Can a Mississippi city's rental-property ordinance reach landlords who use contracts for deed to dodge tenant-licensing rules?

Plain-English summary

Crystal Springs, a code charter Mississippi municipality, has an ordinance regulating rental property and requiring licenses for landlords renting to third parties. The AG says it is similar to Madison's ordinance but has different warrant requirements. The Mississippi Supreme Court struck down Madison's inspection provision because it allowed warrants on a standard lower than probable cause. The opinion does not evaluate Crystal Springs' warrant requirements.

The city reported that landlords were using installment sales contracts or contracts for deed to evade its rental-property regulation while ownership remained in their names. It asked whether it could amend the ordinance to cover property subject to those agreements.

The AG found no statutory prohibition against that amendment if the city determines, case by case, that an agreement remains rental in nature. It cited the Mississippi Court of Appeals' discussion of option-to-purchase contracts in Crook v. City of Madison, 168 So. 3d 1169, 1180 (Miss. Ct. App. 2014), while expressly noting that decision was reversed by the Mississippi Supreme Court. The Court of Appeals had found that the parties' testimony showed the agreements were rental in nature.

The AG explained that Mississippi statutes give municipalities broad authority to regulate. § 21-17-5 lets municipalities adopt ordinances on municipal affairs that are not inconsistent with other law. § 21-19-1 authorizes regulations to secure general health and abate nuisances. § 21-19-15 authorizes preservation of good order, peace, and prevention of injury to property. These together cover rental-property regulation in service of community well-being.

So Crystal Springs may amend its ordinance to cover installment sales contracts and contracts for deed when, on the facts, those agreements are rental in nature. The city's governing authorities make that determination. If an agreement is not rental in nature, the AG found no authority to regulate the property under the rental ordinance.

In a footnote, the AG explains that the Mississippi Supreme Court struck down Madison's inspection provision as facially unconstitutional because it allowed a warrant under the rental agreement on a standard lower than probable cause. The opinion does not decide whether Crystal Springs' different warrant requirements are valid.

What this means for you

If you are a city attorney amending a rental-property ordinance

Under this opinion, a municipality may extend its rental-property regulation to reach installment sales contracts and contracts for deed where the city determines those instruments are rental in nature. The AG grounds that authority in three statutes: § 21-17-5 (general authority to adopt and amend ordinances on municipal affairs not inconsistent with state law), § 21-19-1 (regulations to secure general health and abate nuisances), and § 21-19-15 (preserving good order and preventing injury to property). The label on the contract does not control; the functional nature of the relationship does.

The opinion does not review particular ordinance language or decide whether Crystal Springs' different warrant requirements are valid. Its footnote explains that the Mississippi Supreme Court struck down Madison's inspection provision because it allowed warrants under a standard lower than probable cause.

If you are a Mississippi landlord using contracts for deed or installment sales contracts

Under this opinion, if the city determines that your agreement is rental in nature, it may regulate the property under a lawfully enacted ordinance. The AG cites the Court of Appeals' finding in Crook that testimony showed the option-to-purchase contracts there were rental in nature, while noting that the decision was reversed. If your agreement is not rental in nature, the AG found no authority to regulate the property as a rental.

If you are an occupant under a contract for deed in a Mississippi city

Your status under the city's ordinance turns on whether the agreement is rental in nature, a determination the city makes case by case. The AG notes that a contract for deed conveys possession to the buyer but not the deed, which is delivered only after the buyer finishes the installment payments totaling the sale price (MS Real Estate Contracts and Closings § 1:5). If the city determines your agreement is rental in nature, the property may be regulated under a lawfully enacted rental ordinance.

Common questions

Q: What is a contract for deed?
A: An installment sales contract where the seller retains the deed until the buyer completes payments. The buyer takes possession but does not get title until the full purchase price is paid.

Q: How is a contract for deed different from a lease?
A: The opinion defines a contract for deed by possession now and delivery of the deed after installment payments totaling the sale price. It does not give a general test for distinguishing every such contract from a lease; the city must determine whether a particular agreement is rental in nature.

Q: Can the city regulate every contract for deed?
A: No. Only those that, on the facts, function as rentals. The AG found no authority to regulate property under an agreement that is not ultimately found to be rental in nature.

Q: Who decides whether a particular agreement is rental in nature? A: The AG says the city's governing authorities decide, as a factual matter, on a case-by-case basis. Under § 7-5-25 the AG opines on questions of law only and does not make that factual determination.

Q: What if the city rules the agreement is rental, but the owner disagrees? A: The opinion does not address how an owner challenges the determination. It says the governing authorities make the factual determination case by case.

Q: Does this opinion address Crystal Springs' specific warrant provisions? A: No. The AG notes that Crystal Springs has different warrant requirements from Madison's ordinance and explains why the Mississippi Supreme Court struck down Madison's inspection provision. It does not evaluate Crystal Springs' rules.

Background and statutory framework

Mississippi statutes give municipalities a broad regulatory toolkit. § 21-17-5 grants the general authority to adopt ordinances on municipal affairs not inconsistent with state law. § 21-19-1 authorizes regulations for general health and to abate nuisances. § 21-19-15 authorizes preservation of good order, peace, and prevention of injury to property.

Crook v. City of Madison, 168 So. 3d 1169 (Miss. Ct. App. 2014), addressed option-to-purchase contracts that the parties' testimony showed were rental in nature. The AG cites that discussion and notes the Mississippi Supreme Court reversed the decision. Its footnote says the Supreme Court struck down Madison's inspection provision as facially unconstitutional because it permitted warrants under a standard lower than probable cause. The opinion does not say whether any part of the Court of Appeals' analysis survived reversal.

