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Can a distant fantasy shoreline — a nonexistent beach that theoretically extends hundreds of feet beyond the sands of Waikiki — provide the basis for granting a variance from zoning restrictions to allow a controversial new high-rise oceanfront hotel to be built?

That’s one of the key issues behind a legal challenge to the controversial 26-story oceanfront high-rise on the beach at Waikiki planned by Kyo-ya, the hotel company that owns the Moana Surfrider, Royal Hawaiian, Princess Kaiulani and Sheraton Waikiki hotels.

Last week, the Hawaii Supreme Court agreed to hear the challenge to the new hotel by a coalition of community groups.

The court’s decision means they will be allowed to take their case directly to the high court without first arguing it before the Intermediate Court of Appeals. Attorneys representing Kyo-ya and the city argued unsuccessfully that there are no key public issues at stake to justify the Supreme Court’s intervention.

For cash strapped plaintiffs, it’s a significant, although perhaps temporary, victory.

Donna Wong, executive director of the environmental advocacy group, Hawaii’s Thousand Friends, says she is thrilled by the court’s decision to take their case. “I don’t think people realize how big it is,” Wong said. “It isn’t glamorous, but it’s big.”

The coalition of community groups behind the legal challenge — which includes the Surfrider Foundation, KAHEA: The Hawaiian-Environmental Alliance, and the Ka Iwi Coalition — says allowing the 308-foot-tall hotel and residential tower in a shoreline setback area would blow a huge hole through the special rules designed to protect the character of Waikiki, the heart of the state’s visitor industry.

These rules are intended to protect beach access and ocean-mountain views along the beach by limiting the height, location and density of new buildings.

The $200 million high-rise would be built on the site of the Moana Surfrider’s existing 8-story Diamond Head Tower, a narrow strip of land between Kuhio Beach and the historic Banyan wing of the hotel.

There’s no disagreement that the new hotel would encroach 73.4 percent of the way into the 100-foot setback where new construction is normally disallowed by zoning restrictions, or that it would be far taller than the special district rules allow.

In order to proceed with the project, Kyo-ya had to seek a variance from existing zoning restrictions. The variance was approved in December 2010 by David Tanoue, who was then the director of the Department of Planning and Permitting, and later upheld on appeal by the Zoning Board of Appeals. The coalition of groups appealed to the Circuit Court, and lost again.

Although the variance has so far withstood legal challenge, it relies on legal contortions that defy common sense and inevitably feed a sense of cynicism.

Hardships and Shifting Sands

The Honolulu City Charter allows the planning director to approve a variance in the case of a specific “unnecessary hardship” facing a specific landowner. Three criteria must be met.

One test requires that “the applicant would be deprived of the reasonable use of such land or building if the provisions of the zoning code were strictly applicable.”

Kyo-ya argued that redevelopment of the Diamond Head Tower would not be economically feasible without the variance, and this would deprive them of “reasonable use.”

Planning director Tanoue agreed.

However, the project’s opponents point to a footnote in the charter provision, which states: “‘Reasonable use’ …is not the use most desired by the property owner; property owner must show inability to make any reasonable use of his land without the variance.”

Wong points out the existing hotel tower could be completely renovated without a variance, which appears to undercut the argument that denial of the variance would eliminate all “reasonable use.”

In approving the Kyo-ya variance, planning director Tanoue also relied on a 1965 agreement between the state and the hotel-owners that set the ground rules for a planned sand restoration project.

The state agreed to use its “best efforts” to extend the beach seaward in line with recommendations of a 1963 study by the Army Corps of Engineers.

The hotel owners, for their part, consented to the project and agreed not to bring any legal or administrative challenges or complaints stemming from the work.

The particular beach extension project was never carried out, although there have been other sand replenishment projects over the years. However, Kyo-ya argued — and Tanoue agreed — that the state’s failure to complete that beach extension contributed to their “unnecessary hardship.”

If the beach had been extended as far as contemplated in 1965, Kyo-ya argued, it could have been some 180 feet farther out than the existing beach. And if the certified shoreline were also extended as a result, the new tower would no longer fall within the mandatory 100-foot set-back.

The mythical, desired shoreline contemplated by a plan nearly five decades ago, has never existed, but because of this interpretation, it could have very real results.

The environmental coalition also argues that Tanoue’s approval of the variance failed to show how or whether Kyo-ya met each of the necessary tests to qualify, although the charter allows a variance only if the record shows each criteria has been met.

When that argument was made to the Zoning Board of Appeals, though, the board said the failure to make a finding, essentially ignoring certain required criteria for a variance, is not the same as an “erroneous” finding.

“The failure to find a fact does not constitute an erroneous finding of fact,” the zoning board repeated several times. And without evidence of an erroneous finding, the board argued, they had no power to overrule the director’s decision.

The state’s Supreme Court will now have to decide whether the planning director has the discretion to approve variances even for what appear to be mandatory requirements established by the city charter or county ordinances, such as establishing in the record that each criteria has been met before approving a variance.

As the plaintiffs phrase the issue, whether “the City Charter authorizes the Mayor’s agents to convert the City Council’s mandatory zoning code requirements into discretionary options through the variance process.”

The legal outcome, of course, is uncertain at this time.

And there are other factors in play.

Since 2004, Kyo-ya has been controlled by Cerberus Capital Management. But earlier this year, Kyo-ya’s parent company bought back full control of the hotel company.

Since then, Kyo-ya has delayed its planned replacement of the Princess Kaiulani Hotel, and observers are speculating that the company may decide to renovate the building rather than replace it. Could the change in management also bring a reappraisal of the new Diamond Head Tower? No one knows.

But if the coalition prevails in court and approval of the variance is overturned, or if the company decides not to proceed with the controversial project for other reasons, it would indeed be very big.

Read Ian Lind’s blog at .