House Bill 1278

AN ACT TO AMEND SECTION 29-3-63, MISSISSIPPI CODE OF 1972, TO CLARIFY THAT THE ANNUAL RENTAL FOR THE LEASE OF SIXTEENTH SECTION SCHOOL LANDS OTHER THAN LANDS CLASSIFIED AS INDUSTRIAL OR COMMERCIAL IS AN AMOUNT EQUAL TO THE FAIR MARKET RENTAL VALUE OF THOSE LANDS; TO AMEND SECTION 29-3-65, MISSISSIPPI CODE OF 1972, TO PROVIDE THAT THE LESSEE OF SIXTEENTH SECTION LANDS CLASSIFIED AS RESIDENTIAL OR FARM-RESIDENTIAL HAS THE RIGHT TO HIRE AN APPRAISER, AND TO REQUIRE ANY CONFLICT IN THE FAIR MARKET RENTAL VALUE DETERMINED BY THE APPRAISER HIRED BY THE LESSEE AND THE APPRAISER HIRED BY THE SCHOOL BOARD TO BE RESOLVED BY AVERAGING THE TWO APPRAISALS; TO BRING FORWARD SECTION 29-3-69, MISSISSIPPI CODE OF 1972, WHICH GOVERNS CERTAIN TERMS OF SIXTEENTH SECTION LAND LEASES, FOR PURPOSES OF POSSIBLE AMENDMENT; AND FOR RELATED PURPOSES.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:

SECTION 1. Section 29-3-63, Mississippi Code of 1972, is amended as follows:

29-3-63. (1) The holder of a lease of sixteenth section or lieu land, at the expiration of the lease, shall have a prior right, exclusive of all other persons, to re-lease or to extend an existing lease as may be agreed upon between the holder of the lease and board of education subject to the classification of the land. * * * However, no holder of a lease of sixteenth section land classified as agricultural land shall have any priority rights in extending his lease contract, except as otherwise provided in Section 29-3-81. * * * The compensation on an annual basis on lands classified as farm-residential, residential, recreational, catfish farming or agricultural shall be the fair market rental of the land excluding buildings and improvements made on such land by the lessee, the title to which is not held in trust for the public schools. However, in no event shall the compensation on lands classified as industrial or commercial be less than the minimum amounts prescribed in subsection (2) of this section.

(2) The board of education shall not lease or extend a lease on land classified as industrial or commercial at an annual rental less than five percent (5%) of the current market value, exclusive of buildings or improvements not owned by the school district. Such minimum acceptable percentage shall not apply to land classified as farm-residential, residential, recreational and other land; however, fair market rental will apply to those lands as determined by appraisal, comparative analysis or comparison with the private sector.

(3) The prior right to re-lease or extend an existing oil, gas and mineral lease, or any part thereof, granted under this section shall be conditioned upon the existence of production of oil, gas or other minerals thereunder in paying quantities, or the existence of a well capable of such production, or the existence of drilling or reworking operations at the time of lease expiration. * * * However, the lease may, in the discretion of the board of education, be extended only as to the lands included in a unit or units as defined by the appropriate agency having jurisdiction over the unit or units. The replacement lease shall be upon such terms and conditions as may be agreed upon between the holder of the lease and the board of education, provided that the rental and royalty provisions shall not be less than the rental and royalty provisions as set out in the expired lease and the primary term shall not exceed the limitations in Section 29-3-99. Bonus payment for the replacement lease shall be consistent with the requirements set out in Section 29-3-65 with respect to oil, gas and mineral leases.

(4) Where used in this section and Section 29-3-65, the term "oil and gas lease" or "oil, gas and mineral lease" shall include all leases originally executed pursuant to Section 29-3-99.

(5) The right to re-lease an oil, gas and mineral lease provided in subsection (3) above extends to oil, gas and mineral leases which have already expired as of the effective date of this section, subject to an accounting for production from the date of lease expiration to the date of the replacement lease authorized herein.

(6) The revisions to this section effectuated by the passage of House Bill No. ___, 2011 Regular Session, are intended to clarify the prior intent of the Legislature in the passage of this section and subsequent amendments to this section. Therefore, this section, as amended by House Bill No. _____, 2011 Regular Session, applies to any lease of sixteenth section land classified as residential or farm-residential which was executed on January 1, 2009. If the terms of any such lease are determined to be in conflict with the provisions of this section as amended by House Bill No. ____, 2011 Regular Session, the lease must be revised so that the provisions of the lease are consistent with this section,

as amended by House Bill No. __ _, 2011 Regular Session, retroactively to January 1, 2009.

