Can a Maryland charter county sell a county-owned building to a private buyer and then lease it back for continued government use?

Plain-English summary

Harford County's Executive asked whether Article 25A, section 5(B) of the Maryland Code, which lets a charter county dispose of property "no longer needed for public use," would authorize a proposed sale-leaseback of a county-owned office building. Under the deal, the county would sell its fee simple ownership of the property to a private investor and immediately lease back the building under a long-term lease, without any significant change to how the county actually used the space. The opinion concluded this was permitted, reasoning that "property" under the statute could be broken into its component interests, so that selling the ownership interest while retaining a leasehold sufficient to continue the county's public use meant the county was not disposing of anything still "needed for public use." The opinion also noted such a transaction could serve legitimate public purposes, generating funds for other county programs and adding a private owner to the tax rolls, while courts generally defer to a county's good-faith exercise of this kind of discretionary power.

Currency note

This opinion was issued in 1982. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The opinion applied Article 25A, section 5(B) of the 1982 Maryland Code and related property-disposal statutes for municipalities and commissioner counties, along with Maryland case law on municipal property disposition as it stood in 1982. Maryland's local government code articles have since been substantially recodified into the Local Government Article, and case law on sale-leaseback transactions and county discretionary authority has continued to develop. Anyone researching whether a current Maryland county's sale-leaseback proposal is authorized should verify the current statutory citations and any more recent case law rather than relying on this opinion's 1982 analysis.

Common questions

Doesn't selling county property mean it's no longer needed for public use?
Not necessarily, according to this opinion. It read "property" broadly enough to include separate interests, such as full ownership versus a leasehold, and concluded a county could sell one interest (fee simple ownership) while keeping another (a long-term lease) sufficient to continue the actual public use. Under that reading, only the ownership interest was being disposed of, and the opinion found that interest specifically was "no longer needed" once the county secured continued possession through the lease.

Does it matter whether the property is used for governmental or nongovernmental purposes?
Yes. The opinion distinguished Maryland case law treating property held by a local government in a "proprietary" capacity, which can be disposed of freely, from property held in a "governmental" capacity, which needs express statutory authority to dispose of. Because part of the Harford County building was leased to nongovernmental tenants and part was used directly for county government functions, the opinion addressed the sale-leaseback specifically as it applied to the governmental-use portion.

Would courts second-guess the county's judgment that the leaseback was good enough to preserve public use?
The opinion said courts would likely give considerable deference to a county's good-faith determination that a valid public purpose was served and that its retained leasehold was sufficient to preserve public use, citing the general rule that courts will not interfere with a local government's exercise of discretionary powers absent misuse.

What public benefits did the opinion see in a sale-leaseback like this?
The opinion noted the county could continue using the property for government purposes without disruption while gaining money from the sale for other county programs and capital projects, and by transferring title to a private investor, the property would also be added to the county's tax rolls.

Background and statutory framework

In December 1981, Harford County purchased a parcel of land with an existing office building, part of which the county used for governmental functions and part of which was leased to nongovernmental tenants under short- and long-term leases. The county proposed selling the property to a private investor while simultaneously leasing back the building under a long-term lease that would not significantly change the county's current use of the space.

The opinion explained that Harford County, as a charter home rule county under Article XI-A of the Maryland Constitution, had been granted express property-disposal power under Article 25A, section 5(B), authorizing a charter county "to dispose of any real or leasehold property belonging to the county, provided the same is no longer needed for public use ... upon such terms and compensation as said county may deem proper." The opinion noted this codified the common-law rule, discussed in McQuillin on Municipal Corporations, that a municipal corporation cannot dispose of property devoted to a public governmental use without special statutory authority, and that Maryland case law, including McRobie v. Mayor and Commissioners of Westernport and Montgomery County v. Maryland-Washington Metropolitan District, distinguishes property held in a governmental capacity (needing express authority to dispose of) from property held in a proprietary capacity (freely disposable).

