USA – HAWAII Law and Practice Contributed by: Jon Pang, Lisa Broulik and Matthew Cohen, Case Lombardi, A Law Corporation
A buyer that is considering further development, alternative use or construction of the property would typically explore the scope, feasibility, cost and tim - ing of any necessary building code and other regula - tory 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 con - ditions and exactions addressing the impacts of the proposed development, use or construction. 2.5 Typical Representations and Warranties 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 char - acteristics of the property, such as its physical condi - tion, 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 agree - ment, 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 misrepresen - tation claim against a seller may also initiate claims under Hawaiʻi’s unfair and deceptive acts and prac - tices statute. Contractual indemnity provisions pro - vide the non-defaulting party with a vehicle to hold the defaulting party responsible for its defaults. Survival Purchase agreements can include clauses for spe - cific 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 spe -
cific 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 com - monly used in commercial real estate transactions in Hawaiʻi. 2.6 Important Areas of Law for Investors When purchasing real property in Hawaiʻi, investors should consider state land use regulations, county zoning laws, development regulations and restric - tions, including those applicable to oceanfront areas, and leasing regulations and restrictions. See 4.1 Plan- ning and Zoning Framework and 4.2 Development Process, Challenges and Enforcement . Buyers should also consider tax implications, includ - ing: • 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 ). 2.7 Soil Pollution or Environmental Contamination United States and Hawaiʻi environmental and hazard - ous 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 contamina - tion 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 preven - tion of releases and contaminations, remediation and
779 CHAMBERS.COM
Powered by FlippingBook