L'Esperance v. Town of Charlotte

L'Esperance v. Town of Charlotte  (96-532); 167 Vt. 162; 704 A.2d 760

[Filed 3-Oct-1997]

       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.


                            No. 96-532


Roy & Linda L'Esperance                      Supreme Court

                                             On Appeal from
    v.                                       Chittenden Superior Court

Town of Charlotte                            April Term, 1997



Shireen Avis Fisher, J.

Mark A. Kaplan and Richard R. Goldsborough of Jarvis & Kaplan, Burlington,
for plaintiffs-appellees.

Steven F. Stitzel of Stitzel & Page, P.C., Burlington, for defendant-appellant.


PRESENT:  Amestoy, C.J., Gibson, Dooley, and Johnson, JJ. and 
          Allen, C.J. (Ret.), Specially Assigned.

       DOOLEY, J.  Plaintiffs Roy and Linda L'Esperance sued to compel the
  Town of Charlotte to renew their lease for property on Lake Champlain under
  the same terms as their original lease.  The superior court agreed that
  plaintiffs were entitled to renewal and granted them summary judgment.  On
  appeal, the Town of Charlotte argues that (1) the lease violates Chapter I,
  Articles 7 and 9 of the Vermont Constitution, (2) the lease is invalid
  because it is contrary to public policy, (3) the lease is not supported by
  adequate consideration, and (4) the selectmen lacked authority to grant a
  lease that contained an option to renew beyond its initial fifteen-year
  term.  We affirm.

       The Town of Charlotte owns a large piece of property on Lake
  Champlain, known as Thompson's Point, and has subdivided it into lots that
  it leases as sites for homes and summer camps.  In 1979, the Town entered
  into a fifteen-year lease with plaintiffs for a quarter-acre lot with
  one-hundred feet of lake frontage.  The lease is referred to by the parties
  as a "ninety-times

 

  lease" because the annual rent is calculated by multiplying the town tax
  rate by ninety; in 1993, this calculation produced a rent of $138.60 per
  year.  The lease was renewable for an additional fifteen-year period on the
  same terms.  With the approval of the Town, plaintiffs placed a year-round
  residence on the lot, spending in excess of $50,000 on the building and
  improvements. The residence is currently appraised at $86,108 and results
  in an annual property tax liability to the Town of $1,369.

       In July 1993, Roy L'Esperance notified the Town of his intention to
  exercise the option to renew on the lease.  By letter dated September 1993,
  the Town informed plaintiffs that it would renew the lease only if they
  agreed to new terms, including higher rental payments.  The proposed lease
  would set the rent  by multiplying each $10,000 of appraised lot value
  times 200; based on the last appraisal, the rent proposed by the Town would
  be $1,288 per year.  Plaintiffs sued to enforce the option to renew on the
  same terms as the original lease and were granted summary judgment by the
  trial court in May 1995.(FN1)  The Town appealed to this Court, and we
  reversed and remanded the matter to the trial court to resolve an issue of
  material fact as to whether the Town had waived timely notice of renewal. 
  See ___ Vt. ___, 683 A.2d 17 (1996) (unpublished).  On remand, the court
  found that the Town had waived any objection it had to the late notice of
  renewal of the lease.  The Town then filed this appeal.

       There is no dispute that the lease requires the Town to renew for an
  additional fifteen-year term at the same rental rate as the initial term. 
  Thus, the Town seeks to avoid enforcement of the lease on a number of
  theories.  Central to its arguments is the fact that the lease has become a
  bad deal for the Town.  In the decade before 1979, the Town's property tax
  rate reached $7.30 per hundred dollars of appraised value.  At this rate,
  the annual rent under the ninety-times lease would have been $657. 
  Apparently, the Town expected that the rent

 

  calculation would continue to produce a fair return over the years.

