Oregon Advisory Opinions January 01, 1971: OP 6277

Advisory Opinion Text

A grave question exists as to the constitutionality of Engrossed House Bill 1014, now ORS 273.382 et seq., which authorized the expenditure for the ac­quisition of real property involved in the Boardman Space Age Industrial Park.

In the absence of any breach by Boe­ing, the only ground for breaking the state's lease of the Boardman Space Age Industrial Park is the unconstitution­ality of the law authorizing such a lease.

The lease to Boeing does not provide for renegotiations other than periodic rental adjustments based upon the fed­eral wholesale price index. Boeing is required to meet the "Use Test" prior to December 1970. A breach for non-use subsequent to December 31, 1971, can only occur when a failure to meet the "Use Test" continues for 12 con­secutive months. [House Bill 1014 tabled April 11, 1967.] No. 6277 April 4, 1967 Honorable Ted Hallock State Senator You have requested the opinion of this office on certain questions involv­ing the state's Boardman lease to the Boeing Company.

Your first question is:

"Whether or not there is legal precedent in the case of Hogg vs. Mackay in Oregon for the state to break its lease with Boeing on the grounds of discriminatory tax abate­ment."

The statute ruled unconstitutional in Hogg v. Mackay, (1893) 23 Or. 339, 31 P. 779, granted to the Willamette Valley & Coast Railroad Company, a commu­tation of all real and personal property taxes in consideration of an agreement by the company to render certain serv­ices to the state without additional com­pensation. It should be noted that the property involved was owned by the company and that no taxes were to be received by the taxing districts.

The lease with Boeing, article IV, paragraph 5, states that, "* * * The Company shall pay or cause to be paid when due all taxes, * * * the Com­pany may deduct from rental payments due to the State * * * any and all taxes payable during such calendar year based upon * * * either: (i) the bare land value of the prem­ises; or (ii) the value of this leasehold in­terest as intangible personal property; or (iii) both (i) and (ii) above."

Under the terms of this lease the state pays all taxes on the real property with Boeing remaining liable for taxes levied against personal property and improve­ments.

All property of the state, except as provided by law. is granted tax im­munity under ORS 307.090. However, ORS 307.110 provides that all real and personal property of this state held under lease by any person whose real property is taxable, is subject to assess­ment and taxation uniformly with other real property.

Due to the dissimilarity between the factual situation in Hogg v. Mackay and the terms of the Boeing lease, we do not believe that the legal conclusion reached in the former is necessarily ap­plicable to the latter. In the instant case the land is owned by the state, and the state as lessor assumes liability for the taxes levied against such, land, as part of the consideration for annual rental to be paid by the lessee. Of pri­mary concern in the Hogg case was the fact that the land involved was not being taxed, thus imposing an unequal burden upon others in the taxing dis­trict. Such is not the case in the present situation.

Your second question is:

"If this case is not germane, are there other grounds upon which the lease could be broken; grounds for which the substance now exists."

In the absence of any breach by Boeing of the terms of the lease, which would give the state grounds upon which to break the lease, the only grounds for challenging the lease would be as set forth below in answer to your sixth question.

Your third and fourth questions are: "What is the first date Oregon can com­mence renegotiating the lease."

"What latitude does Oregon have in such negotiations; i.e., which points are open to discussion and which are not."

The lease does not provide for re­negotiations other than rental adjust­ment every 10 years commencing in 1970, article III, paragraph 4. The ad­justed rent for any 10-year period shall be the amount which bears the same ratio to $60,000, as the federal whole­sale price index (all commodities) for the month of March of the year im­mediately preceding any adjustment date, bears to the same index for the calendar month to which Boeing initially took possession of the premises. Other alternative methods are supplied should the federal wholesale price in­dex be discontinued.

The company also reserved the right to terminate the lease without cause every 10 years commencing with 1970 upon one year's advance notice. Article II, paragraph 4 (c). No such provision was made for the state; however, the authorities are in agreement that a pro­vision for unilateral termination does not render the contract void for want of mutuality if said contract also provides for advance notice of termination for a fixed period. See Phalanx Air Freight, Inc. v. National Skyway Freight Corpo­ration. (1951) 104 Cal. App. (2d) 771, 232 P. (2d) 510, 512, and authorities cited therein.

Your fifth question is:

"What proof of performance, good faith, or any other index of corporate behavior is required of Boeing, if any, as a condition of satisfying Oregon's lease interest, other than the regular and routine payment of rent monies to us."

Boeing is required to use at least a part of the premises for industrial or industrial research or development pur­poses prior to December 31, 1970. How­ever, the lease provides that if at any time prior to December 31, 1970, Boeing has used the premises primarily for in­dustrial or industrial research or de­velopment purposes the state cannot terminate the lease under this section, article II, paragraph 3 (a).

A breach of nonuse by Boeing sub­sequent to December 31, 1971, can only occur when a failure to use for indus­trial or industrial research or develop­ment purposes continues for 12 con­secutive months. Upon the state giving notice to Boeing of such failure, Boeing has six calendar months in which to remedy the breach. If no action is taken, the state may unilaterally termi­nate the lease.

Your sixth question is:

"Does this lease violate any provisions of Oregon's Constitution or any current Oregon statutes."

In opinion of the Attorney General No. 5737, dated November 22, 1963, this office answered an inquiry substan­tially similar. This opinion, which has already been forwarded to you, covered Engrossed House Bill 1014, now ORS 273.382 et seq., and the lease to Boeing. Upon a reexamination of that opinion we can find no reason to alter our con­clusion which was, "that a grave ques­tion exists as to the constitutionality of Engrossed House Bill No. 1014 * * *."

ROBERT Y. THORNTON, Attorney General.

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