March 30, 2012 Sale/Lease of Real Property
KEEPING YOU INFORMED…
As this year’s budget vote grows near, school districts are continuing to explore ways to reduce costs and increase revenue. This memorandum outlines the key procedures for two viable and tangible options – selling or leasing unneeded real property.
SALE OF SCHOOL PROPERTY
A board of education may sell real property that is no longer being used by the district. Voter approval is required to sell real property in union free and small city school districts, but not in large city school districts. Voter approval is also not required in central school districts which have been centralized for at least seven years, unless a petition requesting a vote is submitted to the board, signed by at least 10 percent of the qualified voters.
Boards of education have a fiduciary responsibility to obtain the best price possible when selling district property. They have broad discretion to determine the best method of sale to achieve the best price and to condition the sale on terms that will maximize the financial benefit to the district.
It is common practice for boards to obtain a professional appraisal of the real property to help determine the best price. If less than the entire property is to be sold; e.g., where a district wants to sell a school building but retain the playing fields, the board should obtain a survey to help establish and clarify the precise area to be sold. In addition, a title search is often obtained and the deed reviewed to determine if there are covenants or other restrictions which may affect a transfer of the property.
For sales requiring voter approval, it is customary and efficient to first find a purchaser and to then execute a contract of sale that is conditioned on obtaining voter approval. The sales contract may require that the purchaser attend an informational hearing before the vote to make a presentation and answer any questions from the public. The district may also provide in the sales contract that the purchaser must pay for the cost of a special meeting if the vote occurs at other than the annual meeting.
LEASE OF SCHOOL PROPERTY
A board of education may also lease its unneeded real property to realize additional revenue. To do so, the board must adopt a resolution providing that the property is not currently needed for district purposes and that leasing the property is in the district’s best interest.
Voter approval is not necessary unless the lease term will exceed l0 years. All lease renewals require the approval of the Commissioner of Education.
The Education Law provides that rental payments must equal or exceed the property’s fair market rental value, as determined by the board. Additionally, the lease must require that the tenant restore the real property to its original condition, less ordinary depreciation, at the end of the lease term. The district may waive this requirement for restoration if the tenant has made improvements to the property that cannot be removed without causing substantial damage.
As with the sale of real property, a property to be leased need not be marketed in any particular way or leased pursuant to the competitive bidding process. Rather, it is within the board’s discretion to determine which methods, in its judgment, would yield the best lease price.
In the event that the district wants the option to take back the leased property during the lease term, the board may include in the lease agreement a provision that the lease may be cancelled by the board upon the occurrence of any of the following events: (i) a substantial increase or decrease in pupil enrollment; (ii) a substantial change in the district’s facilities needs and requirements; or (iii) any other change which substantially affects the needs or requirements of the district or the community.
Please do not hesitate to contact us if you have any questions regarding the sale or lease of real property.
THIS MEMORANDUM IS MEANT TO ASSIST IN THE GENERAL UNDERSTANDING OF CURRENT LA\M. IT IS NOT TO BE REGARDED AS LEGAL ADVICE. THOSE WITH PARTICULAR QUESTIONS SHOULD SEEK THE ADVICE OF COUNSEL.
© Lamb & Barnosky, LLP, 2012