When a municipality owns a property, can it sell or lease it? If so, what restrictions apply?
Different rules apply to real property and to personal property. Real property includes items like land, buildings and permanent improvements. Personal property is anything that is readily movable like vehicles, furniture and equipment.
SC Code Section 5-7-40 allows a municipality to sell or lease real property by ordinance and personal property by resolution. Likewise, SC Code Section 5-7-260, which lists actions that must be taken by ordinance, includes selling or leasing any land of the municipality. While a municipality may use a resolution to buy, sell or lease personal property, it must use an ordinance to sell or lease real property.
Competitive bids
State law requires that local governments adopt rules “embodying sound principles of appropriately competitive procurement” under SC Code Section 11-35-5320. It is this code section that generally requires municipalities to advertise for and receive bids or proposals before buying goods or services. Procurement requirements do not ordinarily apply to selling property, however.
Beyond these provisions in state law, local procurement rules may impose other requirements. The word “lease” is ambiguous. In a permanent transfer, the owner sells the property to a third party, who buys it. But in a rental, the owner leases the property to a third-party tenant, who leases the property from the owner, so the word “lease” refers to the actions of both the landlord and the tenant. If the local procurement rules apply to leasing property, they might be read to apply to leases in which the municipality is the landlord.
The Attorney General’s office applied this reading in an opinion issued January 14, 2011, concerning a municipality seeking to lease property it owned. Because the applicable procurement rules applied to “buying, purchasing, renting, [or] leasing property,” the Attorney General concluded that the municipality was required to seek bids. Municipalities can avoid this ambiguity by clarifying their procurement rules to apply only to acquisitions of property. In other words, they apply when the municipality leases property as a tenant, but not as a landlord.
Valuation
Even if bids are not required, what value must a municipality receive for its property? In general, the municipality must receive “fair market value” when disposing of property. This value may be established through competitive bidding, an appraisal, the municipality’s investment or other methods. The municipality should document the means used to establish the value of the property.
The municipality may consider nonmonetary issues when determining value. If the proposed use of the property will serve a public purpose, the municipality can reduce the monetary payment. For example, if the property in question is to be used for an economic development project, the municipality could consider job creation, local investment and other factors beyond the price paid. The municipality should document its determination of the value received: both the public purpose to be served and the value assigned to that purpose.
Rules to follow
There are several key takeaways for selling and leasing property. A municipality may sell or lease real property by ordinance and personal property by resolution. Although state law does not require public bidding before the municipality sells or leases property as landlord, local procurement procedures may require this. Municipalities must receive fair market value for property it sells or leases, but that value may include nonmonetary components.