Request By:
Honorable W. M. Cox, Jr.
Teague, Cox & Davis
325 Main Street
Williamsburg, Kentucky 40769
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Robert L. Chenoweth, Acting Deputy Attorney General
As the attorney for the Williamsburg Independent Board of Education you have asked the Office of the Attorney General for an advisory opinion regarding a parcel of land desired to be purchased by the board of education. As background to your question you gave the following information, including language from the proposed deed:
"The property is a parcel estimated to contain seven and one-half acres and is owned jointly by the City of Williamsburg and Whitley County. Part of the premises has been used for several years as a football field and concession stand by the Williamsburg Board of Education, and recently the city and county totally remodeled and added to the building used as a concession stand so that the ground floor contains dressing rooms and concession stand and the second floor is occupied by the Bell-Whitley Community Action Agency, a Federally-funded agency. A provision in the proposed deed reads as follows:
This conveyance is subject to the right of the Bell-Whitley Community Action Agency to continue to occupy the second floor of the building which is presently located on the property for the term of twenty (20) years upon the payment of an annual rental to Party of the Second Part of one dollar ($1.00) per year; provided, however, that the Bell-Whitley Community Action Agency shall maintain the premises in good repair and pay all utilities incurred by it, and if it ceases to exist as an agency for publ-c benefit or ceases to occupy the premises during the term of twenty (20) years, then this agreement shall terminate and said Bell-Whitley Community Action Agency shall forfeit all rights to said premises."
Your question based upon these facts is whether the board of education would be receiving fee simple title as is required by KRS 162.010. It is our opinion the language concerning the rental agreement does not destroy receiving the title in fee simple, assuming same may otherwise be warranted by the city and county fiscal court.
As we understand it, what is involved amounts to nothing more than a leasehold interest by the Bell-Whitley Community Action Agency in the top floor of the existing building on the property to be purchased. This leasehold interest does not affect the legal title to the property. Assuming the school acquires the property and it subsequently desired to sell the property the building is on, the property would have to be sold subject to the outstanding rental agreement which would affect marketability but not warrantability. See Friedman, Contracts and Conveyances of Real Property, § 30.
Several matters worthy of consideration about a long-term rental contract by the school board are the fair market value to be received from the lessees and the duration of the rental agreement. We have concluded in more than one opinion of this office that a school board must receive fair market rental for the leased school property. See OAG 76-610, OAG 76-291 and OAG 73-177. While the proposed language in the deed indicates that the rental would be $1.00 per year, we do note that the Bell-Whitley Community Action Agency is to maintain the property and we will assume that it has been decided that this obligation on the community action agency would serve to be an "in kind" factor concerning the rental payment.
As to the duration of a rental contract, this office has given advice to school boards that they should not enter into a long-term lease involving real property owned by the school. See OAG 78-472 and OAG 77-771, copies of each attached. We do not believe the circumstances involved in the present lease agreement are antagonistic to our above-referred-to opinions. This lease agreement will not really tie up the school property in any significant manner whatsoever.