Does Washington County's 99-year, $1-per-month lease of land for veterans housing violate the Arkansas county-sale statute?

Plain-English summary

Representative David Whitaker asked whether Washington County's 99-year lease of land for the Patriot Park veterans housing project should count as a sale under A.C.A. § 14-16-105. The request described rent of $1 per month and an appraisal valuing the property at $1,150,000. The Attorney General answered no to the statutory question because § 14-16-105 expressly excludes leases from its county-sale procedures. He treated the second question, whether the lease would be void as an unlawful sale, as moot.

The AG distinguished State v. Baxter, an 1888 Arkansas decision setting aside a 99-year lease, because that case involved fraud and land held in trust for a courthouse site. It also preceded the 2005 amendment explicitly excluding leases from § 14-16-105. The opinion explains that the out-of-state long-lease cases cited by the requester applied different statutes and facts.

The statutory answer does not settle the lease's constitutionality. Arkansas Constitution article 12, § 5 requires adequate consideration for a county lease of property. The AG said the adequacy of consideration is fact-intensive and could not be resolved in this opinion. He noted that, in certain circumstances, “public advantage” can count as consideration. He did not decide whether this particular project or its rent provides adequate consideration.

What this means for you

Counties reviewing leases

The opinion says the sale procedures in § 14-16-105 do not govern a county lease merely because the term is 99 years. It separately says a county lease must satisfy article 12, § 5's adequate-consideration requirement. It gives no approval of the Patriot Park lease on that constitutional issue.

People evaluating the Patriot Park agreement

The AG relied on the facts stated in the request and did not determine whether the county received adequate consideration. The statutory conclusion is narrow: § 14-16-105 excludes leases.

Common questions

Did the AG approve a 99-year lease for $1 per month?
He concluded the county-sale statute did not apply. He did not decide whether the rent or other benefits constitute adequate consideration under the Arkansas Constitution.

Can public advantage count as consideration?
The opinion says it can in certain circumstances, citing City of Blytheville v. Parks and Little Rock Chamber of Commerce v. Pulaski County. It does not apply those cases to this lease.

What happened to the question about voiding the lease?
The AG said that question was moot after his answer that the lease did not violate § 14-16-105.

Background and statutory framework

A.C.A. § 14-16-105 governs county property sales and includes appraisal, sale method, and minimum-price rules. Subsection (f)(2)(D) excludes county leases. Footnote 11 explains why the AG distinguished the older Baxter decision. In discussing article 12, § 5, the AG cited Arkansas cases addressing transfers to private entities and cases recognizing that public advantage can sometimes supply consideration.

Citations

• A.C.A. § 14-16-105(f)(2)(D)
• Ark. Const. art. 12, § 5
• 2005 Ark. Acts No. 1240, § 1
• State v. Baxter, 50 Ark. 447, 8 S.W. 188 (1888)
• City of Blytheville v. Parks, 221 Ark. 734, 255 S.W.2d 962 (1953)
• Little Rock Chamber of Commerce v. Pulaski County, 113 Ark. 439, 168 S.W. 848 (1914)

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

Opinion No. 2023-036

June 21, 2023

The Honorable David Whitaker
State Representative
717 North Lewis Avenue
Fayetteville, Arkansas 72701

Dear Representative Whitaker:
I am writing in response to your request for an opinion regarding a matter in your district. You state that Washington County issued a request for proposals in August 2019 for the development of Patriot Park, a veterans housing complex and service center that will be located in the city of Fayetteville. Strategic Realty, LLC submitted the winning bid and was awarded the $10 million project in September 2019. In February 2020, the county obtained an appraisal for the property, which valued it at $1,150,000. The county then entered into a 99-year lease with Washco Housing Partners Limited Partnership for $1 per month. The lease will begin once the project has been completed and certificates of occupancy have been issued for the 60 low-income apartments. You note that Washco Housing Partners Limited Partnership will pay $1,188 over the life of the lease, at most. You also cite case law from other jurisdictions in which courts have found that, in some circumstances, 99-year leases are more akin to a sale of real estate, rather than a standard lease. Against this background, you ask the following questions:

1. Does the 99-year lease to a private for-profit entity amount to a sale of real property
   by the County for less than ¾ of the appraised value of the property in violation of
   A.C.A. § 14-16-105?
   Brief answer: No, because A.C.A. § 14-16-105 expressly excludes leases from its
   provisions.