Because part of the Harford County building was used for government functions and therefore presumptively "needed for public use," the central question was whether selling the fee simple interest, while retaining a leasehold, violated the statute's limitation to property "no longer needed for public use." The opinion resolved this by reading "property" broadly, consistent with its established meaning in Maryland law (citing Diffendall v. Diffendall and various Maryland Code definitions of "property" as encompassing any interest or estate of value), to mean that the statute authorizes disposing of one or more discrete interests in property, not necessarily every interest at once. Under that reading, a charter county could dispose of its fee simple ownership interest while retaining a leasehold interest sufficient to continue the public use, because the ownership interest specifically, as distinct from the possessory leasehold interest, would no longer be "needed for public use" once the lease secured continued occupancy. The opinion drew an analogy to the statute's parallel authorization to acquire property "required for public purposes," reasoning that if the power to acquire property implies the power to acquire something less than full ownership, the power to dispose of property should likewise imply the power to dispose of something less than all interests in it, citing Mattingly v. Charlotte Hall School.

The opinion also noted the Court of Appeals had recently addressed a related sale-leaseback issue in Eberhart v. Mayor and City Council of Baltimore, upholding a Baltimore City sale-leaseback against a challenge under the state constitutional debt limitation, though that decision turned on a different Baltimore City Charter provision and did not address the analogous language in Article 25A, section 5(B) directly. Finally, the opinion observed that charter counties have been granted broad discretionary powers to promote good government and the general welfare, citing Salisbury Beauty Schools v. State Board of Cosmetologists and Montgomery Citizens League v. Greenhalgh, and that courts generally defer to a local government's good-faith exercise of discretionary property-disposal authority absent misuse, citing a line of cases including Steuart Petroleum Company v. Board of County Commissioners of St. Mary's County and Union Investors, Inc. v. Montgomery County.

Citations

Statutes:

• Article 25A, §5(B)
• Article 23A, §2(24)
• Article 25, §11A
• Article 25, §7(b)
• Article 25, §8
• Article 25, §9
• Article 25, §9A
• Article 25, §9B
• Md. Const. art. XI-A, §2
• Real Property Article §1-101(k)
• Estates and Trusts Article §1-101(p)
• Financial Institutions Article §1-101(p)
• Article 78A, §15
• Article 41, §181J
• Md. Const. art. XI, §7
• Baltimore City Charter art. II, §15(c)
• Baltimore City Charter art. V, §5(b)

Cases:

• McRobie v. Mayor and Commissioners of Westernport, 260 Md. 464, 467 (1971)
• Montgomery County v. Maryland-Washington Metropolitan District, 202 Md. 293, 303 (1953)
• Worcester Electric Company v. James W. Hancock, 151 Md. 670 (1927)
• Diffendall v. Diffendall, 239 Md. 32, 36 (1965)
• Eberhart v. Mayor and City Council of Baltimore, 291 Md. 92 (1981)
• Mattingly v. Charlotte Hall School, 37 Md. App. 157 (1977)
• Salisbury Beauty Schools v. State Board of Cosmetologists, 268 Md. 32 (1973)
• Montgomery Citizens League v. Greenhalgh, 253 Md. 151 (1969)
• Wincamp Partnership v. Anne Arundel County, 458 F.Supp. 1009 (D. Md. 1978)
• Steuart Petroleum Company v. Board of County Commissioners of St. Mary's County, 276 Md. 435 (1975)
• Leonardo v. Board of County Commissioners of St. Mary's County, 214 Md. 287 (1956), cert. den., 355 U.S. 906 (1958)
• Union Investors, Inc. v. Montgomery County, 244 Md. 585 (1966)
• Purnell v. Ocean City, 162 Md. 169 (1932)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1982/Volume67_1982.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

Local Government—Charter Counties—Sale-Leaseback of Public Property—Sale-Leaseback Transaction Authorized Under Article 25A, §5(B) of Code

July 14, 1982

The Honorable J. Thomas Barranger
County Executive of Harford County

You have requested our opinion on whether a proposed sale-leaseback transaction involving real property currently owned by Harford County is authorized by Article 25A, §5(B) of the Maryland Code.

