Can a Mississippi waterway district give a lender a security interest in just the lease (not the state land itself) for its tenant?

Plain-English summary

The Pat Harrison Waterway District leases Little Black Creek Water Park to Little Black Creek Campground and Park, LLC. The lessee wanted to use its leasehold as collateral for a loan from Citizens Bank. The District had previously asked the AG (in November 2019) about a more aggressive arrangement, an agreement that would have given the lender a security interest in both the leasehold and the underlying state property. The AG said no to that, citing prior opinions that a lender can only acquire a leasehold interest, not fee simple title to state-owned land. (The relevant prior opinion is Cartier (Nov. 8, 1989).)

The lessee came back with a narrower request: just the lease, not the land. The AG approved this revised approach. The District has broad statutory authority under § 51-15-119(m) to make contracts and execute instruments necessary or convenient to its functions, and § 51-15-119(p) to do all other acts necessary, requisite, or convenient to its statutory powers. No Mississippi statute prohibits the District from granting a lender a security interest in a lessee's leasehold interest.

The practical limit comes on foreclosure. If the lender forecloses, it takes the leasehold subject to all the terms and conditions of the lease and subject to the statutory restrictions imposed under §§ 51-15-1 et seq. (the Pat Harrison Waterway District Act). The lender does not step into a clean title; it steps into the lessee's exact position. The AG cites Webb (Sept. 13, 1996) for this principle.

The AG also disclaimed any role in interpreting the specific contract terms. Whether the proposed agreement is acceptable to and in the District's best interest is the District's call, not the AG's.

Currency note

This opinion was issued in 2020. 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.

Background and statutory framework

The Pat Harrison Waterway District is a special-purpose state district created by §§ 51-15-1 et seq. of the Mississippi Code. It manages projects across multiple counties, with revenue parks, water management, and infrastructure being the primary activities. Its authority comes from a long list of granted powers in § 51-15-119.

The two clauses central to this opinion are:

Section 51-15-119(m): authorizes the District "[to] make contracts and to execute instruments necessary or convenient to the exercise of the powers, rights, privileges and functions conferred upon it by this article."

Section 51-15-119(p): confers to the District the power "[to] do all other acts or things necessary, requisite, or convenient to the exercising of the powers, rights, privileges or functions conferred upon it by this article or any other law."

These together give the District broad transactional flexibility. The constraint is that the District cannot do something a statute forbids, and it cannot give away the underlying state-owned land.

The earlier 2019 opinion drew the line at granting a security interest in state-owned land itself. That would amount to a path for a lender to acquire fee simple title to state property if it foreclosed, which the AG cannot allow. The 1989 Cartier opinion is the classic statement: "Lender can only foreclose on and receive title to the leasehold interest of the borrower and in no event can acquire fee simple title to property owned by the State."

The 2020 opinion clarifies that a leasehold-only collateral arrangement does not run into that problem. The lender's security interest is in the lessee's leasehold; on foreclosure, the lender becomes the new lessee under the existing lease, with the same restrictions and obligations.

The AG declined to interpret the contract terms or opine on whether the agreement was a good business deal for the District. Those are District decisions.

Common questions

Q: What is the difference between a security interest in the leasehold and a security interest in the underlying property?
A: A security interest in the leasehold gives the lender rights only in the lessee's interest under the lease. If the lessee defaults, the lender can take over the leasehold but is bound by the lease's terms. A security interest in the underlying property would let the lender go after the property itself, including potentially taking title. State property cannot be subject to that kind of security interest.

Q: Could the District agree to a "non-disturbance" or "attornment" arrangement?
A: The 2019 prior opinion involved exactly that ("Consent, Non-Disturbance, Attornment and Subordination Agreement") and the AG found it overreached. A leasehold-only arrangement is acceptable. The exact contract language matters; districts should have counsel review for any clauses that would extend the security to the underlying state property.

Q: What if the lender wants a longer foreclosure timeline or special relief?
A: The lease and the statutory restrictions still apply. The lender's rights cannot exceed what the lessee had. The District has no obligation to grant special accommodations to the lender in foreclosure beyond what the lease and statute already provide.

Q: Does the lessee owe the District anything different after granting the security interest?
A: The opinion does not address rent or other lease obligations. They continue per the lease. The security interest is a separate transaction between the lessee and the lender; it adds rights for the lender but does not change the lessee's obligations to the District.

Q: Is the District required to consent to the lender's security interest?
A: Whether consent is required depends on the lease. Many commercial leases require landlord consent before a lessee can grant a security interest in the leasehold. The AG opinion does not address whether the lease requires consent; that is a contract question.

