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Land Swap between the City and Owner of Private Property

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Reviewed Date: October 19, 2018

Original Author: 
Hemsley, Sid
Date Created: 
Dec 15, 2008


Subjects:
Contracts--Laws and regulations
Land use--Laws and regulations

Land Swap between the City and Owner of Private Property

Summary: 
MTAS was asked whether the city can enter into a land swap agreement with private parties, and what rules govern such transactions.


December 15, 2008

Dear Madam:

You have the following question: Can the City enter into a land " swap" with the owner of private property, which land swap will be of great benefit to the city?

The only Tennessee case that I can find that deals with the express question of whether a municipality in Tennessee can swap property with a private person or entity is the unreported case of Helton v. City of East Ridge, 1993 WL 124673 (Tenn. Ct. App. April 22, 1993). That case involves a complicated transaction (which many land swaps involve) between the city and a private developer that included a land swap. The city owned a recreational area known as Camp Jordan Park. Following some necessary zoning changes to allow the construction of a golf driving range and related facilities on a 27.5 acre part of the Park by HAF, Inc., the city entered into a long term lease with HAF under which HAF would operate the golf facility for a term of 25 years, for which HAF would pay the city $1 a year for 12 years ($500 a month thereafter), plus HAF' s conveyance to the city of a 28 acre tract of land next to the Park. The agreement between the city and HAF was challenged on a number of grounds, one of which was the agreement was unreasonable and unfair to the taxpayers of the city, and violated the Fourteenth Amendment to the U.S. Constitution. They argued that the land swapped to the city had to be at least as valuable as the land being leased by the city to HAF.

The Court declared that the plaintiff' s Fourteenth Amendment claim is " somewhat ambagious," and apparently rested on their " right to have a fair chance to bid on proposals by the City of East Ridge." The court concluded that the plaintiffs cited no authority to support their claim, and the court' s research had led to no federal or state case to support it. [At 4]

The court also rejected the plaintiff' s claim that the lease violated Tennessee Code Annotated, '7-51-902. The court reasoned that statute governs the length of term that applies to leases of capital improvement property by municipalities, reasoning that in this case the lease involved the city' s lease of property to another party.

That case is not very informative on the law in Tennessee governing land swaps by cities, and it could be argued that the plaintiffs could have made much better arguments against the land swap in Helton. But one must conclude that if the court itself researched the plaintiff' s Fourteenth Amendment claim, it could have raised any other problems with land swaps in general, and this one in particular, had there been any indicating that the transaction was illegal or otherwise reflected an abuse of discretion on the part of the city.
My previous research on the question of whether land swaps by municipalities in Tennessee are legal indicates that generally they are legal if they are supported by express or implied authority under general law or the particular city' s charter, reflects a public purpose, does not involve the transfer by the city of trust property, and is not otherwise an abuse of discretion. That position appears to be supported by 60 A.L.A. 2d 220, Power of municipal corporations to exchange its real property.

Some states have statutes that expressly govern land swaps or exchanges, or that expressly govern the sale of property by municipalities. Tennessee has no general laws on either subject, but most municipal charters in this state contain statutes that govern the acquisition and sale of property by municipalities. The City' s charter provides that the city has the power:

- '9(5): " To acquire, dispose of, and hold in trust or otherwise any real, personal or mixed property, inside or outside of the city."

- '9(10): " To provide for the acquisition, construction, building, operation and maintenance of public ways, parks, public grounds, cemeteries, markets and market houses, public buildings, libraries, sewers, drains, sewerage treatment plants, airports, hospitals, and charitable, educational, recreational, sport, curative, corrective, decennial, penal and medical institutions, agencies and facilities and any other public improvements, inside or outside the city...."

- '9(23) " To exercise and enjoy all other powers, functions, rights, privileges and immunities necessary or desirable to promote or protect the safety, health, peace, security, good order, comfort, convenience, morals, and general welfare of the city and its inhabitants, and all implied powers necessary to carry into execution all powers granted in this Act as if fully and completely as if such powers were fully enumerated herein. No enumeration of particular powers in this Act shall be held to be exclusive of others nor restrictive of general words and phrases granting powers, but shall be held to be in addition to such powers unless expressly prohibited to cities under the constitution or applicable public acts of the State."

