Can a Mississippi school district reclassify Sixteenth Section land from commercial to residential during an existing 25-year lease, when the lessee wants to live there?

Plain-English summary

The Hazlehurst City School District (HCSD) had a tract of Sixteenth Section land in Copiah County classified as commercial and leased for 25 years (2018-2043). The lessee had been unable to make the property work for commercial purposes and wanted to instead place a dwelling on the land and live there. The HCSD Board determined that residential classification would maximize revenue. The lessee was on board with the change.

The Board's attorney asked: can the Board reclassify the land mid-lease, given that the existing commercial lease runs to 2043?

The AG said yes, with several conditions:

1. The tract must qualify as "residential land" under the statutory definition. Section 29-3-33 defines residential land as "any tract of land upon which the lessee or board-approved sub-lessee is residing," set up in a rectangular form, including the houses and permanent improvements, "provided, however, that such tract of land shall not exceed five (5) acres." The opinion notes the request did not state the tract's size and makes its answer conditional on the tract meeting that definition, so a tract over five acres would not fit the residential class under this provision.

2. The reclassification must be based on highest and best use for maximizing revenue. Section 29-3-31 requires reclassifications to be based on "the highest and best use of [that] parcel or tract for producing a maximum of revenue by proper utilization." If residential use produces more revenue than the failing commercial use, the test is met.

3. Statutory procedures must be followed. Sections 29-3-37 and 29-3-39 set the procedure: notice, opportunity for objection, appeal rights.

4. The existing lease is not automatically canceled. A 1982 AG opinion (Hathorn) held that reclassification does not terminate an existing lease. So the commercial lease continues unless the parties terminate it. But because commercial and residential leases have different statutory requirements (rent calculation, term limits, etc.), the parties may need to terminate the old commercial lease and execute a new residential lease to align with the new classification.

5. Local zoning still applies. Section 29-3-132 says that nothing in Chapter 3 supersedes local zoning. So even if the Board approves residential classification, the City of Hazlehurst's zoning ordinances still apply. If the parcel is zoned commercial (or industrial, or otherwise non-residential), residential use may not be permissible regardless of the Board's classification. The Board must consider any other lawful restrictions on use, including zoning.

So the path forward is: confirm size (≤5 acres), confirm zoning permits residential use, make findings on highest-and-best-use revenue, follow the statutory reclassification procedure, terminate the old commercial lease, execute a new residential lease.

What this means for you

For Mississippi school boards considering Sixteenth Section reclassifications

The opinion holds that the Board may reclassify the tract from commercial to residential mid-lease, but it conditions that on three things drawn from the statutes: the tract must meet the "residential land" definition in Section 29-3-33 (the lessee residing on it, in rectangular form including improvements, "not exceed[ing] five (5) acres"); the reclassification must be "based upon the finding of the highest and best use of [that] parcel or tract for producing a maximum of revenue" (Section 29-3-31); and the Board must follow the procedures in Sections 29-3-37 and 29-3-39 "regarding notice, objection, and appeal." The opinion also says the Board "must consider any other lawful restrictions on the use of such lands," including zoning.

For Mississippi Sixteenth Section lessees

The reclassification in this opinion came with the lessee's agreement. The opinion treats an existing lease as surviving reclassification: citing Hathorn (1982), it states "a change in classification pursuant to the statutes does not terminate or cancel an existing lease." It adds that where the statutory requirements for a commercial lease and a residential lease differ, "the parties may need to terminate the existing lease and execute a new one." The opinion does not address what happens if a lessee refuses to do so.

For Mississippi cities and counties with zoning authority

The opinion is explicit that reclassification does not override local zoning. It quotes Section 29-3-132 ("Nothing in this chapter shall be construed to supersede or modify any power or authority of a county, municipality... to adopt and enforce zoning or land use laws") and, citing Kemp (1991), states a board "may not ignore legally enacted zoning classifications, even if some alternative use which conflicts with such classifications would yield a higher return."

Common questions

Q: What is the difference between Section 29-3-31 and Section 29-3-39?
A: Section 29-3-31 sets the substantive standard for classification (highest and best use for revenue maximization). Section 29-3-39 imposes the duty to periodically reclassify when conditions change. The 2021 Rhodes opinion involves both: changed conditions trigger reclassification (29-3-39), and the new classification must meet the substantive standard (29-3-31).

Q: What happens if reclassification reduces annual rent?
A: The opinion frames the controlling test as the highest and best use for maximizing revenue (Cheney; Section 29-3-31), and notes the trustee cannot lease "for substantially less than the fair value thereof" (Benson, quoting Hill). It does not separately address a reduction in rent here, because the Board had determined that residential use would maximize revenue on a tract the lessee could not make work commercially.