§ 7-5-25 limits the AG to questions of state law and excludes factual determinations from official opinions. The factual question here (whether a particular contract for deed is rental in nature) is for the municipality, not the AG.

Citations

• Miss. Code Ann. § 7-5-25 (limits on AG opinion authority)
• Miss. Code Ann. § 21-17-5 (general municipal ordinance authority)
• Miss. Code Ann. § 21-19-1 (health and nuisance regulation)
• Miss. Code Ann. § 21-19-15 (good order, peace, property preservation)
• Crook v. City of Madison, 168 So. 3d 1169 (Miss. Ct. App. 2014) (option-to-purchase contract may be regulated as rental on factual showing)
• Crook v. City of Madison, 168 So. 3d 930 (Miss. 2015) (Madison rental inspection warrant provision facially unconstitutional)
• MS Real Estate Contracts and Closings § 1:5 (2d ed.) (definition of contract for deed)

Source

• Landing page: https://attorneygenerallynnfitch.com/divisions/opinions-and-policy/recent-opinions/
• Original PDF: https://attorneygenerallynnfitch.com/wp-content/uploads/2023/01/B.Campbell-January-19-2023-Municipal-Regulation-of-Residential-Property.pdf

Original opinion text

January 19, 2023
Brock Campbell, Esq.
Attorney, City of Crystal Springs
Post Office Box 473
Crystal Springs, Mississippi 39059
Re:

Municipal Regulation of Residential Property

Dear Mr. Campbell:
The Office of the Attorney General has received your request for an official opinion. Background Crystal Springs, a code charter municipality, enacted an ordinance regulating rental property and establishing licensing requirements for landlords who are renting property to third parties. The City's ordinance is similar to the one upheld in Crook v. City of Madison, 168 So. 3d 1169 (Miss. 2014) rev'd, 168 So. 3d 930 (Miss. 2015) but with different warrant requirements.1 The City is encountering landlords who are using installment sales contracts or contracts for deed to evade the requirements of the rental property regulation. Ownership remains in the landlord's name. Question Presented May the City of Crystal Springs amend its ordinance regulating rental property to include regulation of property where ownership remains in the landlord's name but a contract for deed or installment sales contract has been entered into with a third party? Brief Response Pursuant to a municipality's authority to adopt ordinances with respect to municipal affairs, we find no statutory prohibition against a municipality continuing to regulate property where a landlord ultimately owns a piece of real property but enters into an installment sales contract or 1

Because it amounted to a lesser standard than probable cause, the Mississippi Supreme Court struck down the inspection provision of Madison's ordinance as facially unconstitutional because it allowed a warrant to be obtained by the terms of the rental license, lease, or rental agreement. See Crook v. City of Madison, 168 So. 3d 930 (Miss. 2015).

contract for deed with a third party if the city determines that the agreement remains rental in nature. Whether a certain agreement may be regulated as a rental agreement is a factual determination to be made by the governing authorities on a case-by-case basis. Where a municipality does not find that a contract for deed or installment sales contract is in fact rental in nature, we find no authority for a municipality to regulate the same. Applicable Law and Discussion Mississippi Code Annotated Section 7-5-25 authorizes this office to opine on questions of law only and does not authorize factual determinations by official opinion. Your question ultimately turns on a factual determination to be made by the governing authorities on a case-by-case basis. We offer the following for general guidance. As an initial matter, we understand that a contract for deed and installment sales contract are the same thing—a contract conveying possession of the property to the buyer but not the deed. MS Real Estate Contracts and Closings § 1:5 (2d ed.). "The deed is delivered only when the buyer has finished making a series of periodic installment payments totaling the sale price." Id. Section 21-17-5 of the Mississippi Code grants municipalities general authority to adopt ordinances, and amend the same, with respect to municipal affairs so long as such ordinances are not inconsistent with the state constitution and other statutory provisions. Section 21-19-1 authorizes municipal governing authorities to make regulations to secure the general health of the municipality and prevent, remove, and abate nuisances. Further, Section 21-19-15 grants municipal governing authorities the power to preserve good order and peace of the municipality and to prevent injury to, destruction of, or interference with public or private property. A municipality is permitted to both adopt and amend an otherwise lawful ordinance and carry out its regulatory authority with respect to rental properties. Whether residential property governed by an installment sales contract or contract for deed between a landlord and third party is actually a rental contract is a fact question to be decided on a case-by-case basis. The Court of Appeals in Crook v. City of Madison found that even where a landlord and tenants had entered into option-to-purchase contracts, which were alleged attempts to disguise rental relationships, the testimony of the parties to the contract proved the agreement to be rental in nature; therefore, the option-to-purchase did not change whether the City could regulate the property. Crook v. City of Madison, 168 So. 3d 1169, 1180 (Miss. Ct. App. 2014), rev'd 168 So. 3d 930 (Miss. 2015) (See supra note 1). Consistent with the court's determination, it is our opinion that where an installment sales contract or contract for deed between a landlord and an individual for a piece of property is ultimately found to be rental in nature, a municipality may regulate such property in accordance with a lawfully enacted ordinance. However, if a contract for deed or installment sales contract is not ultimately determined to be rental in nature, the municipality may not regulate such property.

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/ Abigail C. Overby
Abigail C. Overby
Special Assistant Attorney General