For the reasons given below, it is our opinion that a sale-leaseback of county-owned property is permitted by Article 25A, §5(B), where, in the exercise of its broad discretionary powers, the county reasonably determines that its retained possessory interest in the property is sufficient to ensure the continuation of any needed public use of that property.1

1 We have not been given any of the documentation for or details of the specific transaction proposed by Harford County and, consequently, must here couch our response in relatively general terms. As to whether such a transaction would be permitted under relevant provisions of the County Charter or the County Code, we necessarily defer to the expertise of the County Attorney. To the extent that those provisions are patterned after and substantively similar to Article 25A, §5(B), we suspect that they can be read in a manner similar to that in which we here construe that section.

I
The Proposed Transaction

In December 1981, Harford County purchased a parcel of land, together with the existing office building and other improvements located on that land.2 Since then, the property has been occupied (i) in part by the County for certain governmental functions and (ii) in part by various nongovernmental tenants under both short-term and long-term lease agreements.

2 For several years prior to its purchase of this property, the County occupied a portion of the office building as a tenant.

The County now proposes to sell this property to a private investor and, as a part of the same transaction, lease back the building and improvements under a long-term lease agreement. We understand that, under the lease agreement, the current use of the property by the County will not be changed in any significant manner.

II
Authority to Dispose of Public Property

In 1972, Harford County adopted a charter home rule form of government under Article XI-A of the Maryland Constitution. The General Assembly, in accordance with the directive contained in Article XI-A, §2, has granted charter counties the various express powers enumerated in Article 25A, §5 of the Maryland Code.

Among those express powers is one specifically relating to the disposition of county property. Under Article 25A, §5(B), a charter county is given the authority "to dispose of any real or leasehold property belonging to the county, provided the same is no longer needed for public use[,] . . . upon such terms and compensation as said county may deem proper".3

3 Similar authority, subject to similar limitations, has been granted to municipal corporations and commissioner counties as well. See Article 23A, §2(24) (municipal corporation authorized "to sell . . . any real or leasehold property belonging to the municipality when [its] legislative body determines that the same is no longer needed for any public use"); Article 25, §11A ("The county commissioners of every county may . . . [s]ell . . . any property when no longer needed for public use"). See also Article 25, §§7(b), 8, 9, 9A, and 9B.

This express power, and its limited application to "property . . . no longer needed for public use", is essentially a codification of the common law rule long applicable to municipal corporations and similar forms of local government:

"A municipal corporation cannot sell or dispose of property devoted to a public governmental use or purpose . . . without special statutory or charter authority, since as to governmental functions the municipality is a mere agent of the state and subject to control by the state legislative authorities. ... In this sense all property is public which has been dedicated to public use, or which may be affected by a public trust, either general or special. Municipal corporations hold all property in which the public is interested ... in trust for the use of the public; and, on principle, such trust property can be disposed of by the municipality only in accordance with the terms of the trust, i.e., in the public interest as declared by statute. The general rule is often thus broadly stated: Property held for a public purpose cannot be alienated, assessed for taxes, sold for nonpayment, nor can prescriptive rights thereto be established." 10 McQuillin, Municipal Corporations, §28.38 (3rd ed. 1981).4

4 Although this discussion speaks specifically to "municipal corporations", general principles of municipal home rule have been applied in this State to other forms of local government as well. See, e.g., Montgomery County v. Maryland-Washington Metropolitan District, 202 Md. 293, 304 (1953).

A review of Maryland case law indicates that the Maryland courts have distinguished the disposition of property held by a local government in its governmental capacity from the disposition of property held by a local government in a proprietary capacity. See, e.g., McRobie v. Mayor and Commissioners of Westernport, 260 Md. 464, 467 (1971); Montgomery County v. Maryland-Washington Metropolitan District, 202 Md. 293, 303 (1953). Thus, on the one hand, the courts have held that property held by a local government in a proprietary capacity may be disposed of at any time, without special or express authority. Maryland-Washington Metropolitan District, 202 Md. at 305-06. On the other hand, property held by a local government in its governmental capacity cannot be disposed of without special or express authority. Mayor and Commissioners of Westernport, 260 Md. at 467-69; Worcester Electric Company v. James W. Hancock, 151 Md. 670 (1927).