Q: Does the 5-acre cap matter if the tract is larger?
A: The opinion notes the request "does not describe the size of the tract" and makes its answer conditional: the Board may reclassify "[i]f the tract in question meets the definition of 'residential land,'" which caps residential tracts at five acres. The opinion does not address subdividing a larger tract.

Q: What if the existing lessee doesn't want a new lease?
A: The opinion's premise was that the lessee agreed to the reclassification. It states reclassification does not by itself terminate an existing lease (Hathorn) and that the parties "may need to terminate the existing lease and execute a new one" where commercial and residential lease requirements differ. It does not address a lessee who refuses.

Q: What about urban Sixteenth Section land?
A: The opinion cites Kemp (1991): a board overseeing Sixteenth Section lands in urban areas "may not ignore legally enacted zoning classifications, even if some alternative use which conflicts with such classifications would yield a higher return."

Background and statutory framework

Mississippi's Sixteenth Section law uses categorical land classifications:
- Agricultural
- Industrial development
- Commercial
- Residential
- Forestry
- Hunting and fishing
- Recreational
- Catfish farming
- Other land

Each classification has its own definition, rules for lease term, rent calculation, and management. Section 29-3-33 contains the definitions; later sections set the rules for each class.

Residential land (Section 29-3-33): "Any tract of land upon which the lessee or board-approved sub-lessee is residing. Such lands shall be set up, as nearly as possible, in a rectangular form so as to include the houses and such other permanent improvements as may have been placed thereon by said lessee or his predecessor in title; provided, however, that such tract of land shall not exceed five (5) acres."

The 5-acre cap is rigid. Larger residential tracts cannot use this classification.

Reclassification framework:
- Section 29-3-31: classification must be "based upon the finding of the highest and best use of [that] parcel or tract for producing a maximum of revenue by proper utilization"
- Section 29-3-39: Board has duty to "survey periodically the classification" and reclassify "as it may deem advisable because of changes of conditions"
- Section 29-3-37: procedural rules for reclassification (notice, objection, appeal)

The opinion describes the procedure only at the level the statutes state it: the Board must follow Sections 29-3-37 and 29-3-39 "regarding notice, objection, and appeal," and under Section 29-3-39, "when any land is so reclassified, the board of education shall file a report thereof with the Secretary of State."

Effect on existing leases:
The Hathorn (1982) AG opinion is the controlling authority: "a change in classification pursuant to the statutes does not terminate or cancel an existing lease." The lease continues despite reclassification. But if the new classification has different statutory requirements (rent, term, conditions), the parties may need a new lease to align with the new classification. The 2021 opinion recognizes this practical reality.

Zoning interaction:
Section 29-3-132 is unambiguous: "Nothing in this chapter shall be construed to supersede or modify any power or authority of a county, municipality, or combination thereof, or any zoning or planning board or agency, or similar public authority, to adopt and enforce zoning or land use laws, ordinances or regulations." So Sixteenth Section classification operates within the zoning framework, not over it. If zoning prohibits a use, reclassifying does not authorize it.

Citations and references

Statutes:
- Miss. Code Ann. § 7-5-25, AG opinions limited to prospective state law
- Miss. Code Ann. § 29-3-31, classification based on highest and best use
- Miss. Code Ann. § 29-3-33, residential land definition (5-acre cap)
- Miss. Code Ann. § 29-3-37, procedural requirements for reclassification
- Miss. Code Ann. § 29-3-39, periodic reclassification duty
- Miss. Code Ann. § 29-3-132, zoning authority preserved

Cases:
- Benson v. Neshoba Cnty. Sch. Dist., 102 So. 3d 1190 (Miss. Ct. App. 2012), no leasing for substantially less than fair value
- Hill v. Thompson, 564 So. 2d 1 (Miss. 1989), same

Prior AG opinions:
- MS AG Op., Cheney (Sept. 24, 2004), highest and best use for maximizing revenue
- MS AG Op., Hathorn (Sept. 8, 1982), reclassification does not terminate existing lease
- MS AG Op., Kemp (Aug. 28, 1991), Board must consider zoning even if alternative use yields higher return

Source

• Landing page: https://attorneygenerallynnfitch.com/divisions/opinions-and-policy/recent-opinions/
• Original PDF: https://attorneygenerallynnfitch.com/wp-content/uploads/2021/10/C.Rhodes-October-7-2021-Reclassification-of-Sixteenth-Section-Land.pdf

Original opinion text

October 7, 2021

Carroll Rhodes, Esq.
Attorney for Hazlehurst City School District
Post Office Box 588
Hazlehurst, Mississippi 39083

Re: Reclassification of Sixteenth Section Land

Dear Mr. Rhodes:

The Office of the Attorney General has received your request for an official opinion.

