facility (Barking Sands) on Kauai. Because many properties on Oahu and near major neighbour-island ports fall within the “close proximity” (one mile) or “extended range” (100 miles) of these sensitive facilities, foreign persons – and the US contributors partnering with them – should conduct a thorough geographic analysis using the CFIUS Part 802 Geographic Reference Tool before committing to a transaction. Utilising this tool is essential to determine if a purchase, lease or concession grants a foreign person specific property rights in a protected zone, as failing to seek a voluntary “safe harbour” clearance can leave a transaction subject to future mitigation or even a divestment order.

Acquisitions are commonly financed through acquisition and construction loans from banks and other financial institutions. Private equity participation in acquisitions and developments has grown in recent years.

Commercial real estate loans are typically secured by mortgages on the real property being acquired or developed. Hawaiʻi is a lien theory state, where a security interest in the mortgaged property is granted to the lender and legal title remains with the borrower. If a borrower owns multiple real properties or developments, the debt is commonly structured as a separate loan for each different property or project with a separate special purpose entity as the borrower. A borrower may also be required to provide a personal or corporate guaranty, particularly where the property is owned by a newly created single purpose entity. For commercial properties, lenders often also take security interests in leases and rents and banks accounts for the operation of the property.

There are generally no restrictions on foreign lender activity, although a foreign lender may be required to register to do business in Hawaiʻi, depending on the details and scope of its lending activities.

The recording of a mortgage is subject to nominal recording fees, which are updated from time to time. No taxes or fees are currently required to enforce a security interest. Notary publics are authorised to charge and receive fees for their services.

Hawaiʻi does not have financial assistance rules that must be complied with before an entity can give valid security, but corporate governance requirements must be complied with to avoid fraudulent conveyances. Lenders may also require documentation of corporate approval authorising the transaction. A borrower must also have the requisite ownership rights in the collateral in order to grant a security interest in it.

Enforcement of Security Interests

The formalities of enforcing a security interest vary depending on whether the loan is secured by commercial or residential property; they are generally governed by the loan documents, and are statutorily and judicially enforced. Residential loans are subject to additional statutory notice requirements. As discussed in 2.3 Effecting Lawful and Proper Transfer of Title, Hawaiʻi is a “pure race” state for Land Court system property and a “race-notice” state for Regular system property for establishing the priority of security interests in real property. In addition, mortgages encumbering Land Court system properties must be recorded with the Land Court in order to be effective.

Judicial foreclosure is generally a lengthy process. From the initial notice of default to the closing of escrow following a public auction, the foreclosure process may take between 12 and 18 months, subject to borrower defences and other delays that may arise.

Moratorium

Hawaiʻi instituted a moratorium on foreclosures of federal-backed mortgages in partial conformity with the Federal CARES Act during the COVID-19 pandemic. The moratorium is no longer in effect, having expired in July 2021.

Workout

Lenders may choose to work out a defaulted loan to avoid the lengthy process of foreclosure. Hawaiʻi presents a unique market for acquiring non-performing notes due to its limited inventory and strong property values, particularly in urban areas.

Agreements between lenders to subordinate existing secured debt to newly created debt are common, and title companies will insure the resulting priority.

CERCLA (see 2.7 Soil Pollution or Environmental Contamination) specifically exempts secured lenders of contaminated property where the lenders have not exerted control over or participated in the management of the facility. A foreclosing lender is not considered a manager of a facility as long as the lender does not exercise decision-making control over environmental compliance matters nor exercise control at a level similar to that of a facility manager.

Borrower insolvency generally does not void an otherwise valid security interest, but a security interest could be extinguished upon the bankruptcy court’s order to discharge the bankrupt borrower. If a security interest was created within the 90-day look-back window preceding the filing of a bankruptcy petition, the interest may also be deemed preferential, fraudulent or unperfected (note that the look-back period is longer for insider transactions). The filing of a bankruptcy petition also imposes an automatic stay in many cases, which may prevent lenders from enforcing their security interests without court approval. The duration of a bankruptcy automatic stay depends on the type of bankruptcy petition filed and the specific circumstances of each case, but generally continues until the case is closed or dismissed, or the debtor is discharged.

