National Law
Committee

Real Property Guidelines
for Squadrons and Districts

Serious liability exposure arises whenever one occupies or becomes the owner of Real Property. It was because of these liability concerns that the Operating Committee adopted on 7 June 1997 the formal Policies for Squadron/District Ownership or Leasing of Real Property. The following guidelines identify and give an explanation of these policies (the "Real Property Policies"). Keep in mind that the term "Real Property" is used in its broadest sense. It means bare land as well as land with improvements of any type, such as buildings, tents, parking spaces, docks, piers and any other structure or portion of a structure that may be occupied or used by members of a district or squadron. Also, "Unit" means any squadron or district.

The policies are divided into two types—those relating to the acquisition of Real Property and those relating to occupancy.

Acquisition

Because the acquisition of Real Property may expose the national organization to liability, every proposed squadron or district (squadron "Unit") acquisition of Real Property, whether by purchase, exchange, lease, gift or donation, must be submitted in advance to the National Law Officer ("NLO") for review and approval. If the NLO does not grant approval, that decision can be appealed to the Operating Committee.

1. Prior to entering into an agreement to purchase or lease Real Property for a term of more than one month, the Unit must obtain the written approval of the acquisition from the National Law Officer. In this regard, the Unit shall submit to the National Law Officer the following:
   1. The name, address and phone number of the law officer or private attorney representing the Unit in negotiating the purchase or lease;
   2. A copy of the proposed contract for purchase and deed or proposed lease agreement;
   3. A written description of any other terms, conditions, obligations and contingencies not included in the proposed contract for purchase, deed or lease, and, if applicable, written escrow and title closing instructions;
   4. A written analysis of any state or local laws, regulations or ordinances applying to the Real Property;
   5. A written physical description of the Real Property including, but not limited to, any environmental concerns and, if applicable, the insurance reports or similar title search reports;
   6. A written analysis of the Unit's ability to pay the acquisition and ongoing costs of maintaining the Real Property, including required liability insurance coverage; and
   7. A certificate from the Unit's treasurer certifying that all bylaw requirements have been met for the approval of the acquisition of the Real Property by the Unit's membership.
2. The National Law Officer may specify such additional terms and conditions he/she deems appropriate in granting permission for the acquisition of the Real Property.
3. The Unit may appeal to the Operating Committee if approval is denied by the National Law Officer or if the Unit is of the opinion that any term or condition imposed by the National Law Officer is unreasonable.
4. Upon receiving written approval from the National Law Officer or Operating Committee, the Unit may proceed with the acquisition of the Real Property upon the terms and conditions agreed upon and as specified by the National Law Officer or Operating Committee.

The NLO cannot represent the Unit in the acquisition of Real Property. The Unit must be represented by the law officer for the Unit or a private attorney retained to represent the Unit in the acquisition. The name, address and phone number of the attorney representing the Unit should be given to the NLO as soon as possible. The NLO will assign a member of his/her staff to the matter and contact the Unit's attorney for required documents. This will speed the transaction since the lawyers have a better understanding of the legal documents needed in a real estate transaction.

There are many forms of ownership of Real Property. Complete ownership of real estate is referred to as "fee simple absolute." This is the best form of ownership since it is without conditions or limitations, except those restrictions imposed by the government. Ownership for a term of years may be in the form of a lease. Generally speaking, a lease has many conditions and obligations on the "Lessee" (the Unit renting the property). The Real Property Policies do not apply to the lease of Real Property for a month or less, commonly referred to as a "month-to-month" lease. Note, however, that the Real Property Policies apply even if the property is going to be given to the Unit.

Factors that are not in a Unit's best interest in acquiring Real Property include the following:

1. Environmental problems such as asbestos in building, chemical or oil pollution of the land, lead paint, PCBs, noise and air pollution in the area;
2. Easements such as for utilities, rights of ingress and egress to neighboring property, mining right, cuts and fills for roadways;
3. Zoning restrictions and government regulation such as restrictions on use, parking requirements or limitations, required upgrades for accessibility under the Americans with Disabilities Act (ADA) or similar local regulations; and
4. Partial interests in property such as partial ownership in common with other persons or entities, an ownership subject to a possibility that ownership would revert to someone else if certain conditions are not satisfied or if a certain event occurred.