SECTION 2. Section 29-3-65, Mississippi Code of 1972, is amended as follows:

29-3-65. One (1) year prior to the date, when any such lands, not subject to competitive bid procedures, shall become available for lease, the board of education shall appoint a competent appraiser to appraise the land and report to the board his recommendation for the fair market rental amount. The lessee of any land classified as residential or farm-residential shall have the right to appoint a competent appraiser at his expense to appraise the land and report to the board his recommendation for the fair market rental amount. The board shall then determine whether the same be a reasonable amount, and shall grant the lease pursuant to Section 29-3-63. If there is any disagreement between the appraisers so appointed as to the fair market rental amount for the land classified as residential or farm-residential, the average of the two (2) amounts shall be calculated and shall be reported to the board as the recommendation for the fair market rental amount.

The board of education may use rent escalation clauses or other such devices to adjust rental amounts during the lease term. Owners of leaseholds under a lease granted prior to July 1, 1978, which have improvements constructed thereon, shall not be charged for such improvements in successive lease periods unless the lease contract clearly specifies otherwise. The cost of the appraisal under this section ordered by the board of education shall be paid from any available sixteenth section school funds or other school funds of the district. The cost of the appraisal under this section ordered by the lessee shall be paid by the lessee.

The appraisal pertaining to renewal oil, gas and mineral leases executed pursuant to Section 29-3-63 may be made either before or after the expiration of the original lease and shall appraise the fair market value for the bonus to be paid for a renewal lease containing the terms and conditions agreed upon by the holder of the lease and the board of education.

SECTION 3. Section 29-3-69, Mississippi Code of 1972, is brought forward as follows:

29-3-69. The board of education may lease school trust lands classified as industrial, commercial, farm-residential, residential, recreational, catfish farming or other for a term not exceeding forty (40) years for a ground rental, payable annually. All leases, except leases of residential or farm-residential lands, made for a ground rental shall contain rent adjustment clauses or other such provisions requiring that the consideration for every lease of such lands shall be adjusted not less than once every ten (10) years from the date of the lease to reflect the current fair market rental value of the lands, exclusive of any improvements thereon. In leases of lands which are or which are to become residential or farm-residential land, the board of education may require a rent adjustment clause in which rents are to be adjusted, provided that such adjustments will not exceed the fair market rental value of the lands, exclusive of improvements thereon, as of the rental adjustment dates. If a rent adjustment clause is not contained in a lease of lands which are or which are to become residential or farm-residential land, the reasons for not including such clause in the lease shall be stated in the lease and entered on the minutes of the board. In the case of uncleared lands, the board of education may lease them for such short terms as may be deemed proper in consideration of the improvement thereof, with the right thereafter to lease or to hold on payment of a ground rental. The board of education may lease not more than three (3) acres of any such lands for a term not exceeding ninety-nine (99) years for a ground rental, payable annually, to any church having its principal place of worship situated on such lands, which has been in continuous operation at that location for not less than twenty-five (25) years at the time of the lease. The consideration for every lease of such lands to a church shall be renegotiated not less than once every twenty-five (25) years from the date of the lease to reflect the current fair market rental value of the lands, exclusive of any improvements thereon.

The board of education may, at any time, by agreement with any lessee of lands, except for lands classified as forest or agricultural, cancel an existing lease and execute a new lease contract on such land where major capital improvements have been made or for the purpose of facilitating the addition of major capital improvements, provided that the rental amount of such new lease shall not be less than the rental amount in the prior lease. The term of such new lease shall not exceed forty (40) years for a ground rental, payable annually, provided that prior to the execution of such new lease contract, the provisions of all applicable statutes setting forth the procedure and requirements for the execution of a lease for sixteenth section lands or lieu lands have been satisfied.

The board of education may find that in the interest of good trust management it may be necessary to grant in the original lease contract an option to renew any lease not subject to competitive bid procedures, for a term not to exceed twenty-five (25) years. If such a finding be made, it shall be entered on the minutes of the board and the option granted; provided that the execution of a new lease shall be required to effectuate the additional lease period and the provisions of all applicable statutes setting forth the procedure and requirements for the execution of a lease for sixteenth section lands or lieu lands have been satisfied.

Subleasing or assignment of any lease of school trust lands executed after July 1, 1978, shall only be allowed when provided in the lease contract or at the discretion of the board of education; provided that permission to sublease or assign shall not be arbitrarily withheld.

SECTION 4. This act shall take effect and be in force from and after its passage.