[This power takes on significance due to the narrowing of Dillon' s Rule in Tennessee by a case we will consider below.]

- '13.07: " That the mayor by and with the consent of a majority of the Board of Aldermen may sell any city property which is obsolete, surplus or unuseable."

The extent to which municipalities in Tennessee have the authority to dispose of land is seen in State ex rel. Association for the Preservation of Tennessee Antiquities v. City of Jackson, 753 S.W.2d 750 (Tenn. 1978). There the Tennessee Supreme Court upheld a long- term lease by the City of Jackson to the Association for the Preservation of Tennessee Antiquities of the Casey Jones Railroad Museum, which the city owned. The museum had been operating at a considerable financial loss for the city. The Court reasoned that (which I will quote at considerable length):

In the present case no question is raised as to the legality of the initial acquisition of the " Casey Jones Museum" by the City of Jackson or the property of its subsequent use by the City for the combined cultural, commercial and educational purposes shown in the record. It seems to us, therefore, at a minimum, that it was a matter of judgment to be exercised by the duly elected City officials as to whether the continued operation of that facility at a financial loss was or was not in the public interest and as to whether the leasing of the facility for operation under private management was or was not a suitable alternative. We find no abuse of discretion by the City officials in their decision to permit the removal of the residence and artifacts from their original site. The lease amply secures the City in the event of a default by tenant. The City may then terminate the lease short notice and require the tenant to restore the properties to the original site or to any other public location. No question is raised in the present record as to the solvency or responsibility of the tenant.

Insofar as prior cases have held that cities are without authority to dispose of publically owned facilities by lease, sale or otherwise, where the properties are held in a " governmental capacity," we are of the opinion that each case must be examined in light of its own facts and circumstances. Obviously cities must be and legally are free, within their charter provisions, to dispose of outmoded, surplus or unprofitable properties, where these are not held under a grant imposing a specific trust or other limitation upon ownership or use. [Emphasis is mine.]

In the present case the Jackson charter expressly confers upon the city, without limitation, the authority:

" To acquire or receive and hold, maintain, improve, sell, lease, mortgage, pledge, or otherwise dispose of any property, real or personal, and any estate or interest therein, within or without the City or State."

The charter also contains language that its terms are not to be deemed restrictive and that they shall be construed " ...so as to permit the City to exercise freely any one or more such powers as to any one or more such objects for any one or more of such purposes."

We are not prepared to decide this case solely upon the proposition that the City may have acquired and held the " Casey Jones Museum" in part at least, in a " proprietary" capacity. On the other hand, we are of the opinion that appellants have failed to demonstrate that the subject lease is contrary to the public interest, that it represents a misuse or abuse of the discretion and authority of the Board of Commissioners, or that it is in any other way ultra vires or beyond the legitimate charter powers of the City. [At 775]

The provisions in your City Charter cited above expressly and impliedly authorizing the city acquire and to dispose of property are similar to the provisions in the Jackson City Charter on the same subject, although those found in the Jackson City Charter are more broad. But that difference is probably not significant for your City, given recent changes to Dillon' s Rule by the Tennessee Supreme Court.

Dillon' s Rule has been abolished in some states but in the recent case of Southern Contractors v. Loudon County Board of Education, 58 S.W.3d 706 (Tenn. 2001), the Tennessee Supreme Court announced that Dillon' s Rule still lives in Tennessee, and applied it to hold that while a county school board did not have the express authority to arbitrate a contract a county school board had the implied power to arbitrate the contract at issue. But the Court also pointed out that Dillon' s Rule is only a rule of statutory construction that applies when a statute is ambiguous, and that " several important exceptions to that rule have diminished its practical importance" :

- Does not apply to home rule municipalities;

- Where the General Assembly has granted local governments " comprehensive governmental power...without either enumerating the powers or expressly limiting the scope of that authority," that " general provision" [will] be " liberally construed." The Court cited three examples of comprehensive grants of powers to municipalities from the general law municipal charters found in Tennessee Code Annotated, title 6:

- '6-19-102 of the general law manager-commission charter: " The enumeration of particular powers in this charter is not exclusive of others, or restrictive of general words or phrases granting powers, nor shall a grant or failure to grant power in this chapter impair a power granted in any other part of this chapter, and whether powers, objects or purposes are expressed conjunctively or disjunctively, they shall be construed so as to permit the city to exercise freely any one (1) or more such powers as to any one (1) or more objects for any one (1) or more such purposes."

