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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)



Opinion No. 5956

August 13, 1981


Lease of land to developer for construction of housing facilities

In the absence of legislative authorization, Saginaw Valley State College may not lease two parcels of property to a private developer at a nominal, annual rental where the developer proposes to construct, own and manage rental housing for students, faculty and staff for a period of thirty-five (35) years.

Honorable Jerome T. Hart

State Senator

Capitol Building

Lansing, Michigan

Honorable James E. O'Neill, Jr.

State Representative

Capitol Building

Lansing, Michigan

You have requested my opinion on two questions concerning Saginaw Valley State College. The first question may be phrased as follows:

May the College lease two parcels of property to a private developer, at a nominal annual rate, where the developer proposes to construct thereon, own and manage rental housing for College students, faculty and staff, and ownership of such facilities will vest in the College within a period of not to exceed thirty-five (35) years?

According to your letter, Saginaw Valley State College needs apartment housing for its married students, some of its faculty and staff members, and single students for whom there is no space in residence halls. Due to financial constraints and certain restrictions contained in bond covenants for other college facilities, the College is not presently able to arrange financing for construction of additional apartment units. Thus, the College is considering a proposal whereby two separate ten-acre parcels of college-owned land would be leased to a private corporation for the specific purpose of constructing, owning and managing approximately 120 new rental units. It is contemplated that the rental units would be constructed on the two ten-acre parcels. Initially, 40 units would be constructed on one ten-acre parcel; in the second stage, 40 additional units would be constructed on the second ten-acre parcel; and, if the need for further housing existed, 40 additional rental units would be constructed on the second ten-acre parcel, resulting in a maximum total of 120 units.

Design requirements for the rental units, and the terms of all rental agreements for the facilities, would be subject to approval of the College. The developer, owner and manager of the rental facilities upon the leased land would be authorized by the following order of priority to lease rental units to: (1) students, faculty and staff of the College and Delta Community College; and (2) if unoccupied rental units remained, then to the general public. In exchange for the property lease, the developer will make lease payments to the College of $100 per acre each year. The developer will be responsibile for payment of all taxes, assessments, utility charges and similar charges. At the end of an agreed-upon period not to exceed thirty-five (35) years, title to the rental units constructed upon the leased property will vest in the college.

Saginaw Valley State College was established as a state institution of higher education, pursuant to Const 1963, art 8, Sec. 6, by 1965 PA 278; MCLA 390.711 et seq; MSA 15.1852(51) et seq. Thus, the College was created by the Legislature after the electors had approved Const 1963, and the College has attained its constitutional status under Const 1963, art 8, Sec. 6, supra, by virtue of its establishment by 1965 PA 278, supra. 1965 PA 278, supra, Sec. 1, pertinently provides that 'the conduct of the College's affairs and control of its property' shall be vested in a board of control.' I am advised that with respect to the two ten-acre parcels in question which are proposed to be leased to the private developer, there is no 'condition or trust' to which the property is subject; thus, it appears that absolute fee title to the parcels in question is vested in the Board of Control. Under Const 1963, art 8, Sec. 6, supra, the Board of Control 'shall have general supervision of the institution and the control and direction of all expenditures from the institution's funds.' See Regents of the University of Michigan v Michigan, 395 Mich 52; 235 NW2d 1 (1975); Board of Control of Eastern Michigan University v Labor Mediation Board, 384 Mich 561; 184 NW2d 921 (1971). Official duties involving the exercise of discretion and judgment for the public good (in this instance, the determination of the Board of Control to provide additional housing for college students, faculty and staff) may not be delegated. Sittler v Board of Control of the Michigan College of Mining and Technology, 333 Mich 681, 686; 53 NW2d 681, 683 (1952); OAG 1981-1982, No 5843, p 23 (January 20, 1981) (p 4).

In 1965 PA 278, supra, Sec. 6, the Legislature has provided:

'The board shall not borrow money on its general faith and credit, nor create any liens upon its property. With the approval of the legislature the board may borrow money to be used to acquire land or to acquire or erect buildings, or to alter, equip or maintain them, to be used as dormitories, student centers, stadiums, athletic fields, gymnasiums, auditoriums and other related activities, and it shall obligate itself for the repayment thereof, together with interest thereon solely out of the fund derived from rentals or other income from the use and operation of the property so acquired, or from special fees and charges required to be paid by the students deemed by it to be benefited thereby; and may pledge all or any part of the fund as security therefor.' [Emphasis supplied.]