Hawaiʻi’s hurricane relief fund (HHRF) was previously partially funded by a special mortgage recording fee (SMRF) on debt secured by a mortgage in the amount of one-tenth of 1% of the principal amount of the debt secured. The SMRF was repealed and replaced in 2025 with a temporary recording fee that is to be established by the HHRF board of directors and is intended to be assessed at a flat rate.

Hawaiʻi Constitution

Hawaiʻi’s land use philosophy and objectives are articulated at the state constitutional level. The Hawaiʻi Constitution mandates that the State of Hawaiʻi and its political subdivisions shall conserve and protect Hawaiʻi’s natural beauty and all natural resources, and shall promote the development and utilisation of these resources consistent with their conservation. The Hawaiʻi Constitution also requires that the Hawaiʻi Legislature establish a commission, the Land Use Commission, to manage the natural resources owned or controlled by the state.

Hawaiʻi State Planning Act

In furtherance of the Hawaiʻi Constitution, the Hawaiʻi Legislature adopted the Hawaiʻi State Planning Act to implement policies and plans to develop and use land in the state, which specifies that the state’s goals include achieving a strong viable economy, a desired physical environment and physical, social and economic well-being for individuals and families in Hawaiʻi.

State Level

Land use in Hawaiʻi is governed and regulated initially at the state level and then at the county levels. The Hawaiʻi Legislature established a state-wide land use classification system classifying all lands into four districts: Urban, Rural, Agricultural and Conservation. The Land Use Commission (LUC) is responsible for determining the boundaries of each district and for regulating the uses within it, in accordance with Chapter 205 of the Hawaiʻi Revised Statutes.

The Hawaiʻi State Planning Act also delegates the authority to zone land to the counties, and further regulate uses within the Urban, Agricultural and Rural districts, while the land use regulations within the Conservation district are governed by the Board of Land and Natural Resources and administered by the Department of Land and Natural Resources.

County Level

Each county adopts its own general plans to guide zoning, land use and development within its boundaries. In addition, the counties are responsible for enacting and implementing zoning ordinances, regulations and buildings codes consistent with the state land use classifications, to regulate land use and establish development standards and restrictions, including establishing permitted uses, building height limits, setbacks, and lot size requirements. The counties’ administrative departments are responsible for enforcing compliance with their zoning ordinances, regulations and building codes.

Coastal Zone Management (CZM) and Special Management Area (SMA)

Land use in Hawaiʻi is further regulated by the Coastal Zone Management Act, which seeks to balance economic development with the conservation of coastal resources in order to protect marine and coastal resources, beaches and coastal dunes, and to provide public and private facilities and improvements important to the state’s economy in suitable locations, among other objectives.

The SMAs are designated areas along the shoreline, which require special management attention to manage development, protect natural resources, and ensure adequate access to public beaches. Hotels and resorts are commonly located within the SMAs and are subject to restrictions regulating these special districts, such as use intensity, height restrictions, view planes and building setbacks. Accordingly, proposed developments with the CZM area and the SMAs require discretionary permits and approvals from the appropriate county planning body, which involves public hearings and the submission of studies, reports and assessments addressing compliance with the legislative purposes and objectives, and evaluating any impacts on the protected areas and appropriate mitigative measures.

Right to Develop Based on State Land Use Classification and County Zoning Ordinances and Permits

The right to develop real property in Hawaiʻi is initially regulated by the land use classifications and county zoning designations, as discussed in 4.1 Planning and Zoning Framework. Permits and approvals are obtained from the appropriate county departments to ensure compliance with building, subdivision and other development and construction ordinances, codes and standards.

Impacts of Native Hawaiʻian Culture on Development

Respect for Native Hawaiʻian culture has considerable influence on development rights in Hawaiʻi. Accordingly, the protection and furtherance of Native Hawaiʻian rights and archaeological artifacts and features are integral in laws regulating the development of land in Hawaiʻi, and are actively monitored by governmental bodies and the community.

In Native Hawaiʻian culture, the spiritual essence of a person resides in their bones (also known as iwi), which are to be treated with respect. Therefore, the discovery of burial sites and iwi within a project area may delay the completion of a project for years, and may result in a financial burden for developers. When iwi or burial sites are discovered during the development process, the State Historic Preservation Division (SHPD) within the Department of Land and Natural Resources (DLNR) leads the review of the development’s impact on iwi and burial sites. Often, this process requires the developer to prepare an archaeological inventory survey and a cultural impact assessment for SHPD’s review. Burial councils determine the treatment of burial sites and whether to preserve or relocate burial sites, and recommend mitigative measures to SHPD. SHPD has the authority to grant final approval for development to continue according to a binding burial treatment plan agreeable to the developer.

