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 The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.
IMPROVEMENT DISTRICTS -- Commissioners (lease of property not required for the purposes of district)
REAL PROPERTY -- Leases (authority to enter into lease permitting the affixing of antennae to water storage tanks and the erection of a switching station near a well)
TOWN LAW, §§198(12)(a), 215(8): A separate board of commissioners which governs a town water district pursuant to article 13 of the Town Law, with the approval of the town board and after complying with public hearing requirements, may enter into a lease to permit a mobile communications company to use a portion of real property of the district which is not needed for district purposes, although the remainder of such property may be so needed. The lease should contain a provision reserving the district's right to cancel if the leased portion of the property is needed for district purposes at a future date, and such other provisions as the district deems necessary to ensure that the remainder of the property may be properly used for district purposes. The lease should be for a reasonable term which may bind successor governing boards, and for the best price obtainable or the most beneficial terms and conditions in the public interest.
This is in reply to your letter asking several questions regarding the authority of a water district, governed by a separate board of commissioners, to permit a mobile communications company to lease property owned by the water district for the conduct of the company's business. You state that the mobile communications company, which has a license from the Federal Communications Commission as a mobile phone operator, would affix transmission antennae to several operating water storage tanks of the water district and also would erect a building to be used as an electric switching center for the communications company at the site of a well owned by the water district.
You ask the following questions:
(1) May the water district lease a portion of its real property which is in active use?
(2) Would a lease which would permit the communications company to use the property of the water district in the manner described above require the approval of the town board?
(3) Would a public hearing be necessary for the lease described above if the rental to be paid by the lessee would exceed $1,000 per year?
(4) What steps should the water district take to ensure that the rent provided in the lease represents fair compensation for the benefit to be provided to the lessee?
(5) How long a period would be considered a reasonable term for the lease described above?
(6) May the water district, by the lease described above, grant the mobile communications company the exclusive right to use the district's water storage tanks for the transmission of mobile communications?
At the outset, we note that it is the policy of this Office to render opinions involving issues arising under the State Constitution or State statutes having general applicability to the municipalities of the State. Accordingly, although the Nassau County Civil Divisions Act (L 1939, ch 273, as amended) contains provisions governing activities of water districts in Nassau County, including the water district in question, we will respond to your question with reference only to general State statutes. You may wish to seek the advice of the county attorney's office with respect to determining the application of the Civil Divisions Act.
Town improvement districts which are governed by a separate board of commissioners are subject to article 13 of the Town Law (Town Law, §210 et seq.), except to the extent that special legislation provides otherwise. Town Law, §215(8) provides that a separate board of commissioners may sell or lease any real or personal property owned by, but not required for the purposes of, the district, subject to the approval of the town board and, in certain instances, public hearing.
A similar provision in Town Law, §198(12)(a) permits a town board to sell or lease real or personal property owned by a town improvement district, which does not have a separate board of commissioners, when the property is not required for the purposes of the district. We have previously expressed the opinion that a town board, pursuant to Town Law, §198(12)(a), may lease a portion of a facility owned by an improvement district which is not required for the purposes of the district, despite the fact that the remainder of the facility is so required (22 Opns St Comp, 1966, p 624, wherein we concluded that a portion of a town water district garage not needed by the district may be leased to the town). This Office has also previously concluded that a portion of municipal real property which is used only occasionally or intermittently to conduct municipal business may be leased to private entities for those times when the property is not in use for municipal purposes, so long as it is determined that the private use does not interfere with the municipality's use of the property (1984 Opns St Comp No. 84-38, p 47; 1983 Opns St Comp No. 83-162, p 205; 1979 Opns St Comp No. 79-757, p 158). Under such a lease agreement, however, the municipality must retain the right to use the property in the event it becomes needed for a municipal purpose (id.). Further, to avoid contravening article VIII, §1 of the State Constitution, which prohibits gifts and loans of public money or property to or in aid of private individuals, corporations, associations or undertakings, the municipality generally may not allow use of the property for private purposes for no or nominal consideration (id.).
Based on the foregoing, if the district determines that the property to be leased to accommodate the attachment of the antennae to the storage tanks and the construction of the switching station is not needed for water district purposes, it may lease this portion of its real property pursuant to Town Law, §215(8) even though the remainder of the district facility and property may be required for district purposes. The determination of whether particular real property owned by a town improvement district is not required for the purposes of the district is a factual determination to be made initially by the governing board of the district. Any such lease should contain a provision reserving the district's right to cancel if these sites are needed for district purposes at some future date. The lease should also contain such other provisions as the district deems necessary to ensure that the remainder of the facility may properly be used for district purposes. The lease would be subject to town board approval except as may be otherwise provided in the Civil Divisions Act.
