Understanding Commercial Land Leases on Hawai'i Island
- amy5864
- Apr 2
- 2 min read
Updated: Apr 2
On Hawaiʻi Island, land leases, also known as ground leases, are common. While often associated with residential properties and farm or ranch land, leasehold arrangements are a significant factor in the commercial real estate landscape. From small businesses to national franchises to hotels, many tenants operate on land they don't own.
What Is a Land Lease?
A land lease is an agreement where a tenant leases the land from a landowner for a fixed period. The tenant may own the building or improvements on the land but not the land itself. This is especially common in Hawaiʻi, where large estates and trusts have held land for generations and continue to lease it for income.
In a commercial context, a business might own a store, office, or even a hotel building—but still pay ground rent to the landowner.
Who Owns the Land?
Much of the commercial land available for lease on the Big Island is owned by long-established landholders. These include private investors, investment companies, long-standing trusts, and organizations that have held land in Hawaiʻi for generations. These landowners often lease parcels to commercial tenants to generate long-term, stable income while retaining land ownership.
Government entities, at both the state and county levels, also participate in land leasing.
How Does a Commercial Land Lease Work?
In a typical land lease:
The tenant pays rent for the land only.
The tenant may own or build structures on the land or may have plans to develop something.
The lease term can range from 20 to 99 years.
The tenant may also be responsible for property taxes, insurance, and maintenance—often structured as a triple-net (NNN) lease.
Lease terms vary widely and may include options to renew, escalation clauses for rent increases, and conditions related to improvements or redevelopment.
What Happens When the Lease Ends?
When a lease expires, one of three things usually happens:
Reversion: The land—and any structures on it—can revert to the landowner.
Renegotiation: The parties may agree to extend or renew the lease, sometimes with new terms.
Vacancy: Depending on the lease terms, the tenant may have to vacate or, in some instances, remove improvements or return the land to its original condition.
This uncertainty can complicate financing or selling leasehold commercial properties, especially as the remaining lease term shortens.
Pros and Cons of a Land Lease
Pros:
Lower upfront cost than buying land
Access to prime locations
Potentially favorable lease terms
Cons:
No ownership of the land
Risk at lease expiration
Potential financing challenges
Limited appreciation in value
Land leases are woven into Hawaiʻi's commercial real estate fabric, especially on the Big Island. Whether opening a local shop in Hilo or developing a resort in Waikoloa, understanding how land leases work is essential. While they offer access to valuable land without the upfront cost of buying, they also come with long-term considerations that can affect operations, financing, and resale value.
Review the terms carefully and consult a local real estate expert or attorney before entering a leasehold agreement.