In this case, at least part of the property in question is occupied by nongovernmental tenants; to that extent, this property presumably is held by the County only in a proprietary capacity and, as such, is not needed for a "public use" within the meaning of Article 25A, §5(B). Nevertheless, the balance of the property is directly used by the County in a governmental capacity and, as such, presumably is and will continue to be needed for "public use". Hence, we need to determine here whether the proposed sale-leaseback is precluded by the proviso in Article 25A, §5(B), which permits a charter county "to dispose of . . . property" only to the extent that "the same is no longer needed for public use".5 The Maryland courts have never directly addressed this precise issue.6

5 We have no doubt that the term "dispose of" encompasses the sale of a fee simple interest in property, even when coupled with the simultaneous acquisition of a leasehold interest. "Dispose of" is an expression signifying the right to alienate or direct the ownership of property. Black's Law Dictionary 423 (rev. 5th ed. 1979). Included in the definition of "alienation" is the transfer of property and of the possession of land, tenements, or other things from one person to another. Black's Law Dictionary, at 66. The term "dispose of" has been broadly construed by Maryland courts to include various methods of transfer of property. McRobie v. Mayor and Commissioners of Westernport, 260 Md. 464, 467-69 (1971); Montgomery County v. Maryland-Washington Metropolitan District, 202 Md. 293, 305 (1953); Worcester Electric Company v. James W. Hancock, 151 Md. 670, 677 (1927). Similarly, statutory references in the Maryland Code to the transfer of an interest in property use the term "dispose of" and its variants as a broad catchall encompassing a wide range of activities. See, e.g., Article 78A, §15 of the Maryland Code ("property . . . sold, leased, transferred, exchanged, granted or otherwise disposed of"); Article 41, §181J of the Maryland Code ("sell, convey, assign, lease, or otherwise transfer or dispose of any property").

6 In Eberhart v. Mayor and City Council of Baltimore, 291 Md. 92 (1981), the Court of Appeals recently addressed the related issue of whether a sale-leaseback transaction involving the Mayor and City Council of Baltimore contravened the debt limitation provisions of Article XI, §7 of the Maryland Constitution. The Court held that the proposed sale-leaseback transaction was authorized under Article II, §15(c) of the Baltimore City Charter and did not create a debt. Although the Baltimore City Charter contains yet another provision, Article V, §5(b) of the Charter, that is quite similar to Article 25A, §5(B), the possible application of that provision to the transaction at issue in Eberhart was not at all discussed by the Court in its decision, nor was it suggested by the litigants in their respective briefs.

III
"Property . . . Needed for Public Use"

The word "property" has been broadly construed in Maryland to embrace everything that has "exchangeable value", including "every interest or estate which the law regards of sufficient value for judicial recognition". Diffendall v. Diffendall, 239 Md. 32, 36 (1965). Thus, the term "property" is generally used in the Maryland Code to refer to any one or more interests of varying nature and degree in that property. See, e.g., Real Property Article, §1-101(k) ("'Property' means real property or any interest therein or appurtenant thereto"); Estates and Trusts Article, §1-101(p) ("'Property' includes both real and personal property, and any right or interest therein"); Financial Institutions Article, §1-101(p) ("'Real property' includes any interest in real property").

Applying this interpretation here, we think that the relevant provisions of Article 25A, §5(B) can, and should, be read as in effect providing a charter county with the authority "to dispose of [any one or more interests in] any real or leasehold property belonging to the county, provided the same [i.e., that interest or interests] is no longer needed for public use".7

7 Such a reading is consistent with the statute's counterpart authorization "to provide for the acquisition ... of property required for public purposes in the county". Generally, the power to acquire property implies the power to obtain some lesser interest in that property. 10 McQuillin, Municipal Corporations, §28.10 (3rd ed. 1981). See also Mattingly v. Charlotte Hall School, 37 Md. App. 157 (1977) (express power to purchase property carries with it implied power to enter into an option). Similarly, the power to dispose of property will imply the power to dispose of something less than all interests in that property.