2. If the 99-year lease constitutes a sale of property in violation of A.C.A.
   § 14-16-105, is the entire lease null and void?
   Brief answer: Given my response to your first question, this one is moot.
   The Honorable David Whitaker
   State Representative
   Opinion No. 2023-036
   Page 2

DISCUSSION
Question 1: Does the 99-year lease to a private for-profit entity amount to a sale of real property by the County for less than ¾ the appraised value of the property in violation of A.C.A. § 14-16-105? General provisions governing the sale of county property are set forth in the statute you inquired about, A.C.A. § 14-16-105. 1 Whenever a county judge has determined that it is in the county’s best interest to sell and convey county property, the statute requires the entry of an order in county court 2 describing the property to be sold, stating the reason for the sale, and directing the county assessor to have the property appraised. 3 For property with an appraised value less than $5,000, the county judge may sell the property “either at public or private sale, by sealed bids or internet sale.” 4 For property with an appraised value exceeding $5,000, the county judge may sell the property to the highest bidder, “upon sealed bids received by the judge or by internet sale.” 5 In either case, the statute prohibits property from being sold for a price less than three-quarters of its appraised value. 6 But these procedures only apply to the sale and conveyance of county property. The statute does not apply “[w]hen the county is leasing county property.” 7 The language of A.C.A. § 14-16-105 is clear. Its provisions only apply to the sale of county property and do not apply to leases. We cannot read a qualification into the statute that would exclude long-term leases from the meaning of the word “lease” when nothing in the statute supports such an inference. This is particularly true when the General Assembly has enacted other statutes governing the lease of public property that explicitly allow those leases to run for a period of 99 years. 8

1
Other statutes govern the sale, lease, and disposal of county property in certain specific situations. See, e.g., A.C.A. §§ 14-16-106 (governing the sale or disposal of surplus property), 14-16-107 (governing the sale of realty to certain organizations), 14-16-108 (governing the sale or lease of a county hospital to a municipality), 14-16-109 (governing the lease of county lands to a municipality), 14-16-110 (governing the lease of county property to educational institutions). Nothing in the facts you have relayed suggests any of these other statutes would apply to this situation. 2 Please see Ark. Att’y Gen. Ops. 2014-021, 2008-002, 2007-009 for discussion on the relationship between the county judge and county court. 3 See A.C.A. § 14-16-105(b)(1).
4
A.C.A. § 14-16-105(d)(1).
5
A.C.A. § 14-16-105(e)(1)(A).
6
See A.C.A. § 14-16-105(d)(1), (e)(1)(B).
7
A.C.A. § 14-16-105(f)(2)(D).
8
See, e.g., A.C.A. §§ 14-269-103(b)(3), 22-4-501(b)(3).
The Honorable David Whitaker
State Representative
Opinion No. 2023-036
Page 3

You have cited a few cases from other jurisdictions in which courts have treated the lessees of 99-year leases as fee simple owners. 9 But courts have not ubiquitously held that 99-year leases are equivalent to a sale of real property. Rather, they analyze the facts of each case under the applicable statutes. Most of the case law on this topic has been issued in the context of determining whether long-term lessees should be considered “owners” for property tax-exemption purposes, which does not apply here. And even within that body of case law, courts in different jurisdictions have reached different conclusions. 10 Therefore, these cases do not resolve your question. In sum, A.C.A. § 14-16-105 clearly states that its provisions do not apply to the lease of county property, and the General Assembly has acknowledged elsewhere in the Arkansas Code that 99-year leases are genuine leases. Thus, I cannot conclude, based on nonbinding, out-of-state case law issued in the context of materially different facts, that the provisions of A.C.A. § 14-16-105 should extend to long-term leases, despite the statute clearly stipulating that it does not apply to leases. 11 While there is no requirement that county property be leased for at least three-quarters of its fair market value, such a lease must still meet constitutional requirements. Article 12,
§ 5 of the Arkansas Constitution prohibits a county, city, town, or other municipal corporation from donating or appropriating money or property to a private individual or

