Sixteenth Section Land – Reappraisal of Rent Term
Oak Grove Marketplace, LLC v. Lamar County School District, 2020 WL 240434 (Miss. 2020)
On August 5, 2002, Oak Grove Marketplace, LLC entered into a 40-year lease of Sixteenth Section land with the Lamar County School Board. Oak Grove operates a McDonald’s on the property. The rent was set at $8,450.20 a year, with a rent reevaluation provision as follows:
within a sixty (60) day period of the 10th, 20th, and 30th, anniversary dates of this lease, said anniversary dates being August 5, 2012, August 5, 2022, and August 5, 2032, respectively, [the Board] shall have the right to conduct a reappraisal of the subject property for the purpose of redetermining reasonable ground rentals.Oak Grove Marketplace, LLC v. Lamar County School District, 2020 WL 240434 (Miss. 2020).
The lease form used by the parties was provided by the Secretary of State’s office. The Board did not reappraise the property in August 2012 because (the court surmises), the Board did not have sufficient staff. After hiring a full-time property manager, the manager reappraised the property in April 2017. The Board then sent Oak Grove a letter saying that it was increasing the annual rent to $32,250 – due by August 5, 2017. Oak Grove objected, arguing that the lease terms governed the Board’s ability to reappraise and since the Board failed to act within sixty days of the tenth anniversary of the lease (August 5, 2012), it had to wait until August 2022 before it could reappraise. Oak Grove filed a declaratory judgment action and lost before the Lamar County Chancery Court. The Supreme Court granted an interlocutory appeal. Justices Randolph (C.J.), Maxwell, and Beam heard the appeal. Justice Beam wrote the opinion.
Oak Grove raised three issues on appeal:
(1) The lease term is valid because it was provided by the Secretary of State’s office. While acknowledging Oak Grove’s “frustration”, the Court notes that it is the providence of the courts to “resolve the question whether the lease’s language passes constitutional and statutory muster.” The Court holds that to the extent the reappraisal provision limits the ability of the Board to adjust the rent every 10 years, it violates the obligations set out in Miss. Code Ann. Section 29-3-69 which provides: “All leases, except leases of residential lands, made for a ground rental shall contain rent adjustment clauses or other such provisions requiring that the consideration for every lease of such lands shall be adjusted not less than once every ten (10) years from the date of the lease to reflect the current fair market rental values of the lands, exclusive of any improvements thereon.” (emphasis added) The Court holds that the ten-year reappraisal obligation is a “mutual, mandatory obligation for every valid commercial Sixteenth Section lease.” Thus, to the extent, the lease provision made reappraisal a right that the Board could do within sixty days of the anniversary or waive – it violates the statutory mandate.
(2) The Board is bound by the contract it entered into – just like a private party. While public entities can contract and be bound by contracts just like private parties, a public entity cannot, with regard to Sixteenth Section land, “contract away its trustee duties” to assure adequate compensation is received under the lease.
(3) The Board should bear the cost of failing to abide by its statutory obligation. Oak Grove argues that it should not bear the cost of the Board failing to exercise its rights under the contract. The Court holds that while this may seem fair, the reality is that taking this approach would mean that the lease itself is void – because it would prevent the Board from reappraising the property for 20 years (2002 – 2022), which would violate the statute. In addition, the Court notes that requiring the Board to wait 20 years to reassess “runs dangerously close to violating the constitutional prohibition against donating public land via grossly inadequate consideration” (article 4, Section 95 of the Mississippi Constitution).
The Court affirmed the chancellor’s decision to allow the Board to readjust the lease beyond the time provided for in the lease.
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