       The Town miscalculated.  Valuation assessments increased to fair
  market value, and the tax rate fell below $2.00 per hundred dollars of
  appraised value in the 1980's.  As a result, the rents paid by ninety-times
  leaseholders decreased at the same time as lakeshore property values
  sharply increased.  Where it could, the Town changed the rent-calculation
  formula to $2.00 per hundred dollars of appraised value.  At this rate,
  plaintiffs would pay rent of $1,288 per year.

       The Town's first claim is that the annual rent in the original lease
  violates Chapter I, Articles 7 and 9 of the Vermont Constitution.(FN2)
  Article 7, known as the Common Benefits Clause, provides in relevant part:

     That government is, or ought to be, instituted for the common
     benefit, protection, and security of the people, nation, or
     community, and not for the particular emolument or advantage of
     any single person, family, or set of persons, who are a part only
     of that community . . . .

  The rights guaranteed by the Common Benefits Clause are generally
  coextensive with those protected under the Equal Protection Clause of the
  United States Constitution.  Brigham v. State, 8 Vt. L.W. 41, 47 (1997). 
  When no fundamental right or suspect class is involved, Article 7 requires
  that laws must be reasonably related to the promotion of a valid public
  purpose. McCallum v. Seymour, ___ Vt. ___, ___, 686 A.2d 935, 937-38
  (1996).  The Town's position is that the annual rental payments are so low
  that they do not serve a public purpose.

       We agree that a lease of Town land without any benefit to the Town
  would not serve a public purpose.  Thus, the Town must receive adequate and
  reasonable rent or other benefits. See, e.g., City of Douglas v. Douglas
  Canning Co., 161 F. Supp. 379, 383-84 (D. Alaska 1958)

 

  (consideration received from lease of wharf may be reasonable if benefits
  of salmon cannery are included); City of Tempe v. Pilot Properties, Inc.,
  527 P.2d 515, 521-22 (Ariz. Ct. App. 1974) (benefits received by city from
  lease of sports stadium are more than amount of rent alone);  Ott v. Town
  of West New York, 222 A.2d 541, 551 (N.J. Sup. Ct. 1966) (municipal agency
  properly determined that long-term benefits of middle-income housing
  outweighed immediate dollar return that might be gained from sale of land). 
  There is, of course, no requirement that the Town receive fair market
  rental value for the lease.  See Dothan Area Chamber of Commerce, Inc. v.
  Shealy, 561 So. 2d 515, 517 (Ala. 1990) (municipality not required to prove
  that it received fair market value on lease of property).

       Two other points are crucial to our review.  First, our standard of
  review is necessarily deferential.  We will review municipal lease
  agreements only for abuse of discretion, and will not substitute our
  judgment for that of the municipal corporation, even if we would have
  insisted on a greater benefit to the Town had we negotiated the lease.  See
  Bates v. Bassett, 60 Vt. 530, 535, 15 A. 200, 202 (1888) (Court will defer
  to municipal corporation "until it is seen that [its] discretion is abused
  by a willful perversion of [its lawful] power to illegal ends or abuse of
  its exercise that demands restriction").  This deferential standard of
  review has been adopted by a number of other jurisdictions that have
  considered the adequacy of lease payments received by municipalities.  See,
  e.g., Shealy, 561 So. 2d  at 517 (adequacy of consideration is left to
  judgment of City's duly elected officials); Kromko v. Arizona Bd. of
  Regents, 718 P.2d 478, 481 (Ariz. 1986) (consideration received by
  municipal corporation is reviewed for abuse of discretion).