What this means for you

For the Pat Harrison Waterway District (and similar districts): Leasehold-only collateral arrangements are permissible. State-property security is not. Build that line into any future template lease or financing consent.

For special purpose district attorneys: When a lessee asks the district to consent to a financing arrangement, scrutinize the documents for any language that purports to give the lender rights in the underlying state property. Limit the security interest to the leasehold expressly.

For lenders financing public-property lessees: Understand that your collateral is the leasehold, not the underlying property. Underwrite accordingly. Plan for foreclosure scenarios in which you become the lessee subject to all lease and statutory obligations.

For commercial lessees of state-owned property: Your leasehold has financing value, but the value depends on the remaining lease term, the lease's transferability and assignment provisions, and the statutory restrictions on use.

Citations and references

Statutes:
- Miss. Code Ann. § 51-15-119(m) (Pat Harrison Waterway District contract authority)
- Miss. Code Ann. § 51-15-119(p) (necessary and convenient acts)
- Miss. Code Ann. §§ 51-15-1 et seq. (Pat Harrison Waterway District Act)

Source

• Landing page: https://attorneygenerallynnfitch.com/divisions/opinions-and-policy/recent-opinions/
• Original PDF: https://attorneygenerallynnfitch.com/wp-content/uploads/2020/07/J.Matthews_January-31-2020-Authority-of-Pat-Harrison-Waterway-District-to-enter-into-an-agreement.pdf

Original opinion text

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

Lynn Fitch
ATTORNEY GENERAL
OPINIONS DIVISION

January 31, 2020

Jolly W. Matthews, Esq.
Attorney, Pat Harrison Waterway District
910 South 34th Street
Hattiesburg, Mississippi 39402

Re: Authority of Pat Harrison Waterway District to enter into an agreement

Dear Mr. Matthews:

Attorney General Lynn Fitch has received your opinion request and has assigned it to me for research and reply.

Background

Your request is a follow-up to a previous request by which you asked whether the Pat Harrison Waterway District ("the District") possessed the authority to execute a Consent, Non-Disturbance, Attornment and Subordination Agreement in connection with the lease of Little Black Creek Water Park ("the Park"), by which the lender to the proposed lessees thereunder would acquire a security interest in and to the leasehold and premises. By an opinion to you dated November 1, 2019, this office stated:

While the District possesses broad authority to contract, it may not enter into this contract which purports to grant the lender a security interest, not just in the lease, but in the state owned property that is the subject of the lease. See MS AG Op., Cartier (November 8, 1989) (Lender can only foreclose on and receive title to the leasehold interest of the borrower and in no event can acquire fee simple title to property owned by the State). The proposed agreement clearly states that the lender . . . will hold from time to time a . . . security interest on the Premises and the Lease securing the loan . . .

Issue Presented

Your current request, dated January 8, 2020, inquires as follows:

The Lessee, Little Black Creek Campground and Park, LLC, has now requested that the Citizens Bank be allowed to take the lease, only, as collateral for a loan. Does the Pat Harrison Waterway District (PHWD) have authority to do such a loan?

Response

The District may enter into an agreement which grants lessee's lender a security interest in the leasehold interest but not in the state-owned premises itself.

Applicable Law and Discussion

The District is given broad authority under its enabling statutes to accomplish its statutory purposes and projects. Section 51-15-119(m) of the Mississippi Code Annotated grants the District the authority "[to] make contracts and to execute instruments necessary or convenient to the exercise of the powers, rights, privileges and functions conferred upon it by this article." Section 51-15-119(p) confers to the District the power "[to] do all other acts or things necessary, requisite, or convenient to the exercising of the powers, rights, privileges or functions conferred upon it by this article or any other law."

This office is aware of no authority which would prohibit the District from entering into an agreement granting lessee's lender a security interest in the leasehold interest. Of course, should the deed of trust be foreclosed upon, the lender would take the leasehold interest subject to all of the terms and conditions of the lease and subject to all of the terms and conditions imposed by law pursuant to Sections 51-15-1, et seq. See MS AG Op., Webb (September 13, 1996).

As for the agreement itself, this office does not construe or interpret contractual provisions, and we do not opine on contractual obligations or rights. Whether the terms of the proposed agreement are acceptable to and in the best interests of the District is ultimately a determination for the District.

If we may be of further service, please let us know.

Very truly yours,

LYNN FITCH, ATTORNEY GENERAL

By: Tommy D. Goodwin
Special Assistant Attorney General