Can a Minnesota intermediate school district buy a closed elementary school from a member district by contract for deed, where the seller member district keeps title until the buyer finishes paying over five years?

Plain-English summary

SouthWest Metro Intermediate District No. 288 is an intermediate school district made up of 11 independent member districts. It provides special education and mental health services. A member district offered to sell SouthWest a recently closed elementary school for $1,517,000 through a contract for deed: $517,000 at closing, then two semi-annual payments of $100,000 a year over five years, with the member district holding title until paid in full.

Peter Martin of Kennedy & Graven, SouthWest's counsel, asked the AG whether the transaction was lawful. The catch was that AG opinions going back to 1909 (with later versions in 1946, 1958, 1959, 1961, 1963, 1971, and 1974) had said school districts could not purchase real property by contract for deed or installment purchase. The historical reasoning was that schools are subject to public-indebtedness statutes and the only authorized form of school district debt at the time was a bond issue (Op. Atty. Gen. 622i2, Apr. 9, 1958).

Assistant AG Susan Gretz wrote the opinion. The answer was yes, the transaction is authorized, but through Minn. Stat. § 465.71, not through the older general statute § 465.035 that Martin had also raised.

The reasoning runs in three pieces.

First, the historical no-installment-purchase rule was overtaken by the Legislature in 1982. That year, the Legislature added what became Minn. Stat. § 465.71. That statute now reads:

A home rule charter city, statutory city, county, town, or school district may purchase personal property under an installment contract, or lease real or personal property with an option to purchase under a lease-purchase agreement, by which contract or agreement title is retained by the seller or vendor or assigned to a third party as security for the purchase price, including interest, if any, but such purchases are subject to statutory and charter provisions applicable to the purchase of real or personal property.

For real property, § 465.71 authorizes installment contracts and lease-purchase agreements where title is retained by the seller (which is what a contract for deed is). It exempts the obligation from "net debt" calculations under § 475.53 if the contract amount is under $1 million, and exempts it from constituting "debt" under any other statutory provision. No election is required. The lease-purchase agreement (but not the installment contract for real property) must be terminable at the end of any fiscal year.

The AG explicitly overruled the long line of historical opinions to the extent they conflict with § 465.71. That overruling list: Op. Atty. Gen. 622-j-22 (Sept. 17, 1974); 622-j-5 (Apr. 30, 1971); 622-I-2 (Jan. 19, 1963); 622-I-2 (Dec. 8, 1961); 622-i-11 (Apr. 3, 1959); 622i2 (Apr. 9, 1958); 622-i-11 (Apr. 3, 1946); 622-I-11 (Jun. 7, 1909).

Second, Minn. Stat. § 123B.51, subd. 1 (school site acquisition statute) cross-references § 465.71: "According to section 126C.40, subdivision 1, or 465.71, when funds are available, the board may locate and acquire necessary sites of schoolhouses or enlargements, or additions to existing schoolhouse sites by lease, purchase or condemnation under the power of eminent domain." That cross-reference confirms § 465.71 applies to school district real property acquisitions.

Intermediate districts under Minn. Stat. § 136D.44 are granted the same powers as their participating school districts and no more. Since school districts can use § 465.71, so can SouthWest.

Third, the AG rejected the alternative theory that § 465.035 supplies authority. That older general statute lets any "county, town, city or other public corporation" lease or convey land "for a nominal consideration, without consideration or for such consideration as may be agreed upon" to another public corporation for public use. Martin's argument was that "such consideration as may be agreed upon" could mean any kind of consideration, including a contract for deed.

The AG said no, on two grounds. The specific-over-general canon (Minn. Stat. § 645.26, subd. 1) plus the later-enactment canon (subd. 4) means § 465.71 controls. And reading "consideration" in § 465.035 as meaning the financing method (rather than the dollar amount) does not fit the statutory context. In State v. Schouweiler (Minn. 2016), the Minnesota Supreme Court used dictionary definitions: "consideration" in ordinary speech means "payment given as compensation for a good or service," and as a contractual term of art means "act or forbearance that induces a contractually binding promise." The AG read the surrounding statutory text, which puts "such consideration as may be agreed upon" in series with "a nominal consideration" and "without consideration" (a gift), as pointing to the ordinary dollar-amount meaning. A gift cannot induce a contractually binding promise (per Barnier v. Wells), so the contractual-term-of-art reading does not fit the series.