       Second, we believe that the adequacy of the rent must be evaluated
  from the perspective of the parties at the time the lease was made.  Cf.
  Lloyd's Credit Corp. v. Marlin Mgt. Servs., Inc., 158 Vt. 594, 598, 614 A.2d 812, 815 (1992).  In any long-term lease, the passage of time is
  likely to make it more favorable to one of the parties.  Thus, each party
  takes the risk that future events will disadvantage the party's economic
  position.  We cannot allow a Town to

 

  enforce a lease when it is economically productive and repudiate it when
  the assumed risks make it less productive.  Cf.  Town of Mount Holly v.
  Buswell, 45 Vt. 354, 361-62 (1873).  Indeed, we note that long-term leases
  of public land, with fixed annual rents, were common in this state in early
  years.  See, e.g., Johnson v. Town of Salisbury, 120 Vt. 6, 7, 132 A.2d 423, 424 (1957) (year-to-year tenancy with annual rent of twenty dollars);
  Jones v. Vermont Asbestos Corp., 108 Vt. 79, 86, 182 A. 291, 294 (1936)
  (long-term leases with annual rents of $17.50 and $25);  University of Vt.
  v. Ward, 104 Vt. 239, 246, 263, 158 A. 773, 778, 787 (1932) (long-term
  lease with reserved annual rent).  Only when the rent payment was de
  minimis did we hold that a perpetual lease was actually a conveyance in fee
  simple.  See Society for the Propogation of the Gospel v. Town of Sharon,
  28 Vt. 603, 616 (1856); see also Board of Educ. v. Hudson, 585 So. 2d 683,
  686-87 (Miss. 1991) (invalidating ninety-nine-year lease obtained for
  one-time fee of $150).  We are necessarily reluctant to hold that the
  common practice of long-term, fixed-rent leases violates Article 7 if the
  financial terms become less advantageous to the Town over time.

       With these principles in mind, we conclude that the Town receives
  adequate and reasonable benefits from plaintiffs in connection with the
  lease.  Specifically, the Town receives rental payments from the lease of
  the land, property taxes on improvements to the land, and the possibility
  of obtaining title to plaintiffs' house at the end of the lease.  By
  leasing instead of selling, the Town also retains the ability to convert
  the property into a public use upon expiration of the lease.

       We are not persuaded by the Town's argument that we should ignore the
  tax benefits the Town obtains from plaintiffs' house because these taxes
  represent an independent obligation of ownership of real property.  Because
  the land is primarily developed for summer camps, the leases offer the Town
  the ability to increase its property tax base without incurring high
  expenses

 

  for public services to lessees.(FN3)  This tax base with limited services
  helps keep property taxes down for year-round residents.

       The Town's property base increases, however, only if lessees use the
  land for a home or seasonal camp.  The attractiveness of this use is
  necessarily limited because, at the end of the rental period, the Town can
  reclaim the land and force the lessee to lose the structure or move it at
  great expense.  In this case, the evidence suggests that the structure
  cannot be moved so the Town will obtain it at the end of the lease.  The
  limited period of the lease, and the development expense desired by the
  Town and assumed by the lessee, may well have limited the rent that the
  Town could charge when the leases were negotiated.  Even if we ignore the
  benefit to the Town of additions to the property base, we cannot conclude
  that the benefits to the Town were inadequate at the time the lease was
  signed.  The fact that the Town is now able to negotiate more advantageous
  rental terms does not change our assessment of the situation in 1979.

       We have reviewed the cases from other jurisdictions on which the Town
  has relied and find them distinguishable.  Most are based on precise
  constitutional prohibitions that are not included in the Vermont
  Constitution.  We need not analyze the differences in constitutional
  language, however, because in each case the return to the municipality was
  minimal and the inadequacy was present from the beginning of the lease. 
  See City of Tempe, 527 P.2d  at 521-22 (lease to baseball team of 110 acres
  at $1 per year for spring training facility could violate constitutional
  prohibition on "donation or grant, by subsidy or otherwise" if
  consideration received by city is so inequitable and unreasonable as to be
  abuse of discretion); Northeast La. Detachment of Marine Corps League v.
  City of Monroe, 253 So. 2d 107, 110 (La. Ct. App. 1971) (ninety-nine-year
  lease of 3.2 acres at $1 per year to nonprofit organization amounted to