In so reading the statute, it becomes evident that the disposition of a charter county's fee simple ownership interest in property is permitted by Article 25A, §5(B), when, as a part of the same transaction, the county nevertheless effectively retains all such interest in the property as would be needed for continuation of the public use of that property. Conversely stated, where a particular interest in property, such as a fee simple interest, is itself no longer needed to maintain a public use, that interest may be disposed of by the county under Article 25A, §5(B).

Here, it is evident that Harford County, through its retention of a possessory, leasehold interest in the property, fully intends to maintain active public use of the property. By conditioning the sale of its fee simple interest in the property on the simultaneous acquisition of a long-term leasehold interest sufficient to meet its anticipated use of the property, the County would not, in our view, be disposing of any property interests still "needed for public use".

IV
Public Purpose Considerations

While we have not reviewed and do not know all of the details of the proposed sale-leaseback transaction, it would appear that such a transaction might well serve a legitimate public purpose.

Through the sale and leaseback of its property, the County presumably will be able to continue its present use of the property for governmental purposes, without disruption or diminution, while at the same time being able to derive certain economic advantages not otherwise available to it. For example, the County's transfer of title to a private investor will provide the County with money that might be used for other needed County programs and capital projects; in addition, the transfer of title would add a private property owner to the County's tax rolls, even while retaining for public use a possessory, leasehold interest in the property.

Given such obvious potential public benefits to be derived from a properly structured sale-leaseback transaction, we cannot believe that the General Assembly intended Article 25A, §5(B) to be read so narrowly as to prevent a charter county from even considering such a transaction. Moreover, we believe that the courts would give considerable weight and deference to a good faith determination by a county (i) that a valid public purpose in fact will be served by the particular transaction and (ii) more specifically, that the county's current fee simple interest in the property would, given a continued possessory interest, "no longer [be] needed for public use".

Charter counties have been granted broad discretionary powers to promote good government and the general welfare of their communities. See, e.g., Salisbury Beauty Schools v. State Board of Cosmetologists, 268 Md. 32 (1973); Montgomery Citizens League v. Greenhalgh, 253 Md. 151 (1969). And the power of a county to dispose of its property, even while subject to the various statutory and common law considerations noted above, is one of the incidental discretionary powers reasonably implied from the general powers that have been expressly conferred on it. Montgomery County v. Maryland-Washington Metropolitan District, 202 Md. 293 (1953).

In this regard, it is a general principle of law that the courts will not interfere with a county's exercise of its discretionary powers unless those powers are misused. E.g., Wincamp Partnership v. Anne Arundel County, 458 F.Supp. 1009 (D. Md. 1978); Steuart Petroleum Company v. Board of County Commissioners of St. Mary's County, 276 Md. 435 (1975); Salisbury Beauty Schools v. State Board of Cosmetologists, 268 Md. 32 (1973); Leonardo v. Board of County Commissioners of St. Mary's County, 214 Md. 287 (1956), cert. den., 355 U.S. 906 (1958). See also Union Investors, Inc. v. Montgomery County, 244 Md. 585 (1966) (sale of county property will not be set aside because of differences of opinion as to the value of the property).

This general rule, limiting a court's review of the exercise of discretionary powers by a local government, has been applied to various areas of local government concern, including the business affairs of the local government, the lease of governmental property, and the purchase or, as here, sale of property by the local government. 2 McQuillin, Municipal Corporations, §10.36 (3rd ed. 1981). See also Purnell v. Ocean City, 162 Md. 169 (1932) (absent fraud or abuse of discretion, court will not review determination of municipality that public interest demands grant of a franchise).

V
Conclusion

In summary, it is our opinion that the proposed sale-leaseback of property by a charter county is permitted under Article 25A, §5(B), provided that the county, in the exercise of its broad discretionary powers, reasonably determines that its retained possessory interest in the property is sufficient to ensure the continuation of any needed public use of that property.

Stephen H. Sachs, Attorney General
Avery Aisenstark, Principal Counsel,
Opinions and Advice
Judith S. Waranch, Assistant Attorney General