Because § 465.71 controls and § 465.035 does not authorize a different financing method, the AG did not have to decide whether an intermediate school district is a "public corporation" within the meaning of § 465.035, and explicitly left that question to the Legislature, citing the type-distinctions in Minn. Stat. § 123A.55.

On the side question of school district as seller, the AG distinguished. Section 123B.51, subd. 1 authorizes a district to sell schoolhouses or sites. The statute imposes no express limitation on purchaser financing when a school district is the seller. So the older AG opinions allowing school districts to sell by contract for deed (Op. Atty. Gen. 622-i-8, Sept. 9, 1983) remain in effect.

What this means for you

For school boards and intermediate school district administrators considering installment purchases of real estate: this opinion gives you a clear green light. Structure the purchase under § 465.71 (not § 465.035). Note the $1 million net-debt-exemption ceiling; if your contract amount is at or above $1 million, the purchase counts toward net debt. For sub-$1 million purchases, no election is required and the obligation does not count as debt for the net-debt limit under § 475.53.

For school district attorneys drafting the purchase documents: use installment contract language tracking § 465.71. Confirm in the documents that title is retained by the seller as security for the purchase price. If you instead use a lease-purchase structure, include the fiscal-year-end termination right that § 465.71 requires for lease-purchase agreements (the installment-contract version doesn't have that requirement). Cross-reference § 123B.51, subd. 1 if the property is a schoolhouse site.

For municipal-finance attorneys advising on transaction structure: § 465.71 is the operative authority. § 465.035 is a separate general statute for conveyances between public corporations, but it does not authorize installment financing on its own. If your client is trying to combine the two statutes (e.g., a sale by one school district to another for less than full price plus an installment for the remainder), § 465.71 controls the financing piece even if § 465.035 supplies authority for the public-corporation conveyance.

For intermediate school districts: § 136D.44 limits you to your member districts' powers. That works in your favor here because school districts under § 465.71 can use installment financing for real property, and that authority flows through.

For school facility planners: this opinion expands the deal structures available for capital projects beyond bond issuance. You can negotiate installment purchases with sellers (including member districts), which gives you flexibility on cash flow and lets you avoid the political and procedural cost of a bond election for sub-$1 million projects. Larger projects still need to fit within net debt limits and may need election approval depending on the financing structure.

For public-finance advisors: the AG explicitly overrules the historical line of opinions limiting school financing to bond issuance. Modeling and policy documents that reference those older opinions need to be updated. The Minnesota Department of Education's Guide for Planning School Construction Projects (Nov. 8, 2018) is cited as the operative practical guidance.

Common questions

Q: Why was the historical rule so restrictive about contracts for deed?
A: In 1958, the AG concluded that the only authorized form of school district debt was a bond issue, which required an election and statutory procedures designed to prevent uncontrolled school district indebtedness. A contract for deed creates a debt obligation, so the AG considered it equivalent to an unauthorized borrowing. The Legislature changed that in 1982 by enacting § 465.71 and explicitly allowing installment contracts with debt-limit exemptions.

Q: Does the $1 million net-debt-exemption ceiling apply per-project or cumulatively?
A: § 465.71 says "if the amount of the contract for purchase of the real property is less than $1,000,000." That's per-contract. A district could in principle have multiple sub-$1 million contracts at once. But the larger statutory net-debt framework under § 475.53 still applies.

Q: Can a school district use a lease-purchase agreement instead of a contract for deed?
A: Yes. § 465.71 authorizes both. The lease-purchase version has the additional requirement that the district can terminate at the end of any fiscal year. The installment-contract version does not have that requirement.

Q: Does the AG opinion bind future opinions about § 465.035?
A: The AG opinion is binding on school officers under § 8.07 until a court rules otherwise. It says § 465.71 controls and § 465.035 does not authorize installment financing. Future opinions could elaborate or clarify but cannot revive the overruled 1909-1974 opinions for contexts where § 465.71 applies.

