School Districts Must Offer Surplus Property to Charter Schools Requesting Notification

Lozano Smith Client News Brief
July 2012
Number 41

New legislation that became effective on June 27, 2012, gives charter schools interested in surplus school district real property priority to buy or lease such property. Senate Bill (SB) 1016 requires school districts seeking to sell or lease surplus property to offer that property first to any charter school that has submitted a written request to be notified of surplus property offered for sale or lease by the school district. Such offers are required for any property designed to provide instruction or instructional support, and are given priority over offers required by statute to be made to certain other entities.

Surplus property is real property belonging to a school district which is not needed for school classroom buildings. Before a school district can dispose of surplus property, it must generally declare the property to be surplus following input from a community committee (commonly called a "7-11 Committee") and then must make written offers or solicitations to sell or lease the property to various agencies. If the property remains unsold or unleased after this process, it can be put out to bid to the general public. SB 1016, which became effective upon the Governor's signature, added section 17457.5 to the Education Code and amended various related statutes. Under the new law, charter schools are not only added to the list of agencies to whom surplus property must be offered - they are advanced to the front of the line, and school districts must now offer the property to the charter schools before offering it to other entities.

Initially, the Governor proposed a budget trailer bill which would have required school districts to convey surplus real property to any interested charter school, without requiring payment, before that property could be offered for sale or lease in a manner consistent with typical surplus property disposal. School districts dodged a bullet when that language was ultimately rejected, since it would have essentially forced districts to offer to give their land away for free to charter schools before they could sell the property at fair market value. Particularly in light of the current fiscal crisis, depriving school districts of a legitimate way to generate funds would have had a negative impact.

The enacted law requires school districts to offer to sell or lease surplus property to charter schools requesting such offers, subject to the following conditions:

1. In the event of a sale of surplus property, the charter school must use the property to provide direct instruction or instructional support for at least five years from the date upon which the property is made available to the charter school (the statute does not define what is meant by "made available"). Otherwise, the charter school must immediately offer the property for sale according to the surplus property rules applicable to school districts, with a cap on the sales price based on the cost of acquisition incurred by the school district that sold the property, rather than that incurred by the charter school. The school district, and each of the entities authorized to receive offers of sale, has standing to enforce this condition, and may recover reasonable attorney's fees as a prevailing party in any action or proceeding brought to enforce such condition.

2. In the event of a lease, the charter school must use the property to provide direct instruction or instructional support until the real property is returned to the possession of the school district. Failure to comply with this requirement constitutes a breach of the lease, entitling the school district to immediate possession of the property and any damages available under the terms of the lease. The school district and entities authorized to receive offers of sale likewise have standing to enforce this condition, and may recover attorney' fees as a prevailing party in any such action.

3. The charter school desiring to purchase or lease the property has 60 days after receipt of a written offer to notify the school district of its intent to purchase or lease the property. If a notification is received from more than one charter school, the district can choose which charter school will be the buyer or lessee.

4. The price at which the property is sold cannot exceed the school district's cost of acquisition, adjusted by increases or decreases in the cost of living, plus the cost of any school facilities construction undertaken by the school district, adjusted by the statewide cost index for class B construction as annually determined by the State Allocation Board. This price cap is virtually the same as that governed by the Naylor Act. Where applicable, the Naylor Act requires school districts to offer to negotiate to sell or lease surplus property that has been used for recreation or park-related purposes to certain entities, although interested charter schools must now be given priority over those entities.

5. Leased surplus property must be leased at an annual rate of not more than 5% of the above-described maximum sales price, adjusted annually by increases or decreases in the cost of living. This price cap is also virtually the same as under the Naylor Act.

The new law is only applicable to real property declared by a school district as surplus property after July 1, 2012. Currently, the law becomes inoperative on June 30, 2013, and is repealed as of January 1, 2014, unless a later enacted statute deletes or extends these dates. As a new legal requirement in the surplus property scheme, application of SB 1016 may result in uncertainties. For example, the Education Code presently does not define "instruction or instructional support", which could create confusion as districts attempt to determine whether their property was designed for these purposes and is therefore subject to the new requirement. These and other potential unknowns remain to be resolved in the coming months.

An already complex and sometimes ill-fitting statutory scheme has only been made more complicated as a result of this bill. Our attorneys have substantial experience handling issues related to surplus property. If you have any questions regarding these issues, please feel free to contact one of our eight offices located statewide. You can also visit our website or follow Lozano Smith on Facebook.
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As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.