On May 4, the Second District Court of Appeal in McGee v. Balfour Beatty Construction, LLC, et al
) ordered publication of its decision upholding the validity of a lease-leaseback arrangement. Publication of the decision means that it now serves as precedent on which school districts and others may rely.
, the court reviewed the validity of a lease-leaseback arrangement that was challenged on the grounds that the arrangement did not comply with Education Code § 17406. The party challenging the lease-leaseback arrangement relied heavily on the Fifth District's decision in Davis v. Fresno Unified School Dist.
(2015) 237 Cal.App.4th 261 (Davis
), which held that a valid lease-leaseback arrangement under Section 17406 must include a "financing component" and a "genuine lease." (For a further discussion of the Davis
decision, see Client News Brief No. 30, June 2015
On April 12, the McGee
court issued its decision to uphold the validity of the lease-leaseback arrangement. McGee
also rejected Davis
' interpretation of Section 17406 and Davis
attempt to improperly add requirements into the statute. Specifically,McGee
disagreed with Davis
' conclusion that a valid lease-leaseback arrangement must contain elements of a "genuine lease," whichDavis
understood to include occupancy of the premises during the lease term and a financing component. (For a further discussion of theMcGee
decision, see Client News Brief No. 25, April 2016
On behalf of the California Association of School Business Officials (CASBO), Lozano Smith filed a request for partial publication, and sought to have the court publish the portion of the decision specific to Education Code § 17406 and the lease-leaseback construction delivery method. CASBO also requested that the court refrain from publishing a portion of the decision concurring with Davis
that a third-party taxpayer may have standing to allege a conflict of interest under Government Code § 1090 when applied to the conduct of independent contractors. Although CASBO sought only partial publication, the McGee
court granted publication of the entire decision, including the portion relating to a conflict of interest under Section 1090 (the court, however, has at least made it clear that application of Government Code § 1090 to independent contractors is very dependent on the specific facts). As a result of the publication order, the entire McGee
decision is now precedent and can be relied on outside the Fifth District Court of Appeal, where Davis
still controls. Legislation has recently been proposed which could again address lease-leaseback issues. We will be tracking all such legislation.
If you have any questions about this decision or the lease-leaseback construction delivery method, or about other project delivery methods, please contact one of our nine offices
located statewide. You can also visit our website
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