Development Agreements

As discussed in 2.8 Permitted Uses of Real Estate Under Zoning or Planning Law, developers may enter into development agreements with the counties to obtain development rights in exchange for providing public benefits, such as public infrastructure or affordable housing. Approval of a development agreement requires a public hearing to be held by the county legislative body. In addition, the state or appropriate county may enter into an agreement with a private developer selected through a mandated procurement process vesting the developer with certain rights to develop land owned by the state or such county.

Zoning and Classification Changes

A property owner may seek to reclassify the state land use classification of the land area within which its property is located, in order to allow a proposed development, by petitioning the Land Use Commission to amend the district boundaries of – or to issue a special permit to use – lands within conservation districts, lands designated or sought to be designated as important agricultural lands, and lands greater than 15 acres in the Agricultural, Rural and Urban districts. Petitions for such amendments or special use permits for lands of 15 acres or less in the Agricultural, Rural and Urban districts are administered at the county level. Such a petition is a lengthy process requiring a public hearing at which any person may testify to support or oppose it, and aggrieved parties with the requisite standing may intervene. The petitioner must submit studies, reports and assessments of the impacts of the proposed development, commonly resulting in conditions to the approval to mitigate the impacts.

Amendments and variances to existing zoning designations may be requested from the appropriate county, and appeals to such approvals may be made to the appropriate county boards. For the City and County of Honolulu, for example, appeals concerning zoning decisions are heard and decided by the Zoning Board of Appeals, while appeals concerning building permits, building codes, electrical codes, plumbing codes and other similar matters are heard by the Building Board of Appeals.

Enforcement

The counties adopt zoning regulations and building codes for their respective jurisdictions. County departments enforce planning and zoning restrictions by requiring mandatory permitting, conducting inspections of the land, issuing citations and stop work orders, and issuing fines for violating permit conditions and zoning regulations. A certificate of occupancy is issued authorising use or occupancy of a building upon passing inspections and compliance with zoning regulations and building codes.

Investors may hold real estate assets in any legally recognised entity, including limited liability companies, partnerships (general, limited, limited liability and limited liability limited partnerships), corporations and trusts. Limited liability companies are commonly used by investors to hold real estate assets due to their relative operational flexibility and tax benefits. All entities are required to register and comply with reporting requirements set by the Hawaiʻi Department of Commerce and Consumer Affairs (DCCA), Business Registration Division. Hawaiʻi is an entity theory state, meaning that a partnership is treated as a separate entity distinct from its partners.

The main features of the constitution of each type of entity used to invest in real estate in Hawaiʻi are as follows.

Partnerships

General and limited liability partnerships are governed by the Hawaiʻi Partnership Act. While the filing of a registration statement is not necessary for the creation of a general partnership, a general partnership formed to do business in Hawaiʻi must file a registration statement with the DCCA within 30 days after its formation. Partnerships formed under the laws of a jurisdiction other than Hawaiʻi must file a registration statement within 30 days of commencing business in Hawaiʻi. Limited liability partnerships must also file a registration statement either prior to or simultaneously with its statement of qualification with the DCCA. Limited partnerships are formed by filing a certificate of limited partnership with the DCCA.

General partners are jointly and severally liable for the debts and obligations of the partnership. In limited liability partnerships, the obligations of a partnership are solely the obligation of the partnership: partners are not individually liable. Limited partnerships are governed by the Uniform Limited Partnership Act and are composed of two or more persons, one or more of whom is a general partner with the remaining being limited partners. Partnerships may also take the form of a limited liability limited partnership wherein only the limited partnership is liable. Each partner is taxed individually, but partnerships may elect to pay Hawaiʻi income tax at the entity level. Partnerships are subject to fewer corporate formalities than other registered entities.

Limited Liability Companies

Limited liability companies (LLCs) are created by filing articles of organisation with the DCCA. They are governed by the Hawaiʻi Limited Liability Company Act and may be managed by either a member or managers. An LLC combines the pass-through tax treatment of a partnership (unless it elects to be treated as a corporation for tax purposes) with the limited liability of a corporation. An LLC is subject to greater corporate formalities than a partnership but fewer formalities than a corporation.

