Decision No. 16,501
Appeal of ROBERT A. FORREST from action of the Board of Education of the East Ramapo Central School District and Congregation Yeshiva Avir Yakov regarding the lease of real property.
Decision No. 16,501
(July 15, 2013)
Minerva & D’ Agostino, P.C., attorneys for respondent Board of Education of the East Ramapo Central School District, Albert A. D’ Agostino, Esq., of counsel
Shebitz Berman Cohen & Delforte, P.C., attorneys for respondent Congregation Yeshiva Avir Yakov, Frederick J. Berman, Esq., of counsel
KING, JR., Commissioner.--Petitioner appeals the decision of the Board of Education of the East Ramapo Central School District (“Board”) to lease its Hillcrest Elementary School (“Hillcrest”) to respondent Congregation Yeshiva Avir Yakov (“Congregation”) (collectively “respondents”). The appeal must be sustained in part.
Hillcrest has been the subject of numerous appeals before the Commissioner of Education (“Commissioner”). In Appeals of Luciano and Hatton, 50 Ed Dept Rep, Decision No.16,153, a challenge to the Board’s April 19, 2010 decision to close Hillcrest and designate it as surplus property was dismissed. In Appeal of White, 50 Ed Dept Rep, Decision No. 16,239 (“Appeal of White”), the Board’s July 2010decision to sell Hillcrest to the Congregation was challenged. While Appeal of White was pending and a stay of Hillcrest’s sale was in effect in that matter, the Board approved two short-term leases of Hillcrest, including one to the Congregation (“Congregation’s first lease”) and one to the Clarkstown Central School District (“Clarkstown lease”). These leases, which were substantially similar, were challenged in Appeal of Luciano, 51 Ed Dept Rep, Decision No. 16,308 (“Appeal of Luciano”).1 On June 6,2011, I issued a decision in Appeal of White annulling the sale of Hillcrest that effectively terminated the Congregation’s first lease (see Appeal of Luciano).However, on August 29, 2011, the Board approved a second lease of Hillcrest to the Congregation (“Congregation’s second lease”), and this appeal ensued. Petitioner’s request for interim relief was denied on October 21, 2011.2
1 Appeal of Luciano was ultimately dismissed.
The Congregation’s second lease initially ran from September 1, 2011 through August 31, 2012, and provides the Congregation with an option to “extend the term of [the]lease for four (4) consecutive, separate one (1) year periods.” Among other things, this lease requires the Congregation to pay rent in the amount of $19,000.00 per month for the first year, plus a two percent increase over the “previous years’ [sic] monthly rental amount” for each year that the lease is extended. In addition, the second lease gives the Congregation a “right of first refusal” to buy Hillcrest should it be sold (the Congregation agreed to pay an additional $2,000.00 per month for this), and gives the Board the right to cancel the lease in the event that it is determined that Hillcrest is needed for district urposes.
3 Petitioner contends that the Board did not “make a good faith attempt” to obtain “fair market rent” for Hillcrest. In particular, petitioner maintains that the Board did not take reasonable steps - such as advertising the property, listing the property with a broker, or issuing a request for proposals (“RFP”) - to ascertain Hillcrest’s fair market rental value for purposes of the Congregation’s second lease. Petitioner also suggests that the rental rate charged in the Congregation’s second lease is not Hillcrest’s fair market rental value and argues that the Board should have issued an RFP to lease Hillcrest. Petitioner, therefore, claims the Board showed “preferential treatment” to the Congregation, and maintains that the Board “abused [its] fiduciary responsibilities to the taxpayers” by approving the second lease. Petitioner requests that I void the second lease and direct the Board to engage in “a thorough and deliberative process before initiating any action to lease any district property. ”Petitioner also requests that I “exercise authority to review and approve all real property transactions” proposed by the Board.
The Board, which did not rely on an appraisal of Hillcrest,4 admits that it did not advertise Hillcrest for rental, list Hillcrest with a broker, or issue an RFP prior to approving the Congregation’s second lease. However, respondents deny petitioner’s remaining allegations, and generally maintain that leasing Hillcrest is in the district’s best interests. In addition, respondents argue that the terms of the Congregation’s second lease (including the monthly rental amount) were determined through negotiations and are reasonable. The Board also contends that the New York State Education Department’s(“SED”) approval of the Clarkstown lease, which was similar to the Congregation’s first lease, “establishes that the [Congregation’s second lease] is proper.”
