Haw. Code R. § tit. 18, ch. 247, app II
Extensions or amendments of lease shall be taxable if there is any extension of term or any increase in rent. The tax shall be based on the rent capitalized for the extended term, or the period where the rental has been increased, or both, provided, the rent to be capitalized shall be the difference in rent.
Example No. 1:
Extension of term where there is no increase in rent.
Original lease is for 55 years and the rent is $100 a year. Ten years later, an extension is granted. There is still 45 years remaining on the original lease. The lease extension is for another 10 years, and the rent for this additional term is $100 a year.
Solution: Capitalize the rent using the graduated rent method for the extended period of the lease.
55 year factor minus 45 year factor times rent involved equals capitalized rent (15.990 -15.455) X $100 = capitalized rent (called CR)
$53.50 = CR
Example No. 2:
Extension of fixed rent period and there is no rental increase and no extension in the overall term of the lease.
Original lease is for 55 years. $100 is the rent for the first 30 years of the lease.
Ten years later, the fixed rent period is extended by 10 years. The $100 yearly rent remains the same.
Solution: This extension is not taxable as it does not add value to the leasehold.
Example No. 3:
Extension of fixed rent period with an increase in the fixed rent, and no increase in the overall term of the lease.
Original lease is for 55 years. The rent is fixed at $100 for the first 30 years.
Ten years later, the fixed rent is increased to $150 and the fixed rent period is extended 10 years. At this time there is 45 years remaining on the original lease.
Solution: Capitalize the difference in rent for the remaining term of the lease.
45 year factor times the net total of the fixed rent after the original fixed rent value is subtracted from the new fixed value and this will equal the capitalized rent (called CR)
(15.455 X ($150 - $100) = CR).
15.455 X $50 = CR$772.75 = CR
Example No. 4:
Extension of lease term where an additional fixed rent period is added and this additional period has an increased rent figure.
Original lease is for 55 years. The first 30 years of this lease have a fixed rent of $200. The next 5 years of the rent have a fixed rent of $250.
| Period | Term | Fixed Rent Amount |
| 1st period | 30 years | $200 |
| 2nd period | 5 years | $250 |
Nine years later with 46 years remaining on the original lease term the following changes occur. First, the lease term is extended 5 years. Second, a third fixed rent period is added and rent for this period is $300. Third, the extended term of the lease is now 51 years (46 years remaining on original lease plus 5 year extension of lease).
Solution: Since the rent is increased for the last 25 years of the lease, capitalize the difference in the rent for this portion of the lease. 46 year factor minus 26 year factor times the net difference between the new fixed rent and the old fixed rent
(15.524 - 13.003) X ($300 - $250)
2.521 X $50 = $126.05
51 year factor minus 46 year factor times new fixed rent
(15.583 - 15.524) X $300
0.059 X $300 = $17.70
$126.05
17.70
Total capitalized rent $143.75
Haw. Code R. tit. 18, ch. 247, app II
The factors used are based on the Inwood Table, the present worth of one per annum. One uses the compound interest table which deals with the present value of an ordinary annuity.