SENATE BILL REPORT

SHB 2498

As of February 26, 2020

Title: An act relating to providing compensation to department of natural resources lessees whose leases are terminated for reasons other than default.

Brief Description: Providing compensation to department of natural resources lessees whose leases are terminated for reasons other than default.

Sponsors: House Committee on Appropriations (originally sponsored by Representatives Corry, Blake, Walsh, Mosbrucker, Chandler, Hoff, Dye, Graham, Davis, Dent, Dufault, Van Werven, Maycumber, Rude, Ybarra, Lekanoff, Eslick and Leavitt).

Brief History: Passed House: 2/17/20, 98-0.

Committee Activity: Agriculture, Water, Natural Resources & Parks: 2/27/20.

Staff: Karen Epps (786-7424)

Background: DNR manages a number of different categories of land, each for a specific purpose and under different management requirements. These include approximately 3 million acres of federally-granted lands and state forest lands, which DNR manages to support common schools, counties, and other public institutions.

DNR has the authority to lease state lands for purposes including commercial, industrial, residential, agricultural, and recreational uses in order to obtain a fair-market rental return to the state or appropriate trust. DNR generally may not lease state lands for longer than ten years, although longer leases are specifically authorized in multiple instances. Lands leased for agricultural purposes may not exceed 25 years, except leases for tree fruit or grape production, which may be for up to 55 years. Share crop leases may not exceed ten years. DNR must include language in any grazing lease that explains the right of access, and associated assumption of liability when a livestock owner makes a request to retrieve livestock that are at-risk due to a wildfire.

When a state land lease for agricultural or grazing purposes includes a nondefault or early termination provision, DNR must provide:

• advance written notice of at least 180 days to the lessee prior to termination of the lease, and

• written documentation to the lessee demonstrating that the DNR has included the leased land in a plan for higher and better use, a land exchange, or a sale.

DNR is not required to include a non-default or early termination provision in any agricultural or grazing state land lease. DNR is not prohibited from allowing the lessee to surrender the property under the lease subject to terms provided in the lease. DNR may execute other lease provisions designed to protect the interests of the lessee in the event that the lease is terminated under a non-default or early termination provision.

Summary of Bill: In the event DNR exercises a nondefault or early termination provision in a state land lease for agricultural or grazing purposes, DNR must compensate the lessee according to the following schedule:

• For grazing leases, DNR must pay to the lessee the annual rent for the land subject to the lease, multiplied by a factor of six, except that DNR is not required to compensate the lessee for any years that are specifically designated in the lease as nongrazing years.

• For agricultural leases, DNR must pay to the lessee the expected net return the lessee would have realized from crops raised on the leased land. The net return must be calculated according to the following formula: the annual net revenue per acre for the class of crop produced by the lessee, less the rental rate per acre for the land leased by the lessee; multiplied by the number of acres leased by the lessee. The annual net revenue per acre for a class of crop must be calculated according to the most recent rolling average annual net rental return per acre for that class of crop as established by the county assessor of the county in which the leased land is located. If the county assessor of the county in which the land is located has not established an annual net rental return per acre, DNR must use the net rental return per acre as established by the county assessor of the nearest county in which the county assessor has established such an annual net rental return per acre. The annual net rental return per acre, as established by the county assessor, must be adjusted to reflect the total annual net revenue per acre.

For both grazing leases and agricultural leases, DNR must make payments to the lessee on an annual basis for the remaining term of the terminated lease, unless DNR and the lessee agree to an alternate schedule of payments. If payments are made on any schedule other than on an annual basis, DNR must subject any advance payments to an appropriate discount rate in order to reflect the net present value of the compensation owed by DNR.

For both grazing leases and agricultural leases, if the lessee has placed any authorized improvements on the land that is subject to the lease, DNR is responsible for compensating the lessee for the value of the improvements. In the event that an agreement cannot be reached between DNR and the lessee on the fair market value of the improvements, the valuation must be determined by a board of appraisers as prescribed in existing statute.

If DNR's exercise of a nondefault or early termination provision results in the removal of fencing from the land subject to the lease, DNR is responsible for ensuring the replacement of any removed fencing. If DNR's exercise of a nondefault or early termination provision causes the lessee to incur a financial penalty as a result of an early withdrawal from a Natural Resources Conservation Service program, DNR is responsible for reimbursing the lessee for payment of the financial penalty.

The compensation available to a lessee under the bill is the sole financial remedy available to the lessee based on DNR's exercise of a nondefault or early termination provision in an agriculture or grazing lease.

Appropriation: None.

Fiscal Note: Available.

Creates Committee/Commission/Task Force that includes Legislative members: No.

Effective Date: Ninety days after adjournment of session in which bill is passed.