2 For purposes of this appeal, I take judicial notice of the records in Appeal of White and Appeal of Luciano. 3 The Congregation contends that the Board also has the right to cancel the lease in the event that Hillcrest is sold. However, I am unable to find an express provision in the lease that authorizes this.4 Although the Board had an appraisal of Hillcrest in its possession when it approved the Congregation’s second lease, respondents argue that this appraisal – which appraised Hillcrest’s fair market rental value for significantly more than that set forth in the Congregation’s second lease – was inaccurate.
A board of education is authorized to enter into a lease agreement regarding its unused real property as long as the provisions of Education Law §403-a are met. That statute, among other things, requires that leases be in a school district’s best interest and that rental payments not be for less than the “fair market rental value” (Education Law §403-a). Boards of education are, in general, entitled to broad discretion in determining whether these requirements are met (see Education Law §403a; Appeal of Luciano, 51 Ed Dept Rep, Decision No.16,308). However, a board is required to lease property to the “person, partnership or corporation . . . who will provide the most benefit to the school district” (see Education Law §403-a). It follows, therefore, that aboard must take reasonable steps to ensure that its decision is informed, and that it is getting the best deal possible (see generally Ross, et al. v. Wilson, et. al.,308 NY 605; Yeshiva of Spring Valley, Inc. v. Bd. of Ed. Of the East Ramapo Central School Dist., 132 AD2d 27; New City Jewish Center v. Flagg, et. al., 111 AD2d 814; Merritt Meridian Construction Corp v. Gallagher, et. al. 96 AD2d 933). This includes taking reasonable steps to ascertain the value (or the rental value) of a property (see e.g., Yeshiva of Spring Valley, Inc. v. Bd. of Ed. of the East Ramapo Central School Dist., 132 AD2d 27, 31 [“Certainly the amount of money the board would receive for the lease should be considered among the factors in determining ‘the most benefit.’”]; see also Appeal of White, 50 Ed Dept Rep, Decision No. 16,239; Appeal of Baker, 14 id. 5,Decision No. 8,833).
I cannot find, on this record, that the Board took reasonable steps to ensure that it was getting the best deal possible in this instance. While I note that Education Law §403-a does not specify how a property must be marketed and that boards of education generally have discretion to determine how best to market a property, the manner in which a property must be marketed depends upon the circumstances of each individual case (see Appeal of Luciano, 51 Ed Dept Rep, Decision No. 16,308). Here, there is no indication that the Board – which admits that it did not advertise Hillcrest or list it with a broker - offered Hillcrest to any “person, partnership or corporation” other than the Congregation, or took any steps to lease it competitively. Further, the Board does not explain here why it chose to market/lease Hillcrest (or to not market/lease Hillcrest) in the manner that it did.5 Therefore, on the record before me, I cannot conclude that the Board’s actions were reasonable. This is especially true where, as here, I cannot conclude that the Board took reasonable steps to ascertain Hillcrest’s fair market rental value for purposes of the Congregation’s second lease.
3 Specifically, although the Board clearly explains why it determined that leasing Hillcrest was in the district’s best interest, it fails to clearly explain what steps it took, if any, to determine that $19,000 per month was Hillcrest’s “fair market rental value.”6 Rather, it appears from the record that the Board simply based this determination on two factors: (a) the fact that $19,000 per month is $3,000 more per month than it previously received under the Congregation’s first lease (i.e., $16,000 per month), and/or (b) that the terms of the Congregation’s second lease were negotiated. I cannot find that either is reasonably sufficient for ascertaining Hillcrest’s fair market rental value.
As noted in Appeal of Luciano, the Congregation’s first lease was entered into and approved under unique circumstances. Specifically, when that lease was approved, the Board intended to sell Hillcrest to the Congregation, but was prohibited from doing so by a stay in effect in Appeal of White. Accordingly, and aside from the fact that the Congregation’s first lease and second lease are two different leases,7 there was uncertainty surrounding Hillcrest at the time of the Congregation’s first lease which limited what the Board could reasonably do with the property (including the term of potential lease). As argued by respondents in Appeal of Luciano, this likely limited the potential rental market for Hillcrest at that time and, as a result, negatively affected its fair market rental value. However, by the time the Board approved the Congregation’s second lease on August 29, 2011, Appeal of White had been decided, and any uncertainty and limitations that may have previously existed no longer did. Accordingly, the reasonableness of using the Congregation’s first lease as a starting point for valuing Hillcrest for purposes of the Congregation’s second lease is questionable, yet there is no evidence in the record that the board considered that factor. Accordingly, I cannot find that using the Congregation’s first lease as a starting point for valuing Hillcrest for purposes of the Congregation’s second lease was reasonable.8
Nor am I able to find the Board’s actions reasonable simply because the terms of the Congregation’s second lease were negotiated. There is nothing inherent about negotiation which, in and of itself, ensures arriving at a property’s fair market value. This is especially true where, as noted above, there is no indication that the Board offered Hillcrest to anyone other than the Congregation or took any steps to lease Hillcrest competitively prior to negotiating with the Congregation. Accordingly, and based on the totality of the record, I cannot conclude that the mere act of negotiating with the Congregation was reasonably sufficient to determine Hillcrest’s fair market rental value.