Background

You state that the Hazlehurst City School District ("HCSD"), governed by a five-member Board of Trustees (the "Board"), has a tract of Sixteenth Section land in Copiah County currently classified as commercial and leased by an individual for a term of 25 years, starting on November 1, 2018, and ending on October 31, 2043. However, according to your request, the lessee has been unsuccessful in using the property for commercial purposes and now seeks to place a dwelling on the land and live there. The Board has determined that the highest and best use of the property for producing the maximum amount of revenue would be reclassifying the property as residential. According to your request, the lessee is in agreement with the reclassification.

Question Presented

May the Board reclassify the property although there is an existing commercial lease that does not expire until 2043?

Brief Response

Yes, assuming other lawful restrictions on the use of the land have been satisfied, and the proper procedure is followed, the Board may reclassify the land.

Applicable Law and Discussion

As we have previously stated, "school trust lands must be classified according to their highest and best use for maximizing revenue." MS AG Op., Cheney at *2 (Sept. 24, 2004). Additionally, "[t]he board of education is under an obligation to obtain the highest return possible from sixteenth section land as a trustee for the school children of that district." Id. (citation omitted).

Mississippi Code Annotated Section 29-3-39 states, in pertinent part:

It shall be the duty of the board of education to survey periodically the classification of all sixteenth section land under its jurisdiction and to reclassify that land as it may deem advisable because of changes of conditions, and when any land is so reclassified, the board of education shall file a report thereof with the Secretary of State.

Mississippi courts have held that the school district, as trustee of the land, does not have "authority to lease real property held in trust for substantially less than the fair value thereof." Benson v. Neshoba Cnty. Sch. Dist., 102 So. 3d 1190, 1193 (Miss. Ct. App. 2012) (quoting Hill v. Thompson, 564 So. 2d 1, 9 (Miss. 1989)). While your request does not describe the size of the tract in question, you do explain that the Board has determined that the highest and best use for maximizing revenue of the tract is residential. "Residential land" is defined as:

any tract of land upon which the lessee or board-approved sub-lessee is residing. Such lands shall be set up, as nearly as possible, in a rectangular form so as to include the houses and such other permanent improvements as may have been placed thereon by said lessee or his predecessor in title; provided, however, that such tract of land shall not exceed five (5) acres.

Miss. Code Ann. § 29-3-33.

If the tract in question meets the definition of "residential land," it is the opinion of this office that the Board may reclassify the tract if the change in conditions so warrants and the classification is "based upon the finding of the highest and best use of [that] parcel or tract for producing a maximum of revenue by proper utilization." Miss. Code Ann. § 29-3-31. After the appropriate finding has been made regarding the reclassification of the tract, the Board must follow the statutorily mandated procedures set forth in Sections 29-3-37 and 29-3-39 regarding notice, objection, and appeal.

This office previously has opined "that a change in classification pursuant to the statutes does not terminate or cancel an existing lease." MS AG Op., Hathorn at *2 (Sept. 8, 1982). However, to the extent that the statutory requirements for a commercial lease of Sixteenth Section land and a residential lease of Sixteenth Section land differ, the parties may need to terminate the existing lease and execute a new one.

Section 29-3-132 states, "[n]othing in this chapter shall be construed to supersede or modify any power or authority of a county, municipality, or combination thereof, or any zoning or planning board or agency, or similar public authority, to adopt and enforce zoning or land use laws, ordinances or regulations." While exercising its duty to maximize the income from this particular tract of Sixteenth Section land, the Board must consider any other lawful restrictions on the use of such lands. MS AG Op., Kemp at *2 (Aug. 28, 1991) (stating "[b]y analogy, a school board responsible for oversight of sixteenth section lands located in urban areas may not ignore legally enacted zoning classifications, even if some alternative use which conflicts with such classifications would yield a higher return.").

In conclusion, the Board may reclassify a tract of Sixteenth Section land from commercial to residential, provided the current lease does not prohibit such reclassification, the land in question meets the requirements for residential land, and the Board of Trustees follows the statutorily mandated procedures.

If this office may be of any further assistance to you, please do not hesitate to contact us.

Sincerely,

LYNN FITCH, ATTORNEY GENERAL

By: /s/ Misty Monroe
Misty Monroe
Special Assistant Attorney General