WASHINGTON -- Amongst all the hoopla over banks venturing into real estate, the Office of the Comptroller of the Currency issued an interpretive letter (#1072) last month, permitting an undisclosed bank to lease out a branch it is replacing.
Under the deal, the bank will be building a new branch on the same 1.82-acre site as a current freestanding branch it has occupied since 1974. "Concurrent with its need for a new, modern branch building, the bank proposes to make a more productive use of the premises," the letter explained. The bank wishes to lease some of the land to the developer who is building a 17,000 square-foot space for retail businesses, which the bank would not be financing. The bank would still use approximately half of the property.
"It is anticipated that the ground lease would run for 40 years," the letter explained. "At the end of the term, if the lease is not renewed, title to all improvements made upon the premises would revert to the bank." In the end, the bank would have a modern branch to help compete, generate lease income, and gain traffic flow from the retail businesses.
Banks are generally permitted to purchase real estate as needed for business and limitations were put in place to keep banks out of commerce, the OCC said in its discussion of the matter. "For over three decades, the bank has held the premises and has used it in good faith for the accommodation of its banking business. Clearly, the premises is [sic] permissible bank premises. Once a national bank has acquired a parcel in good faith for the legitimate business reason of accommodating its banking business, the bank may make the best economic use of the property consistent with the accommodation of its business."
The OCC cited a number of cases, including Brown vs. Schleier, in which the court found, "If the land which [a national bank] purchases or leases for the accommodation of its business is very valuable, it should be accorded the same rights that belong to other landowners of improving it in a way that will yield the largest income, lessen its own rent, and render that part of its funds which are invested in realty most productive."