As to whether the aforementioned lease is subject to public hearing, Town Law, §215(8) provides that a lease by the district is subject to public hearing if a public hearing would be required by Town law, §198(12)(a). Town Law, §198(12)(a) requires a public hearing if the property to be leased has a value in excess of $1,000. Thus, the hearing requirement is based on the value of the property leased, not the consideration payable under the lease (1981 Opns St Comp No. 81-171, p 181). Therefore, if the value of the property to be leased exceeds $1,000, a public hearing would be required before the lease could be entered into (see 1985 Opns St Comp No. 85-45, p 61) unless the Civil Divisions Act provides otherwise.
Although a public hearing is generally required for leases of special district real property valued over $1,000, there is no requirement for public bidding of such leases (cf. County Law, §215). A negotiated lease of municipal real property will not be permitted to stand, however, if the consideration received is so grossly inadequate as to indicate that the transaction is not a bona fide lease, but rather a gift in contravention of article VIII, §1 of the State Constitution (1990 Opns St Comp No. 90-37, p 84; 1989 Opns St Comp No. 89-64, p 140 and citations therein).
When conveying real property by negotiated lease, a municipal governing board has a fiduciary duty to secure the best price obtainable in their judgment or most beneficial terms and conditions, including price, in the public interest (id.). To fulfill this fiduciary duty here, it may be beneficial and proper for the board to seek the advice and assistance of one or more appraisers with knowledge and experience in mobile radio telecommunications service (see Opn No. 89-64, supra).
Neither Town Law, §§198(12)(a) nor 215(8) limit the duration of a lease of real property which is owned by, but not required for the purposes of, an improvement district. Further, we are aware of no such limitation contained elsewhere in any other statute (see 1981 Opns St Comp No. 81-209, p 222). As a general rule, however, in the absence of a statute prescribing maximum term, a municipal contract may cover any reasonable term under the circumstances (1A Antieau, Municipal Corporation Law, §10.16). The term may not be so long as to "cede away control or embarrass the legislative or governmental powers of the municipality or render it unable in the future to control any municipal matter over which it has jurisdiction" (10A McQuillin, Municipal Corporations, §29.100). Moreover, contracts which relate to legislative or governmental, as opposed to proprietary or corporate, functions of a municipal corporation may not extend beyond the term of the governing board which enters into the contract in the absence of express statutory authority (see, e.g., Morin v Foster, 45 NY2d 287, 408 NYS2d 387; Edsall v Wheeler, 29 AD2d 622, 285 NYS2d 306; 1986 Opns St Comp No. 86-18, p 30). Although the Court of Appeals has abandoned the governmental-proprietary test in favor of a "balancing of public interest" approach for determining the applicability of one municipality's zoning requirements to another (Matter of County of Monroe, 72 NY2d 338, 533 NYS2d 702), the governmental-proprietary distinction still appears to be applicable for purposes of determining whether a governing board may bind its successors. Indeed, at least one court, subsequent to Matter of County of Monroe, supra, has applied the governmental-proprietary test in this context (Martin v Hennessy, 147 AD2d 800, 537 NYS2d 676).
Generally, the leasing of a municipality's unneeded property has been held to be a proprietary or corporate activity (see 10A McQuillin, Municipal Corporations, §29.101; 10 McQuillin, Municipal Corporations, §28.42.35). Accordingly, it is our opinion that the term of the proposed lease may be for a reasonable term under the circumstances and may extend beyond the terms of the board of commissioners and the town board if it is also required to approve the lease (see Opn No. 81-209, supra). The determination of what period would be a reasonable length for the proposed lease is a factual question to be resolved initially by the board of commissioners and the town board. In addition, as noted, the lease should include a provision permitting the district to cancel the lease in the event that the leased property becomes needed for district purposes and such other provisions as are necessary to ensure that the remainder of the facility may continue to be used for its intended purposes.
With respect to the propriety of granting exclusive use to a particular private company under the lease, this appears to raise questions primarily with respect to compliance with anti-trust laws. Since the New York State Attorney General is authorized to investigate and bring actions to restrain and prevent violations of the State anti-trust statute (General Business Law, §§342, 343), we suggest you contact that Office on this issue.
Finally, we observe that the uses which the proposed lease would permit may require approval of governmental bodies other than the town board and the board of commissioners. The affixing of antennae to district water storage tanks and the erection of a building to house an electric switching station may also be subject to local zoning approval despite the fact that the site of these proposed structures is real property owned by a town improvement district (cf. Matter of County of Monroe, supra).
August 17, 1992
Michael F. Ingham, Esq., Attorney at Law
Jericho Water District