Arizona school districts are (in the vast majority of cases) landowners. With the ownership of land comes the right and responsibilities attached to permitting others to use that land and the buildings located on it. Much like other similarly situated landowners, a school district can act as a landlord. This includes the right to permit tenants to lease a portion of the school district’s property and/or buildings. However, unlike private landowners a school district is restricted in how it chooses to utilize its property by the limited authorities granted to the school district by the State of Arizona Legislature. This article seeks to explore some of the limitations imposed on school district leasing of property. This article does not cover all of the nuances involved in negotiating or drafting a school district lease and it is always best practice for a school district to consult with its legal counsel when contemplating any form of a lease.
The main source of authority for a school district to lease its property is found in the Arizona Revised Statutes (“A.R.S”). A.R.S. §15-342(9) provides that a school district governing board may:
“Enter into leases or lease-purchase agreements for school buildings or grounds, or both, as lessor or as lessee, for periods of less than ten years subject to voter approval for construction of school buildings as prescribed in section 15-341, subsection A, paragraph 7.” Emphasis added.
In this context the term “lessor” is equivalent to “landlord” and “lessee” is equivalent to “tenant.” It is important to note that this provision of the statue limits the duration of a lease to a total of less than Ten (10) years. This means that a lease of exactly Ten (10) years would violate the authority granted by the Legislature in this statute.
It is worthy of note that A.R.S. §15-342(9) does not require that the school district seek approval of the school district’s registered voters in an election in order to approve a lease of less than Ten (10) years. However, the statue still requires an election if construction of a school district building is contemplated. In that case the school district would need to get the approval of the school district’s registered voters as mandated by A.R.S. §15-341(A)(7).
If the school district is contemplating a lease with a proposed term of Ten (10) years or longer, then the operative statutory authority governing the lease is A.R.S. §15-342(10). This statute provides in the pertinent part,
“Subject to chapter 16 of this title, sell school sites or enter into leases or lease-purchase agreements for school buildings and grounds, as lessor or as lessee, for a period of ten years or more, but not to exceed ninety-nine years, if authorized by a vote of the school district electors in an election called by the governing board as provided in section 15-491…” Emphasis added.
This statutory grant of authority permits the school district participate in a lease, whether as a landlord or as a tenant, for a period of time between Ten (10) years and Ninety-Nine (99) years as long as such lease is approved by the school district’s registered voters. What this means is that the school district can enter into a lease which exceeds Ten (10) years, it just cannot do so without the approval of the school district’s registered voters.
It is important to note that leases with automatic renewal provisions may ultimately result in the school district being required to seek approval of the school district’s registered voters. For instance, if the proposed school district lease is for an initial Five (5) year term which automatically renews once without any opportunity for the school district to cancel it then that lease effectively has a Ten (10) year term. As the lease in question has a Ten (10) year term, the school district would be required to obtain approval from the school district’s registered voters in order to execute it. To do otherwise would violate the authorities granted to the school district by statutes and potentially invalidate the lease itself.
It is also important to note that as with any other contract that a school district enters into the Gift Clause of State of Arizona Constitution is an important consideration. The Gift Clause of the State of Arizona Constitution basically requires that the school district be adequately compensated for permitting the proposed tenant to lease the property of the school district. It does not matter if the purpose of the lease is noble or indirectly a benefit to the community the school district serves the requirement that the school district be adequately compensated remains the same. What this means is that a one-year term lease to a charitable organization for one dollar will most likely not be sufficient to satisfy the Gift Clause because the compensation to the school district is not adequate. The determination of adequate compensation is difficult and in many cases not straightforward. It is best practice to consult with legal counsel whenever there is a question concerning the Gift Clause implications of school district lease compensation.
School district leasing of property in the State of Arizona is unique due to the limitations imposed upon school districts by the State of Arizona Constitution and Legislature. Leasing such public land is governed by a set of laws and provisions wholly different and more restrictive than that which applies to private industry. As stated above this article is only meant to give a cursory overview of some of the underlying law in the area of leasing school district property. It is not intended to address each unique leasing scenario. It is best practice for a school district to reach out to its legal counsel whenever a lease of its property is contemplated and to proceed with caution regarding any preliminary promises made to potential landlords or tenants.
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding School District Leasing of Property, or any other estate planning matters, please feel free to contact at 480.461.5300, log on to udallshumway.com, or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.