-6-19-101(33) of the general law city mana ger commission charter: " [Ever city incorporated under chapters 18-22 of this title may] [h]ave and exercise all powers that now or hereafter it would be competent for this charter specifically to enumerate, as fully and completely as though such powers were specifically enumerated in this section."

- '6-2-201(32) of the general law mayor-aldermanic charter: " [Every municipality incorporated under this charter may] [h]ave and exercise all powers that now or hereafter it would be competent for this charter specifically to enumerate, as fully and completely as though these powers were specifically enumerated."

- Where the General Assembly has conferred " general welfare authority to protect the citizens' health, convenience and safety [police power], Dillon' s Rule cannot be used to challenge the exercise of that authority as beyond the scope of delegated power." Grants of police power are to be broadly construed, and ordinances adopted under that power will beupheld as long as they are not " unreasonable or oppressive." The Court cited two examples of broad grants of police powers to municipalities from the general law municipal charters found in Tennessee Code Annotated, title 6:

- '6-2-201(22) of the general law mayor-aldermanic charter: " [Every municipality incorporated under this charter may] [d]efine, prohibit, abate, suppress, prevent and regulate all acts, practices, conduct, business, occupations, callings, trades, uses of property and all other things whatsoever detrimental, or liable to be detrimental, to the health, morals, comfort, safety, convenience or welfare of the inhabitants of the municipality, and exercise general police powers."

- '6-19-101(22) of the general law manager-commission charter: " [Every city incorporated under chapters 18-22 of this title may] [d]efine, prohibit, abate, suppress, prevent and regulate all acts, practices, conduct, business, occupations, callings, trades, uses of property

and all other things whatsoever detrimental to the health, morals, comfort, safety, convenience, or welfare of the inhabitants of the city, and to exercise general police powers."

In the final paragraph of that case, the Court declared:

We hold that grants of power to local governments will continue to receive a strict, but reasonable, construction under the canon of judicial construction known as Dillon' s Rule. This rule of construction reflects the proper nature of local governmental power in this state, and its several broad exceptions significantly alleviate its shortcoming. [At 718]

With respect to municipalities, the Court' s focus on the " several broad exceptions" to Dillon' s Rule were confined to home rule municipalities and the general law mayor-aldermanic and manager-commission charter governments. But undoubtedly those exceptions apply to any similar grants of power by the General Assembly in the private act charters. The broad grants of power to the City in ''9(10) and 9(23), noted above, appear to allow the interpretation of ''9(5) and 13.07 ), which, respectively, give the city the right to acquire and dispose of property, and gives the mayor, with the consent of the board of aldermen, the right to " sell" obsolete, surplus or unusable property.

The question has arisen whether the power to sell includes the power to exchange property. 60 A.L.R.2d 220 says the cases have gone both ways on that question, and does not indicate what direction reflects the weight of authority. But that treatise appears to me misplaced in its conclusion. My research indicates that no modern case on land swaps has held that municipalities if the municipality has either express or implied power to make them, and the cases involving implied power appear to suggest that such power is broad. In fact, that treatise' s citation of Carter v. City of Greeneville, 178 S.E.508 (S.C. 1935) for the proposition that it held that the power to sell property ordinarily means to sell fcash is misleading. That case clearly and unequivocally holds that a state statute that gave South Carolina cites the authority to " purchase, hold, enjoy and possess, for the use of said city ... and sell, alien [sic?] and convey the same at will," gave the city the authority to enter into a land swap. The court does say that " It is true that the power to sell ordinarily means to sell for cash and does not include the right to accept property in exchange" But in the next sentence, the court said, " However, the city has the power both to buy and sell, and those powers include the right to exchange." [citing 3 McQuillin, Municipal Corporations (d Ed.) '1242] [At 511] In this case, the city transferred the property on which its city hall sat to the U.S. Government for the latter' s construction of a new federal courthouse and post office, in exchange for the U.S. Government' s transfer to it of its old courthouse and post office, which the city would use as a city hall, library and other city facilities. In upholding that land exchange, the court declared that:

In considering those questions, it should be pointed out that the court is not concerned with the advisability of the purpose change in the location of the city hall. This is a matter which rests solely within the discretion of city council, and in the absence of illegality, fraud, or clear abuse of their authority, their discretion governs, and having exercised it by adopting the resolution and approving the present scheme, the court is bound thereby. [At 509]

The City mayor, with the advice of the board of aldermen, clearly has the authority to sell surplus, obsolete and unusable property.