9
You have cited the following cases: Commander Oil Corp. v. Barlo Equip. Corp., 215 F.3d 321 (2d Cir. 2000) (noting that in some circumstances, such as extremely long-term leases, lessees may be considered owners for purposes of liability under the Comprehensive Environmental Response, Compensation, and Liability Act); Lake End Corp. v. Rockaway Tp., 185 N.J. Super. 248, 256, 448 A.2d 475, 480 (App. Div. 1982) (stating that “99-year leaseholds are the equivalent of a fee ownership for the purposes of real property taxation, valuation, and assessment”); SJW Home Ass’n v. Georgine’s Knights, Inc., No. 2019-05236-40, 2022 Pa. Dist. & Cnty. (holding that a party’s 99-year lease with a 99-year option to renew created the equivalent of an ownership interest in the property). 10 See, e.g., Denver v. Colorado Seminary, 96 Colo. 109, 41 P.2d 1109 (1934) (holding that the leasehold but not the reversionary interest was exempt from property taxation); People ex rel. McCullough v. Bennett Medical College, 248 Ill. 608, 94 N.E. 110 (1911) (holding that where a special act of the legislature exempted from taxation all property belonging to a particular college and the college held land under a 99- year lease, that land was not exempt under the statute because the college did not “own” it); West Jersey Grove Camp Ass’n. v. Vineland, 80 N.J. Super. 361, 193 A.2d 785 (App. Div. 1963) (holding that senior citizens who held 99-year non-renewable leases did not qualify for partial tax exemption under the exemption statute because they did not “own” their homes); Ralston Steel Car Co. v. Ralston, 112 Ohio St. 306, 147 N.E. 513 (1925) (holding that a 99-year lease, renewable forever, amounted to a permanent freehold estate for purposes of evaluating a widow’s right to dower). 11 There is one older case in which the Arkansas Supreme Court set aside a 99-year lease that had been approved by a county court. See State v. Baxter, 50 Ark. 447, 8 S.W. 188 (1888). The Court held that the 99-year lease was essentially a sale, but the county judge failed to comply with the procedures for selling county property. The facts of that case are distinguishable in significant ways: (1) the county judge and the lessees were found to have perpetrated a fraud upon the county and (2) the county had been holding the land at issue in trust for a county courthouse site. Most importantly though, the Baxter decision was issued long before the General Assembly amended A.C.A. § 14-16-105 in 2005 to explicitly exempt leases from its terms. See 2005 Ark. Acts No. 1240, § 1. The Honorable David Whitaker State Representative Opinion No. 2023-036 Page 4

entity. 12 Consequently, any lease of county property must be supported by adequate consideration. What constitutes adequate consideration under any given contract is a fact- intensive question that cannot be resolved in an opinion from this office. But I will note that consideration does not necessarily have to take the form of money or other property. The Arkansas Supreme Court has held that in certain circumstances, “public advantage” can constitute adequate consideration. 13

Question 2: If the 99-year lease constitutes a sale of property in violation of A.C.A.
§ 14-16-105, is the entire lease null and void?
In light of my response to Question 1, this question is moot.

Senior Assistant Attorney General Kelly Summerside prepared this opinion, which I hereby approve.

Sincerely,

TIM GRIFFIN
Attorney General

12
See generally City of Jacksonville v. Venhaus, 302 Ark. 204, 788 S.W.2d 478 (1990) (reversing the distribution of illegal-exaction residuals to private, nonprofit corporations and directing the funds be returned to the municipalities to be used for general municipal services); Halbert v. Helena-West Helena Indus. Dev. Corp., 226 Ark. 620, 291 S.W.2d 802 (1956) (holding that a municipality may not contribute to a private, nonprofit corporation, even if the corporation serves a public purpose). 13 See City of Blytheville v. Parks, 221 Ark. 734, 255 S.W.2d 962 (1953), Little Rock Chamber of Commerce v. Pulaski County, 113 Ark. 439, 168 S.W. 848 (1914).