Corporations

Corporations are legal entities created by filing articles of incorporation with the state of Hawaiʻi. Corporations are independent entities with powers and liabilities distinct from their directors and shareholders. S-Corporations may elect to pay Hawaiʻi income tax at the entity level. The Hawaiʻi Business Corporation Act controls the formation, operation, governance and dissolution of Hawaiʻi corporations. Corporations are subject to greater formalities than limited liability companies and partnerships.

REITs are used by individuals and business entities to invest in real estate. This form of ownership is available in Hawaiʻi in both public and private forms, and may be purchased by out-of-state investors. REITs are typically tax advantaged, with REITs paying taxable income as dividends. The state legislature has proposed legislation (S.B. No. 2656) that attempts to repeal deductions for REIT dividends.

Minimum capitalisation is not required for an entity used to invest in real estate in Hawaiʻi.

Hawaiʻi law does not impose special governance requirements for entities that invest in real estate. The governance and structural requirements for entities, generally, are primarily dictated by the Hawaiʻi Business Corporation Act, the Hawaiʻi Limited Liability Company Act, the Uniform Limited Partnership Act and the Hawaiʻi Partnership Act. These statutes establish the default rules for management and fiduciary duties, though they may be modified by an entity’s specific governing documents to the extent permitted by law.

The Corporate Transparency Act (CTA) currently applies solely to foreign reporting companies – entities formed under the laws of a foreign country and registered to do business in the United States – pursuant to the 26 March 2025 interim final rule. Consequently, domestic “reporting companies”, such as LLCs or corporations formed within any US state, are currently exempt from submitting beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). This means that US contributors utilising these domestic vehicles do not currently face the same disclosure implications as those associated with foreign entities (entities that are formed under the law of a foreign country and that have registered to do business in any US state), which remain the only category required to disclose their beneficial ownership in accordance with the CTA.

Corporations, limited liability companies and partnerships registered to do business in Hawaiʻi are required to file annual reports to remain in good standing. The fee associated with each entity is currently between USD5 and USD15 for for-profit businesses.

The most common ways to occupy and use real estate for a limited time without buying it outright are through leases, licence agreements and easements.

Leases

A lease is a binding contract between a landowner and tenant to possess and use the real property for a period of time in exchange for the payment of rent. Typically, the buildings and improvements on the land revert to the landlord at the expiration of the lease term. Ground leases in Hawaiʻi typically range between 20 and 99 years.

Licence Agreements

A licence agreement is a personal contract between the licensor and licensee, often for a shorter duration, to grant the licensee permission to occupy or use the real property (for events, improvement work, etc), without granting ownership or leasehold interest.

Easements

An easement gives an individual a right to use property or a portion of the property for a specific purpose without having an ownership interest in the property (eg, ingress and egress purposes).

Various types of commercial leases are used in Hawaiʻi, including building and space leases, ground leases and agricultural leases.

For a traditional space lease, the tenant pays a fixed base rent that may increase annually, plus additional rent for their share of common area expenses. In some cases, like retail stores and restaurants, the tenant pays as percentage rent a portion of gross revenues earned from their use of the leased property.

Ground leases tend to be structured for tenants to occupy the land for a longer duration of time, often ranging from 20 to 99 years. Typically, at the expiration of the ground lease term, the buildings and improvements on the land revert to the landlord.

Agricultural leases are also common in Hawaiʻi due to tax incentives and lower real property tax rates for qualifying leases. Such leases are entered into with governmental and private landowners.

Rents and lease terms in commercial leases are largely left to the landlord and tenant to freely negotiate. The terms of commercial leases may be subject to case law and statutes addressing specific issues, such as unconscionability, the implied covenant of good faith and fair dealing in the performance and enforcement of a contract, and the duty to mitigate damages.

Term

The length of a lease term varies depending on the type of lease and the agreement between the landlord and tenant. Typical commercial leases may range from three to five years or longer. A ground lease often ranges from 20 to 99 years.

Maintenance Responsibilities

Most commonly, tenants are responsible for maintaining and repairing the leased premises (eg, interior walls, flooring, lighting), while landlords are often, but not always, responsible for maintaining and repairing structural components of the building (eg, roof, exterior surfaces of walls) and common areas as defined in the lease.

