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2003 Opinions

Date:   December 9, 2003
Prepared By:   Michael D. Kooi
Phone:   (850) 245-0442
Suncom:   205-0442
Opinion No.:   03-11
Staff Contact:   none
TO: Jeff Wahlen, Attorney for Leon County School Board
FROM: Daniel J. Woodring
General Counsel
SUBJECT: Assignment of lease regarding Mary Brogan Museum

QUESTION PRESENTED: Does the Leon County School Board’s (School Board) assignment of its lease with the city of Tallahassee for the use of the Mary Brogan Museum to Tallahassee Community College (TCC) transfer the termination repayment obligation from the original contract to TCC?

DISCUSSION: In 1991, the School Board submitted a “Community Educational Facility proposal for construction of the Tallahassee Odyssey Science Center pursuant to former Section 235.196, F.S. (1991). This statute, which was repealed in 1995, stated that Public Education Capital Outlay (PECO) funds could not be expended on any project unless specifically authorized by the legislature and required that any educational agency seeking to build educational facilities on land owned by a nongovernmental agency must obtain a long-term lease of not less than 40 years or the life expectancy of the facility, whichever is longer.

On January 28, 1992, the School Board and the City of Tallahassee (City) entered into a lease agreement under which the City authorized the School Board to construct, operate and maintain the Odyssey Science Center Museum, now known as the Mary Brogan Museum. The property was and is owned by the City. Consistent with the above-referenced statute, the term of the lease was 40 years and was subject to legislative PECO funding and a matching amount from the City. The above-referenced lease contains the following provisions relating to its termination:

  1. Prior to substantial completion of the Facility, this Lease may be terminated by either party, in the absence of a default by the other party, provided that the terminating party, prior to the effective date of such termination, gives at least twelve (12) months prior written notice thereof to the other party and reimburses the State of Florida in an amount equal to the total amounts of state funds provided, and paid to Lessee, for design and construction of the Facility.
  2. After substantial completion, this Lease may be terminated by either party, provided that the terminating party, prior to the effective date of such termination, gives at least twelve (12) months prior written notice thereof to the other party and reimburses the State of Florida in an amount equal to the product of the total amount of State funds provided, and paid to the Lessee, for design and construction of the Facility multiplied by a fraction, the denominator of which shall be 480 and the numerator of which shall be the total number of months remaining in the Term of this Lease, not including any extension thereof.
  3. In the event of a termination of this Lease by Lessee under paragraph 3(a) above, Lessee shall restore the Premises to their condition prior to commencement of construction or shall complete the Facility, at the City’s discretion.

    It is understood by both parties that it is not the intent of the State of Florida to fund projects of this nature for an educational facility only to have it abandoned after a few short years of use and that the forty-year lease is required by the Florida Department of Education to ensure that funds provided by the State will be used for the construction of a facility to be used for educational purposes on a long-term basis.

The clause highlighted above was most likely included in order to comply with Rule 6A-2.0203, FAC which has since been repealed, but is the predecessor to Section 2.1 (10) of the SREF which has been incorporated into the Department’s rules in Rule 6A-2.001, FAC, and states:

  1. Improperly Expended Funds by a Board, Including the BOR, the D&B, and Other Educational Agencies. Improperly expended CO&DS funds by a Board, and improperly expended PECO funds, by a board, including the BOR the D&B and other educational agencies, as determined by an independent audit shall be reimbursed to the State no later than the next succeeding budget year after the violation is cited. Arrangement shall be made to reimburse the State from funds exclusive of PECO and CO&DS. Upon failure to make such reimbursement, the Commissioner shall recommend to the State Comptroller that any funds due from the State under any provision of law be withheld until evidence has been submitted to the Commissioner and the State Comptroller that the reimbursement has been made.

Thereafter, in 1992, the Legislature appropriated $205,000 of PECO monies for the design of the Museum and in 1993, an additional $1,845,000 of PECO monies was appropriated for constructing and equipping the Museum. Altogether, a total of $2,050,000 of PECO monies was appropriated to the Department of Education and allocated to the School Board for use in the design and construction of the Museum.

TCC has proposed that the current lease between the City and the School Board be assigned to TCC and that TCC would thereupon operate and maintain the building and maintain the educational purposed of the facilities as originally intended. The text of the proposed Assignment memorializes TCC’s assumption of any PECO repayment obligation as between TCC and the Board as follows:

In the event the Lease or any amended lease is terminated while Assignee holds the leasehold interest and the Florida Department of Education determines that Public Education Capital Outlay Debt Service Trust Fund (PECO funds) have therefore been improperly expended and must be reimbursed, the Assignee shall be responsible for such reimbursement and by Assignees’ acceptance of this Assignment, Assignor is relieved of any obligation or liability for reimbursement of said funds. However, if the leasehold interest in the Lease or amended lease reverts to Assignor under the terms of this Assignment without termination of Lease or the amended lease, the Assignor thereafter shall be responsible for any obligation to reimburse improperly expended PECO funds that may accrue while Assignor holds the leasehold interest and Assignee shall be relieved of any such reimbursement obligation upon relinquishment of the leasehold interest. However, nothing in this paragraph shall amend or modify the repayment provisions in paragraph (b) on page 2 of the Lease or a similar provision included in an amended lease.

The School Board is the agency that expended the PECO monies allocated to it by the legislature to build the Museum. Although the Department is not a party to the original lease or the proposed Assignment, the PECO monies allocated to build the Museum flowed through the Department and were subject to the approval of the Commissioner of Education. Section 235.196, F.S. (1991), has since been repealed, but that statute required that requests for funding to provide for facilities such as this be made to the Commissioner of Education, and were approved provided they met the conditions set forth in the statute. The Department has continued oversight of the funding and the project to insure that it is being utilized in accordance with the original legislative intent.

Accordingly, the School Board’s request for approval of the Assignment of the Lease to TCC is properly submitted to the Commissioner of Education. The Department’s continuing oversight interest relates to the continuation of a long-term lease for the proper educational use of the PECO funds from the original legislative appropriations. To the extent this interest is being met and subject to the approval of the Commissioner, the School Board is free to assign the leasehold interest to TCC. The repayment obligation would be the responsibility of the party with the leasehold interest as set forth in the Assignment provision above.

CONCLUSION: Provided the Assignment of the Lease is approved by the Commissioner, the repayment obligation would be determined by the language set forth in the Assignment. According to the Assignment, the repayment obligation set forth in the original lease would be transferred from the School Board to the assignee, TCC. If TCC were to breach or otherwise terminate the Lease, TCC would be responsible for the repayment obligation.

However, the Assignment also provides that the interest assigned to TCC shall revert back to the School Board if the property is not used for educational purposes. Therefore, should the leasehold interest revert back to the School Board as provided by the assignment without a termination of the original Lease, the repayment obligation would once again become the responsibility of the School Board.

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