Knowledgebase-City as a Landlord Pending the Termination of Leases


Information Product

Title:City as a Landlord Pending the Termination of Leases
Summary:MTAS was asked whether the city can be a landlord pending the termination of leases
on certain land it is considering buying in the vicinity of the glide path for the airport.
Original Author:Hemsley, Sid
Co-Author:
Product Create Date:01/23/96
Last Reviewed on::04/21/2017
Subject:Airports; Businesses--Laws and regulations; Governmental tort liability; Purchasing--Product liability
Type:Legal Opinion
Legal Opinion:

Reference Documents:

Text of Document: January 23, 1996

Your questions are:

1. Can your city be a landlord pending the termination of leases on certain l
and it is considering buying in the vicinity of the glide path for the airport? The land in question is
occupied by apartments which the city would raze as soon as the leases expired in the interests
of airport safety.

2. What are the liability implications for the city being a landlord?

I have researched my files on both those questions, the encyclopedic
authorities, and the statutory and case law from Tennessee and other jurisdictions. I particularly
looked for cases on the question of whether municipalities could temporarily operate businesses
on land acquired for public purposes. It has been said that a municipality can operate a business
that comes into its possession by lawful manner, such as by gift or devise even if it does not serve
a public purpose. [56 Am Jur.2d Municipal Corporations, sec. 533] It has also been said that
speculative dealing in real estate is prohibited to municipalities. [12 McQuillen, Municipal Corporations,
3rd. Rev. Ed., sec. 36.02.05. Also Tennessee Attorney General's Opinion U95-02.] However, I
can find only one case indirectly involving the question of whether a municipality can temporarily
operate a business sited on land purchased or condemned by the municipality for public purpose.

Nevertheless, in my opinion, the answer to question 1 under the facts is
probably yes. The answer to question 2 is that the city would probably have limited liability exposure
under the Tennessee Tort Liability Act for the negligence of its employees, and would stand in
the same position as any other business with respect to non-negligence liability exposure.

Question 1:

Generally municipalities cannot establish businesses in competition with
other businesses, unless such establishment meets a two-prong test:

1. It is for a public purpose; and

2. It is expressly or impliedly authorized in the municipal charter or
general law.

[See 12 McQuillen, Municipal Corporations, 3rd. Revised Ed., 36.01--36.11.05; 56 Am. Jur.2d,
Municipal Corporations, sec. 532--545; OAG Opinions 235 (January 9, 1981); U-95-02;
unnumbered opinion dated Aug. 17, 1981; I-91-117.] That test itself seems to me to answer
the question of whether a municipality can temporarily operate a business sited on land
purchased or condemned for public use.

The acquisition of land for airport purposes is clearly a public purpose.
The General Assembly in the Municipal Airport Act has expressly authorized the establishment
and acquisition of municipal airports and has expressly declared such airports to be a public
purpose. [Tennessee Code Annotated, section 42-5-101 et seq., specifically 42-5-107.] In
addition, that act authorizes municipalities to:

Use any available property that it may now or hereafter own or control, or may by purchase, gift,
devise, lease, eminent domain proceedings or otherwise, acquire property, real or personal, or
any interest therein, including aviation [sic] easements and easements in airport hazards or land
outside the boundaries of an airport or airport site, as are necessary to permit safe and efficient
operation of the airport or to permit the removal, elimination of obstruction-marking or obstruction-
lighting of airport hazards or to prevent the establishment of airport hazards. [My emphasis.]
[Tennessee Code Annotated, section 42-5-103.]

That authority seems extremely broad, and appears to include any
reasonable territory to address both present and anticipated safety hazards and impediments
to airport efficiency. In the same breath the statute permits municipalities to acquire property
for the indicated purposes by "gift, devise, lease, condemnation proceedings, or otherwise...."
If a municipality can generally operate businesses sited on land given to a municipality by gift
or devise, surely it can temporarily operate such businesses on land that came into the
possession of the city for airport purposes by purchase or condemnation. If it were otherwise,
municipalities could never buy or even condemn for municipal purposes property that contained
operating businesses or leaseholds of any kind, or the municipality would be required to
immediately extinguish any such business instantly upon the transfer to the municipality of the
title to the land.

Libby v. City of Portland, 74 A. 805, 806 (Sup. Judicial Ct. Me. 1909) is
instructive on that point. Although the issue in that was whether the city was liable for negligence
in the operation of a farm that it did not have the authority to buy, what the Court said about the
use of municipal property that it acquires has a bearing on the question of whether a municipality
can be a landlord or otherwise use property that it acquires:

It may be conceded that a city or town would not have the right to raise money by taxation for
the purchase of such a farm any more than for the establishment of manufactories [Citation
omitted.] or for the erection of buildings for the purpose of renting them as stores, or banks,
or halls [Citation omitted.]

But it does not follow that a city or town might not be the lawful or legal owner of a farm or of a
block of rentable buildings, and might not as such owner maintain the same for its own pecuniary
advantage.

Suppose, by way of illustration, that the municipal officers of a town bid on, in behalf of the town,
real estate sold for nonpayment of taxes, as they are authorized to do by Rev. St. c. 10, sec. 85.
It is clearly the purpose of the statute that the title shall vest in the town, if the statutory proceedings
have been complied with and the property is not redeemed by the owner. Such vesting of title
confers upon the town all the ordinary incidents of lawful ownership, among with it the right to
use and utilize. Must the town, although the lawful owner, yet because it is a town, let the property,
if land, lie fallow, or if buildings, remain vacant and unrented? Such a hollow result cannot be the
purpose of the statute.