As a public body corporate (see 1965 PA 278, Sec. 1, supra), the College, through its Board of Control, pursuant to Const 1963, art 9, Sec. 13, 'shall have power to borrow money and to issue their securities evidencing debt, subject to this constitution and law.' Public corporations have general power to borrow money except as prohibited by Const 1963 and by statute. Advisory Opinion re Constitutionality of PA 1966, No. 346, 380 Mich 554; 158 NW2d 416 (1968).

The validity of a borrowing by a public corporation must be measured by the purposes of the public body itself, as set forth in its charter or in the act of the legislature establishing the public body. Id. The provision by a college of housing and shelter has been viewed as 'necessary and related to the educational process.' See City of Ann Arbor v The University Cellar, Inc., 401 Mich 279, 293; 258 NW2d 1 (1977), fn 11.

Under 1965 PA 278, Sec. 6, supra, and consistent with Const 1963, art 9, Sec. 13, supra, the College may with legislative approval acquire or erect dormitories, including apartment units, for its students, faculty and staff. Thus, absent approval by the Legislature, which created the College, the College may not lease two parcels of its land to a private developer who will construct and manage such housing for students, faculty and staff.

Further, it is noted that 1965 PA 278, Sec. 6, supra, provides that the College shall not 'create any liens upon its property.' A lien is a right or claim against some interest in property created by law as an incident of a contract. Van Camp v Van Camp, 291 Mich 688, 696; 289 NW 297 (1939); Cheff v Haan, 269 Mich 593; 257 NW 894 (1934). See, Tustin Elevator & Lumber Co v Ryno, 373 Mich 322; 129 NW2d 409 (1964) (equitable lien placed on property as security for payment of monies for construction supplies); Eagle Oil Corp v Cohassett Oil Corp, 263, Mich 371, 248 NW 840 (1933).

It has been held that a county incurred indebtedness in a disguised purchase of a privately built medical facility over a ten year period, where the county 'forswore termination of the agreement' and bound itself to other contractual provisions thereby incurring indebtedness. State v Doyle & Associates, Inc., 374 Mich 222, 227-228; 132 NW2d 99 (1965), adhered to in Alan v Wayne County, Supra, 388 Mich 210, 299-300; 200 NW2d 628, reh den 388 Mich 626; 202 NW2d 277 (1972).

In the case at hand, the proposed agreement will vest ownership of the rental facilities in the College within a time period of thirty-five (35) years or less, during which period the College will effectively 'forswear' termination of the agreement, thereby encumbering the land.

In Advisory Opinion on Constitutionality of 1976 PA 240, 400 Mich 311; 254 NW2d 544 (1977) the Court sustained the validity of the State Building Authority Act, 1964 PA 183, as amended by 1976 PA 240, MCLA 830.411 et seq: MSA 3.447(101) et seq. The Court held the state may lease property from the State Building Authority and contract therefor to pay true rental for the leased property at fixed intervals over a period of years, as the leasing and payment of 'true' rental did not involve a general obligation state borrowing as limited by Const 1963, art 9, Secs. 12 and 15. The matter under consideration is clearly distinguishable from that considered in Advisory Opinion, supra, inasmuch as the College's authority to borrow money, create liens and erect or acquire housing and other facilities is statutorily limited by 1965 PA 278, Sec. 6, supra.

It is my opinion, therefore, that absent legislative approval as required by 1965 PA 278, Sec. 6, supra, the Saginaw Valley State College may not lease two parcels of property to a private developer, at a nominal annual rate, where the developer proposes to construct thereon, own and manage rental housing for its students, faculty and staff, where ownership of such facilities will vest in the college within a period of not to exceed thirty-five (35) years.

In light of my answer to your first question, it is unnecessary to address your second question whether the College will receive an adequate consideration for lease of the property.

Frank J. Kelley

Attorney General

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