In McKinney v. City of Abilene, 250 S.W2d 924 (Civ. App.1952), the court struck down a land transfer, but only because the city council did not follow the procedure prescribed in its charter for the sale of city property. On the question of whether the city had the power to make land swaps, the court declared that:

In statutes, the word " sale" is usually construed as including an exchange of property. [At 925-26] [Citations omitted by me.]

We hold that the provision of the charter of the City of Abilene restricting the " sale" of City property should be construed in a broad sense so as to cover and apply to the disposition of land owned by the City by means of exchange. It is agreed that the charter provision requiring notice and hearing was not complied with. [At 926]

That case supports the proposition that land exchanges are generally authorized if the city' s charter provides that the city has the authority to sell property. It also stands for the common sense proposition that if a city intends to exchange property it should insure that the exchange be accompanied by the procedural rules, if any, that govern land sales.

Article II, '29, of the Tennessee Constitution, provides that " The General Assembly shall have power to authorize the several counties and incorporated towns in this State, to impose taxes for County and Corporation purposes respectively, in such manner as shall be prescribed by law...." I have been unable to find a case in which Article II, '29, has been applied to a land swap in Tennessee. The reason I point to that constitutional provision is that the question of whether a land swap was for a public purpose arose in Bishop v. City of Burlington, 631 N.W.2d 656 (Wis. 2001). There the city was engaged in a redevelopment plan, and as a part of that plan conveyed to the developer a downtown parking lot, for which the developer agreed to the following obligations: rehabilitation of a certain building, the conveyance to the city of a certain piece of property for park use, and a promise to maintain the parking lot as a public facility for three years and as a parking lot for 10 years.

The Court held that the conveyance did not violate the public purpose doctrine in Wisconsin. The case indicates that the public purpose doctrine in Wisconsin is similar to the public purpose doctrine in Tennessee; both limit the expenditure of public funds to public purposes, but Bishop applied the public purpose doctrine to the land swap. In support of its holding the Court pointed to a Wisconsin statute that gave municipalities power to acquire real property for public purposes, and to sell such property. The public purpose, said the Court, was advanced through the general economic improvement of deteriorating downtown property. The City Charter, '9(5) gives the city the right to acquire and dispose of property, and '13.07 gives the city the right to sell obsolete, surplus and unuseable property.

The Bishop Court also rejected the plaintiff' s claims that the conveyance was an abuse of discretion because the conveyance did not reflect a fair consideration for the city. It reasoned that consideration need not necessarily involve money:

In addition, we concur with the view held by courts in other states that it is proper when determining the adequacy of consideration of transfers of public property to private entities, to evaluate the entire transaction as a whole. Tomasic, 701 Pl.2d at 1334. The consideration may consist of benefits other than or in addition to, money, such as the public benefit which flows from the transfer and the obligations the private actor assumes under the agreement. See e.g. Burkhardt v. City of Enid, 771 P.2d 608, 611 ((Okla. 1989) (obligations assumed by private college and direct economic benefits expected to flow from its presence were adequate consideration); Bryant, 707 A.2d at 1081 (financial obligations of redeveloper and economic by-products of expected development were adequate consideration). We find support for this approach in Wisconsin case law, but only in the context of nonprofit corporations. See Rath 160 Wis.2d at 865, 467 N.W.2d 150 (nonprofit hospital' s binding commitment to use property for health care is adequate consideration.) State ex rel. State Historical Soc' y v. Carrol, 2671 Wis. 6 24, 1 N.W.2d 723 (1952) (finding adequate consideration where no cash payment but obligations assumed by nonprofit foundations.).... [At 664-65]

Both Association for the Preservation of Tennessee Antiquities and Bishop, stand for the proposition that the courts can look at the question of whether a land swap is for a public purpose even those technically not tax funds were involved in the exchange, and whether the exchange would be an abuse of discretion on the City's part. Presumably, the land swap in question would survive such an inquiry.

Sincerely,

Sidney D. Hemsley
Senior Law Consultant

SDH/


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