Q: What about a school district selling property to a non-public entity?
A: § 465.035 only applies to conveyances between public corporations. Sales to private buyers are governed by § 123B.51 (for school districts), which does not address purchaser financing. So a school district can sell by contract for deed to a private buyer, but the buyer's payment obligations are governed by private contract law plus any applicable real-estate statutes.

Q: Does this overrule the historical opinion that said a school district could not sell to a non-profit hospital corporation by contract for deed?
A: The opinion notes Op. Atty. Gen. 622-i-j (Aug. 11, 1952), which had concluded a school district could not sell to a non-profit hospital corporation by contract for deed because the non-profit was not a public corporation. That conclusion turned on the public-corporation status of the buyer under § 465.035, not on the school district's authority to sell. The new opinion does not directly disturb the 1952 result for that fact pattern, though the broader framework has shifted.

Q: What happens if the seller defaults under a contract for deed where the school district is the buyer?
A: That's a question of private contract law and the specific terms of the deed. The AG opinion does not address default scenarios. Practical guidance: include enforceable specific-performance and damages provisions, document the seller's title obligations, and consider title insurance.

Background and statutory framework

Minnesota's school district finance regime treats school districts as governmental entities subject to public-indebtedness statutes (Minn. Stat. § 475.51, subd. 2). Historically, the only authorized form of school district debt was a bond issue. The AG enforced that rule in a long line of opinions from 1909 to 1974.

The Legislature changed the picture in 1982 by enacting what became Minn. Stat. § 465.71 (1982 Minn. Laws ch. 523 art. 15 § 4). That statute authorized installment contracts and lease-purchase agreements for cities, counties, towns, and school districts. The statute uses both "installment contract" and "lease-purchase agreement" as separate authorized forms. Real property purchases under installment contracts under $1 million are exempt from net-debt calculations and do not constitute "debt" under any other statute.

Minn. Stat. § 123B.51, subd. 1 ties § 465.71 to school district real property acquisition: "According to section 126C.40, subdivision 1, or 465.71, when funds are available, the board may locate and acquire necessary sites." Section 126C.40 is the other financing-related statute for school capital projects.

Intermediate school districts under Minn. Stat. § 136D.44 inherit the powers of participating school districts. SouthWest as an intermediate district can therefore use § 465.71.

The general public-corporation conveyance statute is Minn. Stat. § 465.035, which predates § 465.71 and is broader in scope. It authorizes conveyances "for a nominal consideration, without consideration or for such consideration as may be agreed upon" to another public corporation for public use.

The interpretive framework here uses two specific-over-general / later-enactment canons (Minn. Stat. § 645.26, subds. 1 and 4) and the State v. Schouweiler (Minn. 2016) approach to defining statutory terms by ordinary vs. technical legal meaning. Barnier v. Wells (Minn. App. 1991) supplies the rule that a gift cannot induce a contractually binding promise.

The Minnesota Department of Education's Guide for Planning School Construction Projects in Minnesota (Nov. 8, 2018), at page 8, is cited as practical guidance reflecting the modern § 465.71-inclusive framework.

The opinion is "decisive" under § 8.07 as construed by Eelkema v. Bd. of Ed. of Duluth (Minn. 1943) and subsequent cases.

Citations and references

Statutes:
- Minn. Stat. § 8.07
- Minn. Stat. § 123A.55 (types of school districts)
- Minn. Stat. § 123B.51, subd. 1 (school site acquisition)
- Minn. Stat. § 126C.40, subd. 1
- Minn. Stat. § 136D.44 (intermediate district powers)
- Minn. Stat. §§ 136D.41-136D.49 (intermediate district formation)
- Minn. Stat. § 465.035 (conveyance between public corporations)
- Minn. Stat. § 465.71 (installment contracts and lease-purchase)
- Minn. Stat. § 475.51, subd. 2 (governmental entity)
- Minn. Stat. § 475.53 (net debt limit)
- Minn. Stat. § 645.26, subds. 1 and 4 (specific-over-general; later-enactment)

Cases:
- In re Butler, 552 N.W.2d 226 (Minn. 1996)
- Nichols v. L & O, Inc., 196 N.W.2d 465 (Minn. 1972)
- Nolan v. Greeley, 185 N.W. 647 (Minn. 1921)
- Barnier v. Wells, 476 N.W.2d 795 (Minn. App. 1991)
- State v. Schouweiler, 887 N.W.2d 22 (Minn. 2016)

