Most charters grant the power to acquire, receive, hold, maintain, improve, sell, lease, mortgage, pledge or otherwise dispose of real and personal property. The strategies for selling surplus equipment, machinery, or materials differ from those involving the sale of real property.

Surplus Personal Property

Every city will occasionally find itself in possession of certain personal property, such as equipment, machinery, or materials that it no longer needs or wants. In most cases, the surplus property involves materials or equipment that have become obsolete or unused over the years, and the municipality decides it is time to unload these useless items, sell them to the public, and put the proceeds from the sale to good use.

A well-managed municipality will have policies and procedures in place to assure that the sale of surplus property is conducted in an orderly, profitable, and ethically transparent manner. Failure to enact such policies – and to have them firmly in place prior to putting any surplus property up for sale – invites problems that may have unpleasant results for the municipality and its officers.

Surplus Real Property

When selling surplus real property under a municipality’s charter authority, case law provides that the municipality’s governing body must exercise its judgment as to whether to dispose of the property and how to dispose of the property in the public interest. See State ex rel. Ass'n for Pres. of Tennessee Antiquities v. City of Jackson, 573 S.W.2d 750 (Tenn. 1978) (attached). MTAS recommends that municipalities first seek an appraisal of the property to better understand the initial value. While complying with the municipality’s ordinances and policies, the governing body would then decide what method to use in disposing of the property – public auction, use of an agent, etc.

A municipality may sell real property to whomever as long as it is in the municipality’s interests as outline in the Tennessee Supreme Court opinion State ex rel. Ass'n for Pres. of Tennessee Antiquities v. City of Jackson, 573 S.W.2d 750 (Tenn. 1978). For most municipalities, the authority to sell surplus real property is based in the municipality’s charter, but the Jackson case addresses methods and the discretion of the governing body. Below is an excerpt of the Jackson case:

In the present case no question is raised as to the legality of the initial acquisition of the “Casey Jones Museum” by the City of Jackson or the propriety of its subsequent use by the City for the combined cultural, commercial and educational purposes shown in the record. It seems to us, therefore, at a minimum, that it was a matter of judgment to be exercised by the duly elected City officials as to whether the continued operation of that facility at a financial loss was or was not in the public interest and as to whether the leasing of the facility for operation under private management was or was not a suitable alternative. We find no abuse of discretion by the City officials in their decision to permit the removal of the residence and artifacts from their original site. The lease amply secures the City in the event of default by the tenant. The City may then terminate the lease on short notice and require the tenant to restore the properties to the original site or to any other public location. No question is raised in the present record as to the solvency or responsibility of the tenant.

Insofar as prior cases have held that cities are without authority to dispose of publicly owned facilities by lease, sale or otherwise, where the properties are held in a “governmental capacity,” we are of the opinion that each case must be examined in the light of its own facts and circumstances. Obviously cities must be and legally are free, within their charter provisions, to dispose of outmoded, surplus or unprofitable properties, where these are not held under a grant imposing a specific trust or other limitation upon ownership or use.

In the present case the Jackson charter expressly confers upon the City, without limitation, the authority:

“To acquire or receive and hold, maintain, improve, sell, lease, mortgage, pledge, or otherwise dispose of any property, real or personal, and any estate or interest therein, within or without the City or State.”

The charter also contains language that its terms are not to be deemed restrictive and that they shall be construed

“. . . so as to permit the City to exercise freely any one or more such powers as to any one or more such objects for any one or more such purposes.”

We are not prepared to decide this case solely upon the proposition that the City may have acquired and held the “Casey Jones” Museum, in part at least, in a “proprietary” capacity. On the other hand, we are of the opinion that appellants have failed to demonstrate that the subject lease is contrary to the public interest, that it represents a misuse or abuse of the discretion and authority of the Board of Commissioners, or that it is in any other way Ultra vires or beyond the legitimate charter powers of the City.

Therefore, before any municipal real property is sold, the municipal governing body should consider the real property’s use and value to the municipality, establish the property as surplus if it deems the property no longer of use to the municipality, and then determine the process for disposal in accordance with the municipality’s ordinances and policies. The sale or transfer of property must be in the municipality’s interest, and the municipality’s interest should be documented in the resolution approving the sale/transfer.