STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL
February 5, 1969
Robert H. Martin, Director
Industrial Development Expansion Agency
Pierre, South Dakota 57501
OFFICIAL OPINION NO. 69-9
Provisions of leases under Municipal Rental Facility Act Ch. 148 Laws of 1964
Dear Mr. Martin:
You have requested an opinion of this office to answer this question:
"Is it permissible for a municipal corporation in acting under Chapter 148 of the Session Laws of 1964, which authorizes municipal corporations to issue revenue bonds for the purpose of constructing and equipping rental facilities, to require as a covenant of the lease-purchase agreement with an individual, firm, or corporation, that during the leasehold term that the lessee will pay an amount which would equal the general taxes and special assessments that would be levied against such premises were the same held by a private owner not exempt from taxation?"
It is irrefragable that the people of this state, in expressing their omni-competent will have provided that all property of a municipal corporation is exempt from taxation of any kind. Section 5, Article II of the Constitution. Our court has held that this constitutional mandate is self-executing and applies to such property whether held in a governmental or proprietary capacity. Re Construction of the Revenue Law, 2 SD 58, 48 NW 813; City of Yankton v. Madison, 70 SD 627, 20 N\V 2d 371. However, the problem of imposing taxes upon such property is not involved in considering your problem. Even the interesting distinction between taxes and special assessments (see Whittaker v. Deadwood, 23 SD 538, 122 NW 590, 139 Am. St. Rep. 1076) is not involved.
The vexatious problem of levying and assessing taxes or special assessments upon exempt property-the question of any trust theory sustaining taxes (see State v. Board of Commissioners of Beadle County. 53 SD 600, 222 NW 583)-cannot be involved for the reason that such covenant, if permissible, is not to pay taxes as such, but is to pay additional monetary rent, under such lease, which is measured by an ascertainable yardstick.
It is hornbook law that in the ordinary landlord-tenant relationship that it is perfectly permissible to require the tenant or lessee to pay all taxes and assessments upon the leased property. (See annotations in 9 ALR 1566; 30 ALR 941; 45 ALR 756, 124 ALR 1020 and 140 ALR 517, discussing various aspects of such covenants.) Can a public corporation require a covenant obligating a lessee to make a payment in the form of rent which is measured by such taxation?
It is my opinion such can be done in an ordinary lease situation. In those states where municipal property may be subject to taxation-for the reason that there is no constitutional inhibition against the same-it is proper to require the tenant of a lease which is so long that it may be considered a perpetual lease to pay all "public taxes" on the property. (See City of Norfolk v. Perry Co., 108 Va 28, 61 SE 867, 128 Am. St. Rep. 940, 35 LRA ( IS) 167; affirmed 220 US 472, 31 S. Ct. 465, 55 L ed 548,) There is authority for the proposition that when a public corporation enters into a lease agreement or contract for sale that it stands in no different position than a private individual acting in the same capacity.
It is my opinion that a municipal corporation when entering into a lease of its property to a private citizen has authority, if it so desires, to require such lessee to pay, in the form of rental, a monetary amount measured by the taxes and special assessments that could be levied and assessed against such property were it owned by a private individual.
However, as all municipal corporations have only such authority as is specifically granted by the Legislature, or as may be implied therefrom (Custer City v. Robinson, 79 SD 91, 108 NW 2d 211 and cases therein cited) resort must be had to Ch. 148. Laws of 1964 to see if there is any limitation therein provided which would deny this right which I have held can be exercised in a general leasing of municipal property.
A consideration of the whole enactment as contained in Chapter 148, reveals that it provides a method whereby a municipal corporation may issue revenue bonds for the construction, reconstruction, remodeling and equipping of buildings for the purpose of promoting the economic welfare of the state and the community. Such act also authorizes the sale of such revenue bonds to individual investors, with the bonds to be paid from the monetary rental of such facility to any person, firm or corporation desiring to use the same. However, such must be a lease-purchase agreement, whereby such individual private citizen must make such payments to retire such bonds, and also to purchase the facility and equipment furnished by the municipal corporation.
In any facility created and equipped under such enactment, there is no question that the rights of the bondholders must be protected so that he is repaid the money he has invested together with the specified interest on such bonds. The city should be protected so that when the bonds are retired and the facility is sold to the private individual, it receives sufficient money to pay anything it may have in such project. The protection of the bondholders and the municipality, in my opinion, is provided by Section 3 of the Act. However, in my opinion this provision provides only the minimum rental necessary during the term of the lease, and such provision is not exclusive and provides the only rentals that may be had.
I reach this opinion that such is a minimum, not an exclusive measurement, of the rentals required if for no other reason than if such facility were erected on the property previously bought and paid for by the municipality and at a time such project was not being contemplated, there is no provision within such section authorizing the municipality to recover the purchase price of the real estate upon which such facility is located.
It must always be remembered that Chapter 148, Laws of 1964 is permissive legislation. The enactment merely authorizes the municipality to pursue a certain course of action if its governing body so desires, and finds that such will promote the economic welfare. It is proper, in considering the promotion of the economic welfare for such governing body, to consider the loss in tax revenues that may occur in virtue of acting under such legislative authorization.
It is my opinion that a municipality acting under such chapter has the authority, within its discretion, to require that during the leasehold tenancy that the lessee and future owner of such facility, in addition to paying in rents sufficient moneys to pay interest upon and retire the bonds, and to reimburse the municipality for any expenses it may have in such project, shall pay an additional amount in rent measured by the amount of general taxes and special assessments that would be levied against such premises were the same held by a private owner not exempt from taxation.
It is my opinion that your specific question must be answered YES.
Respectfully submitted,
Gordon Mydland
Attorney General