Frequency of Rent Payments

Most commercial leases typically require tenants to make monthly rent payments, but some long-term ground leases may provide for annual rent payments.

Typically, rent will increase annually or at another specified interval, by a predetermined negotiated amount or by a fixed percentage rent increase.

Rent increases are commonly determined by a fixed percentage rent increase (or based on the Consumer Price Index) that is predetermined at the time of entry into the lease, or are calculated according to the fair market rental value determined at the time of the increase. Commercial leases often provide that parties to the agreement must submit to arbitration if they cannot agree on the amount of rent increase.

There is no value-added tax (or equivalent) payable on rent in Hawaiʻi. It is, however, common for commercial leases to require the tenant to pay to the landlord (as additional rent) the Hawaiʻi general excise tax amount imposed on the landlord in respect of the tenant’s rent payments.

In addition to rent, most leases require tenants to pay a security deposit at the start of the lease term. The security deposit is typically equal to one month’s rent, though it may be higher depending on the tenant’s financial circumstances. Leases may also provide that the landlord will provide a tenant improvement allowance to the tenant at the beginning of the lease for the cost of improvement work. Typically, the tenant is responsible for the cost of improvement work exceeding the allowance provided by the landlord.

In addition, any lease or sublease of real property with a full unexpired term of five years or more is subject to a conveyance tax; the responsibility to pay such taxes is nearly always allocated to the tenant by the terms of the lease. The conveyance tax on leases is calculated by applying the discounted current value of all lease rentals over the term (capitalised at 6%) to the applicable tax rate.

Typically, for space leases, the landlord is responsible for maintaining and repairing common areas used by multiple tenants, such as parking lots, walkways and landscaped areas, and will apportion the costs among the tenants based on each tenant’s proportionate share of the total leaseable square footage of the property. For a ground lease, the tenant is typically responsible for all expenses related to maintaining and repairing the property.

The leased premises are typically separately submetered, and tenants are billed for utilities and telecommunications based on submeter readings. If submetering is not available, charges may be determined based on the landlord’s estimate of usage. Utilities and telecommunications serving the common areas are generally apportioned among the tenants in proportion to each tenant’s share of the property’s total leasable square footage.

Hawaiʻi commercial leases commonly require tenants to pay their share of real property taxes in proportion to their share of the leased premises as it relates to the entire taxed parcel. Such taxes are usually paid by the landlord and charged to the tenant via additional rent under the lease. By contrast, ground leases typically require tenants to pay real property taxes assessed against the real property directly (ie, the real property tax bill is sent to the tenant).

The lease terms largely govern insurance coverage responsibilities between the tenant and landlord. Common insurance coverages required to be obtained by tenants are:

• commercial general liability insurance, covering claims for personal injury, bodily injury and property damages relating to the tenant’s use of the leased premises;
• property insurance, insuring tenant improvements and personal property;
• business automobile liability insurance; and
• worker’s compensation insurance as required by Hawaiʻi law, if applicable.

Some leases also require pollution liability insurance and business interruption insurance.

Commercial leases almost universally include a “use” provision specifying the permitted uses of the leased premises. The landlord may also expressly restrict and prohibit certain uses of the premises. In addition, the state’s land classification and county level zoning laws regulate land use, and restrict and prohibit certain uses based on the land’s designated classification and zoning.

Commercial leases may permit the tenant to alter or improve the demised premises. Typically, however, the lease provides that the tenant may not make any alterations or improvements to the premises without the landlord’s prior written consent, except for specified alterations and improvements predetermined in the lease. Leases often require the tenant to:

• submit plans and specifications for the landlord’s approval;
• be responsible to process all applicable permit applications;
• comply with all laws; and
• prevent the filing of mechanics’ liens on the property.

Hawaiʻi’s residential “Landlord-Tenant Code” regulates residential leases, addressing matters such as maximum security deposit limits, required disclosures, repair and maintenance obligations, and notice requirements. In contrast, commercial leases (of any kind, including industrial, office, retail, hotel) are largely not regulated by statute or other rules, except for applicable common law doctrines established through case law.

