This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.
REAL PROPERTY -- Sales (authority of village to accept offer lower than highest offer)
VILLAGES -- Real Property (authority to sell for less than highest offer)
VILLAGE LAW, §1-102(1): This section does not require either a public hearing or public sale for the sale of unneeded village real property. A village may not accept the lower of two offers for the sale of village real property based upon a determination that the proposed use of property by the higher offeror, although lawful, is objectionable or less desirable to the community. It may, however, accept a lower offer if it is determined that the use proposed will ultimately bring the greatest amount of revenue to the village.
This is in reply to your letter concerning the proposed sale of unneeded village real property. You ask whether the village may sell the property at private sale and, if so, whether it is required to accept the higher of two offers made. You also ask whether the village must conduct a public hearing prior to the sale. We assume the property in question is not parkland or other property which is inalienable absent specific legislative authorization (see 1988 Opns St Comp Nos. 88-60, p 119 and 88-1, p 1).
Village Law, §1-102(1) provides that a village shall have the power to take, purchase, hold, lease, sell and convey such real and personal property as the purposes of the corporation may require. There is no requirement in this section for a village to conduct a public hearing prior to the sale of unneeded real property or to sell at public sale (1979 Opns St Comp No. 79-29, unreported; 1973 Opns St Comp No. 73-889, unreported; cf. Town Law, §64, requiring a town board resolution for the conveyance of real property to be subject to permissive referendum; County Law, §215, providing a competitive bidding requirement for the sale of unneeded county real property).
Although there is no public hearing requirement in Village Law, §1-102, we note that the village board is subject to the Open Meetings Law (Public Officers Law, §100 et seq.) and, therefore, board actions in connection with the sale of real property are subject to the requirements of that law. Further, while there is no public sale requirement in section 1-102, the courts in this State have indicated that a negotiated sale of municipal real property will not be permitted to stand if the consideration is so grossly inadequate as to indicate that the transaction is not a bona fide sale, but rather a gift in violation of article VIII, §1 of the State Constitution (see 1989 Opns St Comp No. 89-64, p 140 and citations therein).
In describing a municipality's responsibility when selling unneeded real property when public sale is not required by statute, the courts have stated that municipal officials have a fiduciary duty to secure the best price obtainable in their judgment or the most beneficial terms in the public interest for any lawful use (see, e.g., Ross v Wilson, 308 NY 605; Orelli v Ambro, 41 NY2d 952, 394 NYS2d 636; Matter of New City Jewish Center v Flagg, 111 AD2d 814, 490 NYS2d 560, affd 66 NY2d 980, 499 NYS2d 395; Davis v Board of Education of the Hewlett-Woodmere Union Free School District, 125 AD2d 534, 509 NYS2d 612; 1986 Opns St Comp No. 86-78, p 124). The method of sale chosen is within the sound discretion of the governing board, but should be the one which the board believes will yield the best price or maximum financial benefits (Feldman v Miller, 151 AD2d 754, 542 NYS2d 777; Opn No. 86-78, supra). To fulfill its fiduciary duty, a village board must take appropriate measures to assure that the sale price is upon the best or most beneficial terms (see Opn No. 89-64, supra, discussing the need to obtain appraisals of real property).
Ross, supra, and New City, supra, are the two leading cases relating to the authority of a local government to accept the lower of two offers made for real property sold at private sale. Although these cases involved the duties of school boards relative to the sale of unneeded school property, we believe the courts would apply the same analysis to the duties of a village board with respect to the sale of unneeded village real property.
In the Ross case, a school district sought to sell real property at private sale at the lower of two offers then before the board, based upon the proposed use of the property. The court in the New City, case, summarized the opinion in Ross as follows:
In Matter of Ross v Wilson, ... the Court of Appeals held, inter alia, that a board of education is charged with the fiduciary duty of disposing of unneeded school property for the 'best price obtainable in [its] judgment for any lawful use of the premises'..., and that it may not exercise its discretion arbitrarily, e.g., to accept a lower bid, based on extraneous considerations such as favoritism and the like .... In addition, the court opined that a board may not legally exercise its discretion to reject a higher bid merely because the proposed use of the property, although legal, is perceived to be less desirable to the community, since such considerations are properly reserved to the zoning authorities .... (111 AD2d at 15, 490 NYS2d at 561).
The court in New City, however, also noted that the court in Ross did not purport to restrict a local government, when determining what is the "best" or "highest" price obtainable, from good faith consideration of factors such as the prospective real property tax consequences of the proposed sale "in a creditable effort to exact the highest rate of return from the property" (111 AD2d at 816, 490 NYS2d at 562; see also Berkey v Downing, 68 Misc 2d 595, 327 NYS2d 921, affd 39 AD2d 1008, 335 NYS2d 249, lv den 31 NY2d 643, 337 NYS2d 1027; 34 Opns St Comp, 1978, p 32; cf. Yeshiva of Spring Valley v Board of Education of East Ramapo Central School District, 132 AD2d 27, 521 NYS2d 253, involving a lease of school district real property under Education Law, §403-a).
The court in New City, supra, further stated as follows:
[T]he board did not act to accept the facially lower bid ... based on extraneous considerations such as favoritism, nor ... upon any perception that the proposed use of the property ... was in any way objectionable or undesirable to the community. Rather, the board expressly found that the proposed use ... combined with the present underutilization of existing school facilities, would result in the maximum financial gain to the district with little or no adverse impact on its operating budget .... [T]he school tax revenues generated ... would more than make up for the slight discrepancy in the initial purchase price. Thus, the board's determination was ... an informed decision which ultimately resulted in the acceptance of the bid bringing the greatest amount of revenue into district coffers, i.e., the sale of property on the 'most beneficial terms' (111 AD2d at 815, 490 NYS2d at 561-2).
Thus, the court upheld a school district's acceptance of a lower dollar amount for the sale of unneeded property based on the successful offeror's proposal to restore the property to the tax rolls by constructing residences on the property.
Based on the decisions in Ross, supra, and New City, supra, it is our opinion that a village board of trustees may not accept the lower of two offers for the sale of unneeded village real property based upon a determination that the proposed use of the property by the higher offeror, although lawful, is objectionable or less desirable to the community. The village board may, however, accept a lower dollar offer if it reasonably and in good faith determines that the use proposed by that offeror will ultimately bring the greatest amount of revenue to the village, such as by increased real property tax revenues. In making the latter determination, the board, of course, may not completely ignore the initial dollar amounts offered (see Yeshiva, supra). Further, we believe the board must be prepared to objectively demonstrate, at a minimum, that there is a reasonable expectation that the proposed use will actually be implemented (see 34 Opns St Comp, 1978, supra) and will generate additional revenues in excess of the difference in initial price offered.
Gustave J. DeTraglia, Jr., Esq., Village Attorney
Village of New Hartford