Reasons Why a Real Estate Transaction with a Local Government May Take So Long

When an Industrial Development Authority, sometimes called an Economic Development Authority (IDA/EDA), purchases or sells real property, the transactions look much like any transaction with any other entity landowner. However, when a locality – a county, a city, or a town (school properties and courthouse properties are omitted from this discussion) – wishes to sell or acquire real property, the transaction will have requirements that may not be as familiar to those who regularly engage in private transactions.

For those of us who do work with localities to purchase, sell, develop, grant easements over, and otherwise engage in real estate transactions involving localities, my primary recommendation will be to have patience. There are a number of unavoidable statutory requirements – and even limitations – that must be adhered to, so make sure you factor those into your project timeline and your project objectives.

Public hearing to sell or lease property.

Va. Code § 15.2-1800 requires a locality to hold a public hearing when disposing of an interest in real property, including a leasehold interest in real property. Therefore, if you wish to purchase real property from a locality or lease property owned by a locality, be aware that a public hearing must be held and that the documents, the proposed lease or purchase contract, and likely other documents will be public documents, at least at some point.

The Virginia Freedom of Information Act (FOIA) does contain exemptions that may protect documents while negotiations are ongoing[1], but when the transaction has been negotiated and is ready to be finalized, the transaction documents, then public records, will become subject to disclosure. The public hearing must be advertised at least seven days prior to the date set for the public hearing.[2]

Public hearing for acquisition.

Generally, localities are not required to hold public hearings when acquiring real property. However, Va. Code § 15.2-1802 does require that a public hearing be held when the real property is acquired for the development of business or industry. The public hearing must be advertised at least seven days prior to the date set for the public hearing.[3]

Acceptance of acquisition.

Va. Code § 15.2-1803 requires that every deed conveying real property to a locality must be accepted by a resolution of the locality. Because in Virginia the delivery of the deed effects the conveyance, I advise that the deed can be accepted only when it is fully executed and delivered. Also, an acquisition can include a donation of real property, which can (assuming all other requirements are met) constitute a charitable contribution for the grantor when made for a public purpose.[4]

Other restrictions for cities and towns.

Cities and towns are subject to additional restrictions for the disposition of real property assets.  (See Va. Code § 15.2-2100, et seq.)

When selling a “public place,” a city or town must adopt an ordinance approved by three-fourths of the members elected to the council (not just the members present at the meeting) in order to approve the sale.

Easements or other licenses to use real property of cities or towns may not be granted for periods in excess of forty years. When granted for periods in excess of five years, a bidding process is required and must be advertised for at least two weeks prior to the adoption of the required ordinance. For certain economic development purposes, this restriction can prove problematic, especially with storm water requirements that will be required well beyond forty years.

Adverse possession.

While adverse possession is, in my experience, seen as a remedy of last resort for localities, it is an option that is available. Localities that have been using an easement, for example, or perhaps an entire property for a period of time could establish ownership of the property or property right by adverse possession. However, a private individual or entity cannot acquire an interest in any public property by adverse possession. If that is the situation you are in or your client is in, adverse possession will not be the option to choose. In that case, a straight acquisition from the locality would be most successful.

Godspeed as you navigate your transactions with local governments in Virginia and may they all prove successful. While it is almost a certainty that the steps to affect the transactions will take longer than you may be accustomed to and will include steps that are outside of the norm in the private world, the requirements are designed to protect the citizens and their properties and ensure open and transparent governmental operations. That helps us all.

If you need assistance with your commercial real estate transaction, contact a member of our team.

[1] See, e.g., Va. Code §§ 2.2-3705.1(5), (8), and (12); Va. Code § 2.2-3705.7(2); Va. Code §§ 2.2-3711(A)(3, (A)(5) and (A)(6).

[2] Va. Code § 15.2-1813.

[3] Va. Code § 15.2-1813.

[4] I.R.C. § 170.