 

  loan or grant of public property because consideration was not "serious or
  sufficient"); Board of Educ, 585 So. 2d  at 688 (ninety-nine-year lease of
  3.5 acres for a one-time fee of $150 violated constitutional provision
  prohibiting donation of public lands to private individual or business);
  City of East Orange v. Board of Water Comm'rs, 191 A.2d 749, 752-56 (N.J.
  Super. Ct. 1963), aff'd, 194 A.2d 459, 461 (N.J. 1963) (lease of 151 acres
  for golf course was unconstitutional gift of public land where rent was $1
  per year and the city agreed to pay first $1500 of property taxes).  We
  hold that the lease terms in this case served a public purpose and were
  reasonably related to the promotion of that purpose.  As a result, the Town
  may not avoid enforcement of the option to renew on the ground that it
  violates Chapter I, Article 7 of the Vermont Constitution.

       As its second and third claims, the Town has repackaged its fairness
  arguments into claims that the lease violates public policy and is not
  supported by adequate consideration. Having concluded that the lease terms
  provide adequate and reasonable benefits, our constitutional analysis
  disposes of these two claims.

       Finally, the Town contends that its selectmen lacked authority to
  enter into a lease for fifteen years with an option to renew because the
  Town voted at its 1891 Annual Meeting to limit leases on Thompson's Point
  to fifteen years.  The Town of Charlotte has an original land-grant
  charter dating back to 1762; it does not have a legislative charter.  As a
  result, the Town's powers and functions derive from the general statutory
  scheme for municipalities.  24 V.S.A. §§ 801-5200.  Towns have the power to
  hold and manage real property, see Village of Hardwick v. Town of Wolcott,
  98 Vt. 343, 351, 129 A. 159, 161 (1925), and this power includes the
  authority to lease its real estate as necessary for public purposes, see
  Davis v. Inhabitants of Rockport, 100 N.E. 612, 614 (Mass. 1913).

       The record indicates that the Town purchased Thompson's Point in 1839
  in order to establish a "poor farm."  See 1840 R.S. 17, § 1 (authorizing
  purchase of land by towns for purpose of establishing work-houses for
  poor).  The statute governing poor farms authorized

 

  other uses of the property "when the town or towns interested determine[d]
  so to do."  1880 R.L. § 2872.  In a similar manner, the statute governing
  glebe lands also allows for other uses; however, the glebe lands statute
  gives specific authority to the town selectmen rather than the town.  See
  24 V.S.A. §§ 2401 - 2405.  Perhaps due to this difference in statutory
  language, the Thompson's Point leases became a matter of town vote.  In
  1882, the Town of Charlotte voted to lease lots on Thompson's Point at
  "fair and equitable rates."  In 1891, the Town voted to limit leases on
  Thompson's Point to fifteen years.  The Town has not rescinded or amended
  these votes.  Poor farms were abolished by the Legislature in 1967.  See
  1967, No. 147, § 53. In 1978, the Legislature repealed -- as unnecessary --
  the statute allowing towns to use poor farm property for other purposes. 
  See 1977, No. 147 (Adj. Sess.).  By 1979, when plaintiffs entered into
  their lease with the Town of Charlotte, the Legislature treated "poor farm"
  property like any other town property.

       The selectmen "have the general supervision of the affairs of the
  town."  24 V.S.A. § 872.  This is a broad power "to undertake many
  administrative duties imposed and authorized by the statutory law
  concerning the safety, convenience and health of their townspeople." Lawton
  v. Town of Brattleboro, 128 Vt. 525, 529, 266 A.2d 816, 819 (1970). 
  Although the Legislature can create exceptions to this broad authority, see
  Kirchner v. Giebink, 150 Vt. 172, 175, 552 A.2d 372, 374 (1988), it has
  imposed no limit that is applicable in this case.  The selectmen's general
  supervisory power is derived from statute and not from any vote of the
  electorate.  See Lawton, 128 Vt. at 529, 266 A.2d  at 819.

