The largest private owner of industrial land in Hawai'i, HRPT Properties Trust, yesterday sued the state, alleging a one-month-old law intended to give its tenants more leverage in renegotiating rents is unconstitutional.

In the suit filed in federal court in Honolulu, HRPT said the law interferes with its rental contracts in violation of the U.S. Constitution, and if enforced would allow tenants to pay less rent than they do currently.

The law affects some of the more than 180 businesses that lease land from HRPT in Mapunapuna and Kalihi Kai on O'ahu.

Under the law, an unusual phrase in HRPT Hawai'i leases referring to "fair and reasonable" rent must be construed as being fair and reasonable to the lessor and the lessee.

The law also mandates that the type and intensity of use on the property be considered when determining what's fair and reasonable.

"The (law) ... mandates that HRPT's contractual right to collect fair market rents is replaced by a rent renegotiation regime that is aimed at depressing rent rates," the company said in its suit.

HRPT said earlier this week in a conference call with stock analysts that some tenants have begun using the law as a "hammer" in rent negotiations.

Most commercial land leases in Hawai'i tie rental rates to the fee- simple value of the land using a specified or prevailing rate of return, and rent is determined by an arbitration panel of appraisers if the landlord and tenant can't agree on the amount.

Massachusetts-based HRPT said in the suit that arbitration, which is part of its leases, provides a fair and impartial means to resolve rental rate disagreements, and added that a "large majority" of rent negotiations over the past six years were concluded without arbitration.

The suit was filed against Gov. Linda Lingle, who let a bill passed by the Legislature in May become the rent law last month without her signature.

Lingle spokesman Russell Pang said the governor is reserving comment because of the litigation.

In an earlier message to the Senate explaining her reason for letting the bill become law, Lingle expressed mixed feelings about the measure.

"The ability to freely negotiate contracts without government intrusion is essential to a fair and open marketplace and a principle that I support," she wrote. "However, this bill addresses a case where the free market between lessor and lessee is not functioning."

The state attorney general testified that the bill might be found unconstitutional because it alters terms of a lease without a broad public purpose, though an expert retained by the tenant argued that the law is constitutional.

The public purpose stated in the bill is to help stabilize the economy by helping small businesses negotiate affordable rent on HRPT land.

HRPT leases were inherited from prior landowner Damon Estate when the firm bought 10 million square feet of land in Mapunapuna and Kalihi Kai plus a few other parcels from Damon in 2003 for $480 million.

Damon had maintained its lease language stating "rent shall be such fair and reasonable annual rent for the demised land" means fair market rent for the property. But arbitrators have long argued over the meaning of the phrase.

HRPT sought to raise rents to what it viewed as market rates as lease renegotiation periods came up for tenants after the boom in local real estate values from 2000 to 2007.

Many tenants bristled at the attempt to raise rents by as much as three times, and some formed a coalition that drafted a bill. The coalition, dubbed Citizens For Fair Valuation, was started by several companies, including Servco, Plywood Hawai'i and Grace Pacific.