All property ownership involves substantial ongoing expenses even if the property is donated to a Unit. Among these are:

1. Leased property. Rent utilities, garbage removal, custodial services, repairs and maintenance, liability and casualty insurance and, in some instances, taxes and assessments; and
2. Property owned. Utilities, garbage removal, custodial services, repairs and maintenance, liability and casualty insurance, perhaps mortgage payments and, in most instances, taxes and assessments.

A Unit needs to have a budget showing that the Unit will have sufficient income to pay these costs and expenses, as well as the cost of its ongoing programs. This budget must be submitted to the NLO. Because most of the income of a Unit comes from dues, there should be a canvas of the membership to establish a nearly unanimous support for the acquisition. If there is not a consensus of support, a significant drop off in membership may occur. Again, this information should be given to the NOL before the acquisition. The NLO may require additional information before granting approval.

Occupancy of Real Property

During ownership and/or occupancy of any Real Property, a Unit shall:

1. Maintain personal and property damage liability insurance coverage of at least $1,000,000 per claimant and $2,000,000 per occurrence naming USPS and, if applicable, the district of which the Unit is a part, as additional named insureds;
2. Provide the National Treasurer annually with a certificate of insurance for the liability coverage required by the preceding paragraph and require the insurance carrier of such insurance to give the National Treasurer 30 days advance notice of the termination of such insurance;
3. Maintain fire and extended casualty insurance coverage in an amount sufficient to cover losses of the property owned by the Unit;
4. Pay promptly when due all mortgage and lease payments, taxes and assessments, and other obligations of ownership as may be applicable; and
5. Comply with all national, state and local laws and regulations and all legally enforceable terms and covenants governing the occupancy.

The primary responsibility to national is to provide evidence of liability coverage for the premises owned and/or occupied by the Unit. The limits of $1,000,000 per person and $2,000,000 per occurrence are minimum requirements. The Unit may decide that higher limits are justified. "United States Power Squadrons, Inc., a North Carolina corporation" should be added to the policy as an additional "named insured" as well as the district if the Unit in question is a squadron. This is usually done at no additional insurance premium. While the national organization has a blanket liability policy covering squadron and district activities, this policy does not cover liabilities arising out of the ownership or occupancy of premises by those Units.

Make sure that a certificate of insurance liability coverage is sent to the National Treasurer each year when the insurance is renewed. Again, the insurance agency servicing the policy will do this without charge.

Many Units have significant amounts invested in furniture, equipment, teaching aids and other personal property. Fire and extended casualty insurance is usually not that expensive to obtain. Note the exclusions on any policy. The "extended casualty" may not include floods or earthquakes. Coverage should be for the full replacement value rather than the depreciated value. Frequently, the insurance company requires an itemization of the personal property covered. If not, a detailed inventory of the various items should be maintained off site to verify the existence and description of the items in the event of loss. A videotape of everything owned by the Unit is an effective method of preserving a record of the property covered. This should be stored off site.

The liabilities associated with occupancy of Real Property expose the Unit as well as the national organization to significant risk. The costs of insurance, maintenance, repairs, taxes, rent, etc. can be a significant drain on the resources of the Unit. If they become too burdensome, there may be a tendency to neglect some of the foregoing requirements in the policies governing the occupancy of Real Property. This creates a greater threat to the viability of the Unit.

In order to protect its core resources, a Unit may wish to pursue the formation of a separate corporation or limited liability company to own or lease property. The officers, directors or managing members of the separate entity could be members of the executive committee of the Unit. When properly formed, the separate entity would shield the Unit from excess liability and costs related to ownership by the Unit. However, the establishment of a separate entity for the purpose present separate operational and tax problems that may be more burdensome than direct ownership. Expert legal and tax advice should be obtained before pursuing such an alternative.