LEASE ON BEHALF OF STATE DEPARTMENTS - TERM BEYOND BIENNIUM - VALIDITY

LEASE ON BEHALF OF STATE DEPARTMENTS ‑- TERM BEYOND BIENNIUM ‑- VALIDITY.

Lease of office space for state department can lawfully be executed for term longer than biennium; but state will not be bound thereby if legislature refuses to make appropriation therefor, or discontinues the department involved.

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                                                                  March 15, 1954

Honorable Carlton I. Sears
State Senator
2412 South Columbia Street
Olympia, Washington                                                                                              Cite as:  AGO 53-55 No. 222

Dear Sir:

            By letter as previously acknowledged you have requested our opinion upon a question which may be paraphrased as follows:  Can a lease of office space for a period of more than two years be executed lawfully on behalf of a state department?

            Our conclusion may be stated in this way:  The execution of such a lease is lawful; but the state will not be bound thereby in subsequent bienniums if the legislature refuses to make appropriation therefor, or discontinues the department involved.

                                                                     ANALYSIS

            All leases for the various state departments must be made through the Supervisor of Purchasing, under RCW 43.90.060; and rental contracts are subject to approval as to form by the Attorney General, under RCW 43.90.080.  We understand that the general policy is to limit leases to two years when possible, but sound business practice directed toward the need for suitable quarters and toward economy does not always permit such a limitation.  SeeKelley v. Earle, 325 Pa. 337, 190 Atl. 140.  Our office has twice advised that longer leases are  [[Orig. Op. Page 2]] not unlawful.  See attached opinions to the Director of Finance, Budget and Business, on March 27, 1947, and to the Director of Public Institutions on March 22, 1949 [[Opinion No. 47-49-568]].  The general problem and the conditions which such a lease should contain are set out in the opinion of March 27, 1947.

            Stated briefly, the possible objections to leases continuing beyond the biennium are as follows:

            1.  That they attempt to bind future legislatures.

            2.  That a deficiency is thereby incurred.

            3.  That a debt may be created in contravention of Article VIII, § 1 of the state constitution.

            1.  It is of course basic that one legislature cannot bind its successors to appropriate funds.  Administrative officers obviously cannot do so.  The theory of the objection apparently is that when the lease is executed the legislature is bound in later years to appropriate the rent.  But money can be spent under an appropriation only during the biennium or within one month thereafter.  Article VIII, § 4 (Amendment 11).  A "continuing appropriation" is invalid.  State ex rel. Davis v. Clausen, 160 Wash. 618, 295 Pac. 751.  Thus payment of rent under the lease depends entirely upon appropriations therefor by subsequent legislatures.  Those appropriations may or may not be made.

            The practice in many states is to insert language in the lease stating clearly that continuance depends upon appropriations (and of course upon the continued existence of the department itself, which also is subject to legislative action).  SeeStarling Realty Co. v. State, 286 N.Y. 272, 36 N.E. (2d) 138.  Even if that is not done, anyone contracting with the state is charged with knowledge of the law in that respect.  The practical effect of such a lease is therefore to give the state an option to renew for a two-year period at the end of each biennium, at the same terms, for the term of the lease.  The legislature may exercise the option by appropriation.  As indicated, this result is wise and economical in many situations.  We do not believe that it is unlawful.

            2.  The deficiency objection partakes of the thought that the state might be liable for rent for the entire term of the lease upon execution, although the rent during the biennium was within a valid appropriation.  But a true deficiency would occur  [[Orig. Op. Page 3]] only if the rent during the biennium exceeded the appropriation therefor.  SeeFergus v. Brady, 277 Ill. 272, 115 N.E. 393.  The state, as we have explained, is not liable for rent in later bienniums until appropriation is made; and when that is done there is no deficiency.  Hence such a lease does not violate the deficiency prohibition in the budget law (RCW 43.86.090).

            3. The debt objection goes to Article VIII, § 1.  The contention again is that upon the execution of a long-term lease the state at once becomes liable for the entire amount of rent over the term, so that a debt is created.  As pointed out, the state is not absolutely bound beyond any particular biennium.  The duty to pay rent accrues during each year or period when the premises are furnished, and can be covered by the appropriation for that period.  Our court has held that a "debt" within the meaning of Article VIII, § 1, is an obligation which the state is absolutely liable to pay.  Gruen v. State Tax Commission, 35 Wn. (2d) 1, 211 P. (2d) 651; State ex rel. Troy v. Yelle, 36 Wn. (2d) 192, 217 P. (2d) 337.  The latter case explains in detail the effect of Article VIII, § 1.  Current operating expenses, which we think clearly include leases, are not such "debts."  To the same effect are a number of cases from other jurisdictions which uphold long-term leases against this argument, including the following:  Vandergrift v. Riley, 84 Cal. Dec. 533, 16 P. (2d) 734;Dean v. Kuchel, 35 Cal. (2d) 444, 218 P. (2d) 521 Kelley v. Earle, supra.

            The important distinction here is that the courts may consider that a lease with option to purchase is in fact merely a disguised contract of sale, in which case a debt may be created by the contract.  SeeOpinion of the Justices, 79 A. (2d) 753; and annotations in 71 A.L.R. 1318 and 145 A.L.R. 1362.  In the case of a sale, where the state retains something ‑ whether personalty or realty in the form of a building ‑ the result would be fraud and confiscation if the price were not paid.  Thus such contracts are considered binding, creating debts if payment is to be made over a period of years, and different financing arrangements are set up.  The difference in the case of a lease, where premises are furnished and payment made periodically, is apparent.  In our opinion, such leases do not create unconstitutional debts.

            From the foregoing, we conclude that the Supervisor of Purchasing may execute leases on behalf of state departments for periods longer than the biennium, and adhere to the previous opinions of this office as cited and attached.

Very truly yours,

DON EASTVOLD
Attorney General

A. J. HUTTON, JR.
Assistant Attorney General