Charter Schools

MEMORANDUM

To: Charter School Directors

From: Tom Melcher, School Finance Director

Date June 18, 2014

Subject: 2014 Building Lease Aid Legislation

MDE has received a number of questions regarding the 2014 amendment to the building lease aid statute. This memorandum is intended to answer several frequently asked questions.

Laws of Minnesota for 2014, Chapter 272, Article 3, Section 42, amends Minnesota Statutes, Section 124D.11, Subdivision 4, dealing with building lease aid. Under the language as amended:

The commissioner must approve aid only for a facility lease that has (i) a sum certain annual cost and (ii) a closure clause to relieve the charter school of its lease obligations at the time the charter contract is terminated or not renewed; the closure clause must not be constructed or construed to relieve the charter school of its lease obligations in effect before the charter contract is terminated or not renewed.

The new language is effective the day following final enactment and applies to all leases and affiliated building company finance agreements entered into or modified after that date. Since the bill was signed by the Governor on May 16, 2014, the new language is effective May 17, 2014, and applies to all leases and affiliated building company finance agreements entered into or modified on May 18, 2014 or later.

Laws of Minnesota for 2013, Chapter 116, Article 4, Section 4, also amended Minnesota Statutes, Section 124D.11, Subdivision 4, effective July 1, 2014. However, since the 2013 amendment had not yet taken effect when the above-cited 2014 legislation was enacted, the 2014 legislation replaces the 2013 legislation.

Therefore, given the effective date for the 2014 legislation, the requirements for (i) a sum certain annual cost and (ii) a closure clause to relieve the charter school of its lease obligations at the time the charter contract is terminated or not renewed, apply only to leases and affiliated building company finance agreements entered into or modified on May 18, 2014 or later. The requirement for a sum certain annual cost and a closure clause do not apply to leases and affiliated building company finance agreements entered into or modified (signed by both parties) before May 18, 2014, even if those agreements are not effective until July 1, 2014.

For leases entered into before May 18, 2014, any changes to the terms and conditions of the lease entered into on May 18, 2014 or later, no matter how minor and no matter whether the changes are made to the text of the lease agreement itself or in a separate document, will trigger the requirement for a sum certain annual cost and a closure clause to qualify for building lease aid. However, for a charter school with a lease agreement specifying an annual lease rate per pupil unit, a letter signed by the landlord and the charter school agreeing to an estimated number of pupil units for purposes of estimating the total lease cost under the agreement (without making any changes to the lease rate specified in the lease agreement) does not change the terms and conditions of the lease agreement and is not considered a modification of the lease agreement.

For leases entered into or modified on May 18, 2014 or later, the term “sum certain annual cost” means a fixed dollar amount for the year that does not vary with changes in pupil units, inflation or other factors. MDE will accept “Sum Certain” amounts in the agreement that require certain adjustments to the base rent.  For example: If property taxes are payable in addition to base rent by the tenant, MDE will add property taxes less special assessments to the base rent.  If utilities, custodial and maintenance costs are included in the base rent, MDE will subtract these amounts from the base rent.

For leases entered into or modified on May 18, 2014 or later, the statute defines the phrase “closure clause” only by specifying that such a clause “must not be constructed or construed to relieve the charter school of its lease obligations in effect before the charter contract is terminated or not renewed.” Therefore, charter schools and their landlords have a reasonable amount of flexibility to specify the exact language of the closure clause. The following is an example of closure clause language that would be acceptable to MDE:

TERMINATION

Pursuant to Minn. Stat. § 124D.11, subd. 4, this Lease is subject to cancellation upon thirty (30) days prior written notice by LESSEE to LESSOR, if the LESSEE’s charter contract is terminated or not renewed.  This provision shall not be constructed or construed to relieve the LESSEE of its lease obligations in effect before the charter contract is terminated or not renewed.

Questions concerning this memorandum should be directed to Patti Scott at (651) 582-8646 or patti.scott@state.mn.us or to David Day at (651) 582-8384 or david.day@state.mn.us.

Cc: Denise Anderson

Cindy Murphy

Kevin McHenry

Mary Weigel

Patti Scott

David Day