Prior AG opinions, overruled to the extent they conflict with § 465.71:
- Op. Atty. Gen. 622-j-22 (Sept. 17, 1974)
- Op. Atty. Gen. 622-j-5 (Apr. 30, 1971)
- Op. Atty. Gen. 622-I-2 (Jan. 19, 1963)
- Op. Atty. Gen. 622-I-2 (Dec. 8, 1961)
- Op. Atty. Gen. 622-i-11 (Apr. 3, 1959)
- Op. Atty. Gen. 622i2 (Apr. 9, 1958)
- Op. Atty. Gen. 622-i-11 (Apr. 3, 1946)
- Op. Atty. Gen. 622-I-11 (Jun. 7, 1909)

Prior AG opinions, preserved:
- Op. Atty. Gen. 622-i-8 (Sept. 9, 1983) (school district as seller via contract for deed)
- Op. Atty. Gen. 622-i-7 (Aug. 11, 1952) (sale to non-public-corporation buyer)

Source

• Landing page: https://www.ag.state.mn.us/Office/Opinions/
• Original PDF: https://www.ag.state.mn.us/Office/Opinions/622i11-20230217.pdf

Original opinion text

SCHOOL DISTRICTS: SCHOOL PROPERTY: PURCHASE OF REAL PROPERTY; SALE OF REAL PROPERTY: Intermediate school district's purchase of property from a member district where the member district retains title as security for the purchase price is governed by Minn. Stat. § 465.71 and the limitations therein and is not authorized by Minn. Stat. § 465.035. Overruling prior Attorney General Opinions to the extent they conflict with Minn. Stat. § 465.71. Minn. Stat. §§ 123B.51, 465.035 and 465.71.

Index No. 622-i-11
February 17, 2023

Peter A. Martin
Kennedy & Graven, Chartered
Fifth Street Towers
150 South Fifth Street, Suite 700
Minneapolis, MN 55402

Re: Opinion Request – Purchase of Schoolhouse Using Contract for Deed

Dear Mr. Martin:

You represent SouthWest Metro Intermediate District No. 288 ("SouthWest" or "District") and pursuant to Minn. Stat. § 8.07 you request an interpretation of Minnesota law related to the purchase of a building for District purposes. Specifically, you ask whether SouthWest may purchase a school building from one of its member districts pursuant to a contract for deed or installment purchase contract.

In our opinion, the purchase of real or personal property by SouthWest from a member district where the member district retains title as security for the purchase price is governed by Minn. Stat. § 465.71 and the limitations therein and is not authorized by Minn. Stat. § 465.035.

BACKGROUND

SouthWest is an intermediate school district comprised of 11 independent districts. The District was formed pursuant to Minn. Stat. §§ 136D.41-136D.49. The District's mission is to provide services that complement the educational services offered by its member districts. These services include mental health supports and special education.

A member school district has proposed selling to SouthWest, for $1,517,000, a recently closed elementary school owned by the member district. The member has proposed a sale by contract for deed, under which SouthWest would pay $517,000 at closing and the remainder through two semi-annual payments of $100,000 over five years.

ANSWER AND LEGAL ANALYSIS

We begin by acknowledging that in establishing Intermediate District No. 288 in 2015 the Legislature granted to SouthWest all the powers granted by law to any or all of the participating school districts, and no more. Minn. Stat. § 136D.44. Thus, as you note, if a school district is not able to purchase property under a contract for deed, SouthWest will be similarly limited.

A contract for deed is a financing arrangement under which the buyer purchases property by borrowing the purchase money from the seller. In re Butler, 552 N.W.2d 226, 229 (Minn. 1996). During the contract term the seller holds legal title, and the purchaser holds equitable title. Nichols v. L & O, Inc., 196 N.W.2d 465, 468 n.7 (Minn. 1972).

School District Purchase by Contract for Deed or Installment Purchase. A school district is among the governmental entities subject to laws regarding public indebtedness. Minn. Stat. § 475.51, subd. 2. As you acknowledge, opinions of this Office dating back many decades held that public school districts may not purchase real property pursuant to a contract for deed or installment purchase agreement.

