Selling School Property

As school officials evaluate their school’s present and future real property needs, the potential for prop­erty sales may arise. This article addresses frequently asked questions we receive about selling real estate.

1. Is a school authorized to sell property?

Yes. The Revised School Code provides schools with broad authority to dispose of and convey property to public and private entities. Any disposal or convey­ance of property, however, requires board approval.

2. Is a school required to competitively bid out the sale of property?

It depends. Although Michigan law does not mandate competitive bidding to sell property, board policy may require competitive bidding. School officials should review their board policy to determine whether competitive bidding or other procedures are required before a property sale.

3. Can a school sell property to private entities?

Yes, if the school receives “fair value” for the property. Article 9, Section 18 of the Michigan Constitution states, “The credit of the state shall not be granted to, nor in aid of any person, association or corporation, public or private, except as authorized in this constitu­tion.” While courts have interpreted this provision to generally prohibit a public entity from gifting money or property to another entity, this provision does allow for a fair exchange of value for value. A board must make a fact-specific determination, using supporting documentation, about whether it receives fair value for property.

4. Can a school convey property to public entities without receiving “fair value” in return?

Yes, if the school district transfers property to a city, township, or other public entity for a public use. In that situation, the school must insert a clause into the deed stating that the school will regain ownership of the property if it is no longer used for a public use.

5. May a school refuse to sell property to another school?

It depends. Michigan’s Educational Instruction Access Act prohibits schools from discriminating against any educational institution or private school by: (1) refusing to sell or lease property solely because the potential buyer intends to use that property for a lawful educational purpose; or (2) enforcing a deed restriction that prevents the property from being used for lawful educational purpose. School officials may decline to sell property to another school if the reason for doing so is unrelated to the buyer being an educational institution or private school.

6. Can a school incur environmental liability for property it has sold?

Likely, yes. Under environmental protection laws, a school may still be liable for hazardous materials or other environmental contamination even after selling property. School officials should, therefore, try to in­clude language in a purchase agreement that shifts the school’s environmental liability to the purchaser.

7. Can a school sell only a portion of a property parcel to another party?

Likely, yes. Michigan’s Land Division Act regulates dividing a single parcel land into two or more parcels. Municipal approval is generally needed for a land divi­sion that results in parcels 40 acres in size or smaller. If school officials are interested in performing a land divi­sion on school property, they should contact any of the below Thrun property attorneys:

Brennan M. Ackerman - backerman@thrunlaw.com
Gordon W. VanWieren, Jr. - gvanwieren@thrunlaw.com
Kirk C. Herald - kherald@thrunlaw.com
Philip G. Clark - pclark@thrunlaw.com
Piotr M. Matusiak - pmatusiak@thrunlaw.com

8. Is a school responsible for paying closing costs when selling property?

It depends. Often, the buyer and seller will negotiate the allocation of closing costs. Closing costs may include, but are not limited to, the recording cost for transfer documents, attorneys’ fees, title insurance premiums, and inspection and survey expenses. Nota­bly, a public school’s property conveyances are exempt from transfer taxes.

9. Can a school sell property if outstanding tax-exempt or tax-advantaged bonds financed the acquisition, construction, or renovation of that property?

It depends. School officials should consult with bond counsel to ensure that the property’s sale or transfer will not jeopardize the tax-exempt or tax advantaged status of the outstanding bonds.

Property sales and transfers are often complex. Working with legal counsel at the start of the sale pro­cess will help school officials identify, reduce, and, in some cases, eliminate potential barriers to a transac­tion. School officials should also ensure that their board policies only contains legally mandated requirements for selling school property.