A tenant’s insolvency may be an event of default under the lease and may give the landlord the right to terminate the lease. However, if the tenant files for bankruptcy, the lease becomes subject to the federal Bankruptcy Code, in which case the landlord may be prohibited from exercising its rights under the lease without seeking relief from the Bankruptcy Court or until the bankruptcy process is completed as required by the Bankruptcy Code.

A tenant does not have an automatic right to occupy the leased premises after the expiration or termination of the commercial lease. If a tenant remains in possession of the premises after the lease terminates, the landlord may consent to the holdover, expressly or impliedly, such as by accepting rent payment, or the landlord may treat the tenant as a trespasser and pursue remedies.

Commercial leases typically contain a “holding over” provision addressing a tenant’s continued occupancy after termination of a lease, which often increases the rent (eg, by 100%) and converts the lease to a month-to-month tenancy. The holdover provision incentivises tenants to timely surrender the premises at the end of the lease term, in order to avoid significant increases in rent.

Commercial leases may be assigned or subleased unless the lease provides otherwise. However, leases typically bar a tenant from assigning or subletting its leasehold interest without the landlord’s prior consent. In cases where the landlord consents to an assignment, they will often require the tenant to pay the costs incurred by the landlord in connection with the assignment (eg, legal fees); most often, the original tenant remains liable under the lease notwithstanding the assignment or sublease.

Commercial leases typically define specific events of default by the tenant that entitle the landlord to remedies, including termination of the lease. The most common examples of such defaults include the nonpayment of rent and the tenant’s failure to use the premises in accordance with the permitted use provisions in the lease. However, even where the language in the lease provides for termination for any breach by the tenant, the landlord’s right to terminate is limited by Hawaiʻi common law principles, under which termination is typically permitted only where the breach is material.

By contrast, it is not customary for commercial leases to expressly define events of landlord default permitting termination by a tenant. However, common law principles for breach of contract may apply, including a remedy of termination if the landlord fails to perform under the lease (eg, failure to maintain).

Hawaiʻi’s “Landlord-Tenant Code” codifies the common law implied warranty of habitability for residential leases. The implied covenants of quiet enjoyment and the duty of care also apply to both commercial and residential leases, potentially affording a tenant a right of termination if the landlord breaches such covenants.

For Regular system (“race-notice”) property, leases with a term of one year or more are required to be recorded; otherwise, such leases are void against a third party transacting in good faith and for a valuable consideration, not having actual notice of the conveyance and whose conveyance is first recorded (see HRS Section 502-83). For Land Court system (“pure race”) property, leases with a term of one year or more are required to be recorded in order to be effective to bind the land, but are still contracts between the parties in any event (see HRS Section 501-101). In most cases, the entirety of the lease itself is not typically recorded, with long-term ground leases being an exception. It is more customary for parties to record a “short-form” or “memorandum of lease”.

The Bureau of Conveyances charges different recording fees for documents recorded in the Regular and Land Court systems, with fees varying based on the number of pages in the document.

Commercial leases typically set forth a list of events of default by the tenant that entitle the landlord to remedies, including summary possession proceedings and termination of the lease. However, regardless of whether or not the lease expressly identifies summary possession as a remedy, landlords have a statutory right to seek to evict a tenant by pursuing a summary possession action. If the court determines that the landlord is entitled to possession of the premises, the court will grant the landlord a judgment of possession and writ of possession. The writ of possession will authorise a sheriff to physically evict the tenant and restore possession to the landlord. Summary possession proceedings in Hawaiʻi typically take anywhere from several weeks to several months, or longer.

A commercial lease may be terminated when the government exercises its eminent domain power in a condemnation proceeding. However, the government must provide just compensation when taking private property.

Commercial leases typically include a “condemnation” provision, which typically provides that the lease will terminate as of the date the condemning authority receives possession or acquires the right to possession. This provision often distinguishes between a substantial taking and a partial taking, and may ascertain whether either party has the right to terminate the lease in the event of a partial taking of the demised premises. It also usually specifies how much of the compensation from the condemning authority is to be allocated between the landlord and the tenant. However, in most cases, the landlord retains all compensation from the condemning authority, and the tenant is not entitled to any portion of the condemnation award.

HRS Chapter 516 also allows lessees of long-term residential leases to initiate the condemnation of the fee interest, allowing them to purchase the land under their homes.

