Since Hawaii’s admission to the Union on August 21, 1959, commercial tenancies have been governed primarily by contract law and the summary possession provisions of Hawaii Revised Statutes (HRS) Chapter 666. While residential landlords must manage a web of state-mandated disclosures, commercial landlords operate in an environment of caveat emptor (let the buyer/lessee beware). The state assumes commercial tenants will conduct their own rigorous due diligence before signing a lease.

General Excise Tax (GET) Transparency

Unlike most US states, Hawaii does not have a traditional sales tax. Instead, it imposes a General Excise Tax (GET) under HRS Chapter 237 on all gross business income, which definitively includes commercial rental income.

The GET rate is 4% (HRS § 237-13). Under HRS § 237-13.8, landlords may "visibly pass on" the tax to tenants only if the lease explicitly requires it. In counties with a 0.5% surcharge (Honolulu, Maui, Kauai, and Hawaii County), the maximum effective pass-through rate is 4.712%.

While it is standard practice, the landlord must explicitly disclose and require the payment of the GET within the commercial lease agreement. Because the GET is a tax on the landlord's privilege of doing business, it is the landlord's liability; if the lease merely states "Rent is $5,000/month" and does not specify that GET will be added as a separate line item, the landlord cannot legally force the tenant to pay the tax on top of the base rent.

Federal Disclosures: Lead-Based Paint

The most prominent required disclosure for commercial spaces stems from federal law under 42 U.S.C. § 4852d and 40 CFR § 745.101.

If the commercial property was built prior to 1978, the landlord is federally obligated to disclose the presence of lead-based paint only if the property qualifies as "target housing." In commercial real estate, this applies to:

1. Mixed-use properties containing residential living spaces (like an apartment above a retail shop).

Standalone commercial leases for "child-occupied facilities" (such as daycares, preschools, or pediatric clinics) are not subject to the Section 1018 lease disclosure requirements (pamphlet and disclosure form). However, these facilities are governed by the EPA Renovation, Repair, and Painting (RRP) Rule (40 CFR § 745.80) for any renovation activities.

If applicable to a mixed-use property, the landlord must provide the EPA-approved lead hazard pamphlet, disclose known hazards, and include a signed lead warning statement in the lease agreement.

Environmental and Zoning Disclosures

Commercial landlords must abide by the implied covenant of good faith and fair dealing. This means a landlord cannot actively commit fraud or intentionally conceal severe, latent defects that would destroy the tenant's ability to operate their business.

However, Hawaii follows the doctrine of caveat emptor (buyer/lessee beware) for commercial property. There are no state-mandated property condition disclosure forms, and it is generally the tenant's burden to verify:

• Zoning Compliance: Whether the local municipality permits their specific type of business in that building.
• ADA Compliance: Whether the building meets the requirements of the Americans with Disabilities Act.
• Environmental Hazards: Sophisticated commercial tenants will almost always require a Phase I Environmental Site Assessment before signing a long-term lease to ensure they are not taking responsibility for contaminated soil left by a previous industrial tenant.

"As-Is" Leasing

To shift the burden of disclosure entirely to the tenant, Hawaii commercial landlords heavily manage "As-Is" clauses. By signing a lease with an "As-Is" provision, the tenant legally acknowledges that they have independently inspected the premises, accept its current condition, and agree that the landlord has made no warranties regarding the property's fitness for the tenant's intended business use.

Best Practices for Commercial Landlords

1. Be Honest About Material Facts: If you know the building's electrical grid cannot support heavy restaurant equipment, disclosing this upfront is preferential to an expensive lawsuit for misrepresentation when the tenant's kitchen fails on opening night.
2. Draft Clear GET Clauses: Have your attorney draft a flawless GET clause ensuring the tenant is responsible for the base rent, the GET (up to the 4.712% effective rate where applicable), and any future increases in the county tax rate.
3. Require Due Diligence: Allow the tenant sufficient time to pull permits, inspect the HVAC, and survey the property before the lease commences, so they cannot claim they were surprised by the building's condition later.

How Landager Helps

Landager tracks lease terms, ensures timely notices, and maintains secure compliance records - making it easy to stay compliant with Hawaii regulations.

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