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To Lease or Not to Lease, That is the Question

On October 20, 2020 Attorney General Ken Paxton opined on the ability of school districts to enter into long-term leases with private entities. More specifically, the Tarrant County Criminal District Attorney asked Attorney General Paxton whether an independent school district may enter into a long-term ground lease with a private entity that intends to develop the district’s surplus property for non-educational purposes that are expected to yield financial benefits to the district exceeding the current value of a sale of the property. Tex. Att’y Gen. Op. No. KP-0338 (2020).

The opinion reiterates that provisions in Chapter 11 of the Texas Education Code authorize a school district’s board of trustees to dispose of surplus property and sell property held in trust for district use. However, there is no statutory provision expressly authorizing a school board to lease district property to another entity.

Case law helped fill in the statutory gap in Royse Indep. Sch. Dist. v. Reinhardt and River Rd. Neighborhood Ass’n v. S. Tex. Sports. The Royse court determined that a school board had implied authority to lease district property to another entity. Ultimately, the court concluded the specific use of the property was “not so inconsistent with the purposes to which the property has been dedicated or set apart as renders the contract . . .  illegal or unauthorized.” Later attorney general opinions relying on the Royse ruling have recognized that school boards have implied authority to permit private entities to lease school property so long as the lease does not interfere with the property’s school purpose.

In contrast, the court in River Rd. held that a district’s board of trustees lacks authority to enter into a long-term lease which relinquishes the board’s authority to control the property’s use. As a result, a board of trustees may lease a district’s real property, but may not divest itself of the right to manage and control the property and a lessee’s use must not interfere with the property’s use for district purposes.

Tex. Att’y Gen. Op. No. GA-0321 (2005) recognized a relevant factor in the determination of whether a long-term lease would interfere with the property’s use for district purposes is the determination that the land at issue is not used by the school district. Further, determining that land is no longer necessary for a school district’s operation is a relevant factor in whether a lease divests a school board of its right to manage and control the property.

Attorney General Paxton ultimately concluded whether a specific lease satisfies the requirements of law is a question of fact and contract interpretation outside the purview of an attorney general opinion. However, he cautioned school districts to consider the Texas Constitution’s prohibition on gifts of public funds and whether such a lease would satisfy the three-part test iterated in Texas Municipal League Intergovernmental Risk Pool v. Texas Workers’ Compensation Commission. To do so, a district must ask: (1) is the expenditure’s, in this case a lease to use the district’s property, predominant purpose to accomplish a public purpose, rather than benefit private parties?; (2) will the district maintain sufficient control over the lease and property to ensure the public purpose is accomplished?; and (3) will the district receive a return benefit?

Attorney General Paxton clarifies the fact that the property is no longer necessary for the school district’s operation does not negate the Texas Constitution’s prohibition on gifts of public funds. However, the property’s necessity, or lack thereof, any reversion back to the district, and the long-term financial benefit are factors to be considered in the district’s evaluation.

If you would like to read the full opinion, click here.

If you have any additional questions about this opinion or any other issue, please do not hesitate to contact the attorneys at Leasor Crass.