Suppose again, that some benefactor should convey by deed or devise by will such real estate
to the town as a gift, would not the title vest, and would not the town be authorized to manage
and maintain the property for profit until some other disposition of it might be deemed advisable?
Gifts of real estate should stand on no different basis than gifts of money, and certainly the
treasury would be lawfully enriched by such benefactions, in either form.

The Court appears to be saying that if the property came into the city by
any lawful method, the city is entitled to gain from it what financial advantage it can. Why would
the result be any different if the land came into the city under the authority of Tennessee's
Municipal Airport Act?

With respect to the second prong of the test, the old, but apparently still
good, case of R.S. Adams v. Memphis & Little Rock R.R. Co, et als., Tenn 645, 654 (1866)
salutes the general proposition that municipalities are limited to express and implied grants in
their charters, but appears to announce a liberal application of that standard in favor of
municipalities where such grants involve the purchase and sale of municipal property:

The powers of municipal corporations, as a familiar principle, are limited to the grants in the
Charter, and such as are necessarily implied. The power "to hold real, personal or mixed
property," and "to sell, lease, or dispose of the same, for the use and benefit of the City," by
necessary implication, under the enlightened jurisprudence of modern times, comprehends
the power to exercise such other powers, not expressly granted, or forbidden by the terms of
the Charter, or the general laws, which are necessary to develop the growth and prosperity of
the City. Were it not so, no growing town could conform its local administration to the shifting
and increasing wants of its population. The municipal government would be constantly crippled
in its action, by the restraints of a refined and technical construction of its powers. A corporation
is, in the estimation of the law, a body created for special purposes, and there is no good reason
why it should not, in the execution of these purposes, resort to any means that would be necessary
and proper for an individual, in executing the same, unless it be prohibited by the terms of its
charter, or some public law, from so doing. [Citations omitted.]

The Court appears to be saying that where a municipality has been
granted the general power to buy and sell municipal property, the grant comprehends the
exercise of that power by methods not expressly or impliedly prescribed in the charter but
available to individuals, unless those methods run up against a prohibition in its charter or the
general law. There is no prohibition in the your Municipal Charter or the general law against
your city from acquiring land for airport or any other public purpose when it entails being a
temporary landlord. Any other individual would have that authority.

The purchase and sale of municipal property is expressly contemplated
in the your City Charter. As far as I can determine, that express power runs up against no
prohibition in the charter or general law against the city purchasing land that is presently
occupied by residential property for future airport uses.

In addition, zoning regulations limiting the use of property near an airport,
and airport operations or the flight of aircraft, have been held to constitute the compensable
taking or damage of private property. [See 18 ALR4th 542; 22 ALR4th 863. Also see Johnson
City v. Greenville, 435 S.W.2d 476 (Tenn. 1968)] There is probably no reason the city could
not anticipate such takings or damage by preemptively acquiring territory and eliminating
residential uses on it. In fact, it was held in Township of Hanover v. Town of Morristown, 261
A.2d 692, 706 (Super. Ct. N.J. Chancery Div. 1969), that, "Municipal airports have the power
to purchase easements of flight over nearby property comparable to the land purchased for
the runways in order to enable the planes to operate and thereby diminish the complained of
nuisance. [Citations omitted.] This could include a buffer zone to maximize airport use."

It is also said in McQuillen, Municipal Corporations, 3rd. Ed. Rev., sec.
11.03 that, "Location and quantity of land needed for an airport are questions for the municipal
authorities and not ordinarily within the control of the courts." That general proposition is
consistent with the extremely broad authority given municipalities under the Municipal Airport
Act to acquire property not only for the physical facility itself, but for protective zones.

Question 2.

Under the Tennessee Tort Liability Acts, municipal tort immunity has
been removed in several areas: negligent operation of motor vehicles, unsafe streets and
highways; dangerous or defective condition of any public building or other structure; the
negligent act or omission of the municipality's employees. [Tennessee Code Annotated,
sections 29-20-202--205.]

The city's status of a landlord appears to generate no peculiar liability
with respect to municipalities' liability for the negligent operation of motor vehicles, and unsafe
and defective highways. Arguably the same is true with respect to their liability for dangerous
or defective public buildings. Tennessee Code Annotated, section 29-20-204 speaks of the
removal of immunity for dangerous or defective buildings or other structures in terms of "any
public [My emphasis] building, structure, dam, reservoir or other public improvement [My
emphasis.] owned and controlled by such governmental entity." I can find no law on the
question of whether rental apartments owned by a municipality would qualify as "public"
buildings or other structures within the meaning of the Tennessee Tort Liability Act. The
tenor of the above language of that act suggests a narrow definition that includes only buildings
and structures that serve some kind of public function.

However, the city would apparently be liable for the negligent act of its
employees done in connection with the apartments, within the relatively narrow limits prescribed
by Tennessee Code Annotated, section 29-20-205. Strangely, there are no cases on that point
even though many Tennessee municipalities are major landlords through their housing authorities.

The Tennessee Tort Liability Act abolished the distinction between
governmental and proprietary functions for the purposes of that act. [Tennessee Code
Annotated, section 29-20-201(a).] However, the governmental-proprietary distinction would still
have some bearing on the question of the extent of the city's non-tort liability in its capacity of
a temporary landlord. I suspect that for the purposes of contractual and other liability purposes
outside the Tennessee Tort Liability Act, the city would operate the apartments in its proprietary
capacity. In that capacity the city would stand in essentially the same liability position as would
any other business. [See Gillespie v. Rhea County, 235 S.W.2d 4 (Tenn. 1950); Batson v.
Pleasant View Utility District, 592 S.W.2d 587 (Tenn. Ct. App. 1979).]

Sincerely,

Sidney D. Hemsley
Senior Law Consultant

SDH/

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