The board also contends that SED’s approval of the Clarkstown lease “establishes that the [Congregation’s second lease] is proper.” This is incorrect. Aside from the fact that the Clarkstown lease (which was only a two-month lease) and the Congregation’s second lease are two different leases, the Clarkstown lease was approved at the same time (and under the same circumstances) as the Congregation’s first lease. Accordingly, for the reasons discussed above, I cannot find that the Clarkstown lease and the Congregation’s second lease are comparable.
5 I note that the Congregation suggests that it is the only entity interested in leasing Hillcrest as evidenced by the fact that, when the board issued an RFP for the sale or lease of Hillcrest in 2010, only the Congregation bid on a lease. However, for the reasons set forth in Appeal of White, I cannot conclude that the response to that RFP is are liable indicator of market interest in the present case.6 This contrasts significantly with Appeal of Hollister, 33 Ed Dept Rep294, Decision No. 13,053, on which the board relies. In Appeal of Hollister, the board had two appraisals of the property at issue and leased the property for an amount equal to the greater of the two appraisals. Under those circumstances, the board clearly had a reasonable basis to support its determination of fair market value. 4
In fact, the Congregation acknowledges that the two leases were “entirely different.”8 The Congregation indicates that after Appeal of White was decided, the Board needed time to decide what to do with Hillcrest. However, the Board itself is silent on this point. Accordingly, I have no basis for determining whether the Congregation’s contention is correct and/or what effect, if any, this would have on the outcome in this matter. 5
Further, the Board appears to fundamentally misunderstand SED’s “approval” of the Clarkstown lease. Specifically, SED approved the Clarkstown lease pursuant to Education Law §403-b, which authorizes a school district to lease real property for its own use, but provides that such lease “shall not become effective until the commissioner shall have approved the same” (Education Law §403-b[c]).That statute specifically enumerates the findings that the Commissioner must make in order to approve a lease. These findings include a determination that: (a) the leased facility “meets all applicable standards for the health, safety and comfort of occupants;” (b) the leased facility is “educationally adequate,” and (c) the district has a facilities plan that is consistent with the Commissioner’s regulations (see Education Law §403-b[c]). Contrary to the Board’s assertion, SED is not required to approve every term of a lease beyond the statutory requirements. SED’s approval of the Clarkstown lease, therefore, does not constitute a finding that every term of that lease -including the rental amount - was proper; nor does it serve as evidence that a subsequent lease, as here, entered into under different circumstances must be deemed proper and reasonable. Therefore, on this record, I cannot conclude that the Board took reasonable steps to ensure the district received fair market rental value for Hillcrest for purposes of the Congregation’s second lease.
Accordingly, petitioner’s appeal is sustained in part and, as ordered below, the second lease is annulled. Petitioner’s request that I “exercise authority to review and approve all real property transactions” proposed by the Board, however, is denied. While the Commissioner has general supervisory authority over all school districts in the state (see Education Law §305), only orders that are “proper or necessary to give effect” to decisions may be rendered in appeals brought pursuant to Education Law §310(see Education Law §311). No further action or order is “proper or necessary” to give effect to this decision at this juncture. Should petitioner be aggrieved by any future action of the Board, he retains the right to commence an appeal seeking my review of such action.
In light of this disposition, I need not address thep arties’ remaining contentions.
THE APPEAL IS SUSTAINED TO THE EXTENT INDICATED.
IT IS ORDERED that the August 29, 2011 action of the Board of Education of the East Ramapo Central School District in approving the Congregation’s second lease is hereby annulled and set aside; and
IT IS FURTHER ORDERED that, prior to disposing of school district property by either sale or lease, the Board take all steps necessary to ensure that it makes a reasonably informed decision, and obtains the best deal possible, including taking any and all reasonable steps to assess the property’s fair market value or fair market rental value.
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