Board Talk: Board Tacks ‘Penalty’ Onto Kahala Hotel Rent

posted in: Board Talk, November 2019 | 0

On January 7, 2019, David Kimo Frankel emailed deputy attorney general William Wynhoff about activities on the state parcel in front of the Kahala Hotel and Resort rented by ResortTrust Hawai‘i (RTH), the hotel’s owner:

“After removing a lot of its commercial things off of the state parcel by November 1, some time in mid-December, the hotel re-installed the rental clamshell lounge chairs — with ads for drinks. Waiters and waitresses provide drinks throughout the area — as they had been doing.”

RTH’s permit only allowed for commercial uses on the property if the City and County of Honolulu permitted them first. RTH had never even asked for permission.

In testimony to the Land Board on October 25, Frankel, who had sued in 1st Circuit Court to void the permit, stated that the hotel later admitted that “from January 1, 2019 through January 9, 2019, as part of the busy holiday season and in response to customer requests and complaints, RTH made on a temporary basis ‘clamshell’ lounge chairs available to rent on the State Parcel for those staying at the Hotel. Limited food and drink service was provided to those using the ‘clamshell’ lounge chairs during that time period.”

At the board’s October 25 meeting, the DLNR’s Land Division asked the board to renew RTH’s permit, with some amendments. The new permit would allow for a smaller range of uses in a smaller area. Representatives of the hotel testified that it was no longer using cabanas and clamshell loungers, and wasn’t storing as much equipment on the parcel.

A September 2019 photo of the state parcel fronting the Kahala Hotel& Resort.
Credit: ResortTrust Hawaii, LLC

Despite the apparent permit violations in January, as well as other instances of possible violations documented by Frankel and Tyler Ralston — and even DLNR staff — the division did not recommend penalizing RTH.

“There were a few instances,” Land Division administrator Russell Tsuji told the board. The clearest example of commercial activity was a vendor — the Hans Hedemann Surf School — seen using the state parcel for stand-up paddle instruction. “We understand that’s since been corrected,” Tsuji said.

RTH’s attorney, Jennifer Lim, assured the board that the hotel had advised the surf school on where it is supposed to operate and that hotel staff had been informed that there should be no food or drink service on the state parcel. “That has been stopped entirely … and we continue to strive to do better and better all the time,” she said.

Frankel lamented the Land Division’s decision not to recover money that had been generated improperly or punish RTH. He also opposed the idea of allowing the hotel to preset 70 lounges on the prime areas of the parcel and asked for a contested case hearing.

As it did with Frankel’s request last year, the board voted to deny him a contested case hearing.

Board member Chris Yuen, however, did seem to think RTH should be penalized for the activities that occurred in January.

“By serving customers on the clamshells in the RP, they exceeded the permitted scope of the RP. Shouldn’t there be some penalty for that?” Yuen asked Tsuji.

“We didn’t bring it up. We don’t have evidence of it,” Tsuji replied.

Yuen pointed out that RTH had basically admitted that it did do things it wasn’t allowed to under the permit.

Tsuji said he sympathized with the hotel having to deal with demanding guests. “It’s not an excuse. It’s your guys’ prerogative how much you want to charge for a penalty,” he said.

The board ultimately chose to fine RTH $702 for using 13 clamshell loungers without first obtaining the city’s permission. However, because the board’s agenda did not include an item regarding alleged violations by RTH, and the company did not want to admit to a violation that wasn’t fully supported by facts, the board characterized the fine as additional rent, for the first month. After the first month, the monthly rent would revert to $1,320.50.

‘Public Beach’ Dispute

Before the board voted on the permit, Frankel and Land Board chair Suzanne Case debated whether or not the parcel could be used for anything other than a public beach.

The new permit states that the public would have rights of access and use of 97 percent of the parcel, with the other 3 percent being occupied by the hotel’s lounges, hammocks, a shower, a towel caddy, and a portion of a cabana hale.

The reduced footprint of the hotel’s activities did not go unappreciated. Frankel testified that there was no question that the use of the parcel was significantly better than it had been. There is no more restaurant seating, weddings are no longer held there, and the rentable cabanas and clamshell loungers are gone.

Even so, Frankel and Ralston, another vocal critic of the hotel, disputed the way the Land Division had calculated the area occupied by the permitted uses. When set up and spread out, they argued, the space the lounges occupy is much more than the sum of the square footage of each lounge. What’s more, those lounges are placed in the areas that members of the public would want to use, they said.

In recounting the history of the parcel, the Land Division report states, “As part of the development [of the hotel], the state, the Kahala Hilton Hotel Company, Inc., and [Kamehameha Schools] agreed that the hotel would create a new piece of fast land by filling submerged land makai of existing land. The new land would continue to be owned by the state and would be used by both the Hotel and the public.”

The report leaves out language in that 1963 agreement stating that the land “shall be used as a public beach.” Frankel criticized the omission.

“Please, do not think the beach was created out of the goodness of the hotel’s heart. It was created in order to obtain zoning for the hotel. And please, keep in mind that [the parcel] has been dedicated in a Land Court document, to be used as a public beach,” he stated in written testimony.

“There was a quid pro quo. … You should know this context so you know you don’t owe them anything for this beach,” Frankel said.

Earlier in the meeting, the Land Division’s Tsuji had characterized the parcel as reclaimed lands, the kind which the state has issued easements for and even sold in the past. And today, with the hotel’s preset beach chairs and tables with “Reserved” signs on them, the parcel looks more like the hotel’s lawn than a public beach.

Frankel pointed out that the area that has been grassed in over the years was sandy when he was a child. “That’s how this land should be used,” he argued.

Land Board chair Case recalled that Frankel had made the same arguments when the permit renewal came up last year and that the Land Division had determined the public beach area to be seaward of the high wash of the waves, not the makai boundary of the hotel’s land.

Frankel again cited the 1963 agreement, and argued that Case’s frame of reference was inaccurate.

“We have a difference of opinion,” Case said.

To which, Frankel insisted, “It’s unquestioned. There’s a Land Court document saying this shall be used as a public beach. … Don’t shake your head at it.”

The Land Division’s report to the board conceded that the filled land was originally sandy, and acknowledged that there was language in the 1963 agreement about the intended use of the parcel. However, it also noted that the mauka portion has been grassed for decades.

“Staff disagrees that the board has a duty — trust or otherwise — to ensure in perpetuity that the land remain untouched and wholly open to the public. And staff also points out that the public has unfettered access to 94 percent — now to be 98 percent — of the premises. Also the alleged ‘dedication’ to public beach use arises out of the same 1963 agreement by which the developer made the filled land. The state agreed to the hotel’s use as part of the agreement. Nothing in the 1963 agreement prohibits issuance of the RP. Staff does not agree that it is a breach of the public trust to allow RTH to use a small portion of the premises for presetting, especially when the public interest is so well served by the money and services that the State receives in return,” it stated.

RTH’s attorneys have also pointed out in correspondence with the DLNR that in the 1963 agreement, Kamehameha Schools [formerly Bishop Estate] reserved its right of access to the beach and improvements, “subject to all applicable laws, regulations, etc.”

Teresa Dawson

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