In the event of a tenant’s breach and the termination of a commercial lease, the landlord may seek damages, which can include past due rent, default interest and late charges on such past due rent, legal fees, and costs incurred by the landlord in connection with the re-leasing of the premises, including broker fees. Commercial leases are not subject to the state’s usury law and there is no specified limit on the interest rate charged. However, landlords are required to mitigate their damages by common law.

Various structures are used to price construction projects, which distribute and mitigate risks between contractors and owners. Fixed price (lump sum) and “Cost-Plus” contracts are the primary types of construction contract in Hawaiʻi. Fixed price contracts shift the responsibility risk onto the contractor to deliver the goods or the complete performance of the services or construction for a contractually set price. Under the “Cost-Plus” structure, the contractor is reimbursed for allowable project costs and, in addition, receives an agreed-upon fixed fee. The total compensation, however, is customarily capped at a maximum price (GMP), providing the owner with some cost certainty. Generally, lenders favour a fixed price contract because the construction budget can be more accurately predicted.

Two common project delivery methods in Hawaiʻi are the traditional design-bid-build method and the design-build method.

Design-Bid-Build

The traditional design-bid-build structure involves an owner entering into a contract with the architect and/or engineer to design the project, and the owner entering into a separate contract with a contractor through competitive bidding to construct the project.

Design-Build

Typically, the alternative design-build method provides faster project delivery times and involves an owner entering into a contract with a single entity to provide both design and construction services for the owner’s construction project.

Devices used to manage construction risk include indemnification clauses, warranties, retainage and insurance. Construction claims are subject to the state’s statute of limitations and statute of repose.

Contractors and subcontractors are expected to comply strictly with project schedules and deadlines. Failure to do so may result in the contractor being held liable to the owner for delays in delivering the project. To encourage contractors to provide timely services and compensate owners for damages resulting from project delays, a valid liquated damages clause allows an owner to monetarily recover damages incurred as a result of the contractor’s failure to complete the project as scheduled.

One of the most common forms of security used to guarantee a contractor’s performance in Hawaiʻi is a performance bond, which ensures the contractor completes the project in accordance with the contract. If the contractor defaults, the surety must ensure that the project is completed or that the owner is compensated in accordance with the bond.

Licensed contractors, materialmen and certain designers are permitted to file a lien against a property in the event of non-payment, provided they comply with Chapter 507 of the Hawaiʻi Revised Statutes. Unlicensed contractors may not obtain a mechanics’ lien. The lienor must file an “Application For A Lien” along with a “Notice of Lien” with the circuit court of the circuit where the property is situated not later than 45 days after the date of completion of the improvement against which it is filed. An owner may discharge a mechanics’ lien at any time by paying the claim, obtaining a voluntary release from the contractor, letting the three-month enforcement deadline pass, or depositing a bond/cash for twice the lien amount with the circuit court in which the property is located.

Issuance of a Certificate of Occupancy (COO) by the county’s responsible agency is required before a project can be inhabited or used for its intended purpose. A project must pass all inspections and comply with applicable codes, including the county’s building code, before a COO will be issued.

Hawaiʻi does not impose VAT or a sales tax on the sale or purchase of corporate real estate. However, a conveyance tax is imposed on the transfer of all real estate; see 2.10 Taxes Applicable to a Transaction.

Since the conveyance tax is based on the property value, if the transaction involves more than one parcel, parties will commonly record separate deeds for each parcel, thereby reducing the total conveyance tax payable.

Real estate in Hawaiʻi is subject to county-imposed real property taxes, which are based on types of use that vary by county, but which typically include residential, hotel and resort, commercial, industrial, agricultural, etc. There is no separate “business rate”.

Hawaiʻi general excise tax is imposed on gross income from business activities engaged in for gain or economic benefit, including rental income. Rental income is also subject to Hawaiʻi income tax.

The proceeds of sales of Hawaiʻi real property are potentially subject to capital gains tax. FIRPTA and HARPTA withholding (see 2.11 Legal Restrictions on Foreign Investors) may also apply to such sales by non-US persons and/or non-Hawaiʻi residents.

Owners of Hawaiʻi real estate can potentially take advantage of a number of tax advantages, including:

• depreciation deductions to reduce taxable income;
• homeowner exemptions to reduce real property taxes;
• federal mortgage interest deductions;
• state and local tax (SALT) federal income deduction; and
• tax credits applicable to renewable energy technology installed on residential property.