In the intervening decades, the Legislature has established methods of financing school capital projects in addition to a bond issue. Specific to the question posed, in 1982 the Legislature authorized school districts to acquire real or personal property through installment contracts or lease-purchase agreements if they meet specific requirements. 1982 Minn. Laws ch. 523 art. 15 § 4. That law now provides:

A home rule charter city, statutory city, county, town, or school district may purchase personal property under an installment contract, or lease real or personal property with an option to purchase under a lease-purchase agreement, by which contract or agreement title is retained by the seller or vendor or assigned to a third party as security for the purchase price, including interest, if any, but such purchases are subject to statutory and charter provisions applicable to the purchase of real or personal property. . . . The obligation created by an installment contract or a lease-purchase agreement for personal property, or an installment contract or a lease-purchase agreement for real property if the amount of the contract for purchase of the real property is less than $1,000,000, shall not be included in the calculation of net debt for purposes of section 475.53, and shall not constitute debt under any other statutory provision. No election shall be required in connection with the execution of an installment contract or a lease-purchase agreement authorized by this section. The city, county, town, or school district must have the right to terminate a lease-purchase agreement at the end of any fiscal year during its term.

Minn. Stat. § 465.71.

Accordingly, it is no longer the case that the only method by which a district may become indebted is through a bond issue. Section 465.71 authorizes installment contracts and lease-purchase agreements in which title to the property is retained by the seller.

Section 465.71 is referenced in the statute that allows school districts to acquire sites for schoolhouses: "According to section 126C.40, subdivision 1, or 465.71, when funds are available, the board may locate and acquire necessary sites of schoolhouses or enlargements, or additions to existing schoolhouse sites by lease, purchase or condemnation under the power of eminent domain." Minn. Stat. § 123B.51, subd. 1.

Accordingly, SouthWest, having the powers of an independent district, may purchase property with the seller retaining title as security for the purchase if SouthWest meets the requirements of Minn. Stat. § 465.71. Accordingly, we hereby overrule our prior opinions on this subject to the extent they conflict with Minn. Stat. § 465.71.

Sale to Public Corporation via "Such Consideration as May be Agreed Upon." Despite the clear application of section 465.71 to school district real property acquisitions evidenced in Minn. Stat. § 123B.51, you also ask us to consider whether the proposed transaction would be permissible under Minn. Stat. § 465.035. That statute provides:

Any county, town, city or other public corporation may lease or convey its lands for a nominal consideration, without consideration or for such consideration as may be agreed upon to the state or to any governmental subdivision, to . . . another public corporation . . . for public use when authorized by its governing body.

However, reading "such consideration as may be agreed upon" in section 465.035 to authorize any contract for deed or installment purchase would conflict with the specific requirements in Minn. Stat. § 465.71 for the terms of such instruments. When a general provision in a law conflicts with a specific provision in another law, the specific provision controls. Minn. Stat. § 645.26, subd. 1. Likewise, a later enacted law controls over a conflicting prior enactment. Id. at subd. 4. Therefore, with respect to school district schoolhouse and site acquisition, section 465.71 would control over any inconsistent language in section 465.035.

To the extent further analysis is helpful, we also question whether the phrase "such consideration as may be agreed upon" is intended to reference the method of financing the purchase. In State v. Schouweiler, 887 N.W.2d 22, 25 (Minn. 2016) the Minnesota Supreme Court noted that in ordinary, nonlegal speech, "consideration" means "payment given as compensation for a good or service," and as a contractual term of art means "act or forbearance that induces a contractually binding promise."

The statute authorizes conveyances where consideration is nominal, i.e., in name only or trifling, and gifts of land from one public entity to another. A gift cannot induce a contractually binding promise. Barnier v. Wells, 476 N.W.2d 795, 797 (Minn. App. 1991). Thus, the series in which "such consideration" appears directs us to the nonlegal meaning, the payment agreed upon, and not the method of financing as an act inducing a contractually binding promise.

Given our determinations that section 465.71 controls over section 465.035, and that the method of financing, by contract for deed, is not what is meant by "such consideration as may be agreed upon," we need not decide whether an intermediate school district is a public corporation within the meaning of section 465.035.

We hope this analysis is helpful to you.

Sincerely,

/s/ Susan Gretz
SUSAN C. GRETZ
Assistant Attorney General