       The management of town government has grown increasingly complex over
  the years, and necessarily, the governance powers of selectmen have
  expanded.  Much of this management cannot await the direction of citizens
  at annual or special town meetings.   In Kirchner, the selectmen entered
  into a complicated contract with a private developer to expand the size of
  the town's sewage treatment plant and to construct over a mile of sewer
  line, with the developer paying for the cost of the improvements and the
  town agreeing to collect connection fees from

 

  other users and reimburse the developer for part of its costs.  See
  Kirchner, 150 Vt. at 174-80, 552 A.2d  at 374-78.  In general, we found the
  agreement to be a valid exercise of the selectmen's supervisory powers. 
  Id.  We have also recently held that the release of a town's ownership
  interest in timber, cut from town land, was within the selectmen's
  supervisory authority.  Town of Wolcott v. Behrend, 147 Vt. 453, 457, 519 A.2d 1156, 1159 (1986).

       We have no difficulty holding that the lease of public land, under the
  circumstances present in this case, fell within the supervisory power of
  the selectmen.  See 24 V.S.A. § 872. It would not be good management to
  have the voters attempt to negotiate the details of leases; nor would it be
  sound management to require the board to sit idle under these circumstances
  awaiting infrequent opportunities to obtain direction from the voters. 
  Furthermore, because the selectmen were acting pursuant to their general
  supervisory powers when they entered into the 1979 lease with plaintiffs,
  they were not bound by the Town's vote in 1891 to limit leases to fifteen
  years.(FN4)  The Town is now obligated to abide by the terms of plaintiffs'
  original lease. We therefore affirm the grant of summary judgment to
  plaintiffs.(FN5)

       Affirmed.
                                   FOR THE COURT:


                                   Associate Justice

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                                  Footnotes

FN1.  The United States District Court has also decided a virtually
  identical case, reaching the same result as the trial court and this Court. 
  See Rutter v. Town of Charlotte, No. 2:93-CV-391 (D. Vt. May 27, 1995).

FN2.  Chapter I, Article 9 prohibits the raising of a tax unless it
  furthers a public purpose: "[P]revious to any law being made to raise a
  tax, the purpose for which it is to be raised ought to appear evident to
  the Legislature to be of more service to community than the money would be
  if not collected."  Vt. Const. ch. I, art. 9; see also Gross v. Gates, 109
  Vt. 156, 160, 194 A. 465, 467-68 (1937) (legislative act benefiting widow
  of slain police officer did not violate Article 9).  In leasing municipally
  owned property, the Town is neither imposing a tax nor spending public
  funds.  Thus, we do not believe plaintiff's lease implicates this clause,
  and reject those aspects of the Town's argument that rely upon Article 9.

FN3.  We recognize that, pursuant to a formal lease amendment,
  plaintiffs are allowed to use the property for a year-round residence. 
  This amendment does not change our conclusion.  The leases normally limit
  the use to "a summer seasonal vacation dwelling."  In waiving that limit
  with respect to plaintiffs, the Town presumably ensured that the cost of
  public services did not become excessive in relation to the benefit
  received.

FN4.  The federal court resolved the Town's argument that the 1891
  vote controlled by holding that the Town had waived the claim by receiving
  the benefit of the leases without complaint for more than fifteen years. 
  See Rutter, slip op. at 11.  In view of our disposition, we do not reach
  the waiver issue.  Nor do we decide whether the option to renew violated
  the term restriction imposed by the voters.


FN5.  By letter, the Town has asked that we consider the effect of the
  recently enacted "Act Relating to Educational Opportunity," which the Town
  claims will result in further significant reductions in its property tax
  rate in the future.  The issue before us is whether the Town should have
  renewed the lease in 1994, and we have resolved that issue.  We have not
  considered events that may have occurred thereafter and are outside the
  record.