Interior Board of Indian Appeals affirms Oklahoma lease rental adjustment

In a recent significant decision, Naomi Dobbins and Roger P. Marshall Holding Company, LLC v. Acting Eastern Oklahoma Regional Director, Bureau of Indian Affairs, 59 IBIA 79 (08/18/2014), the Interior Board of Indian Appeals ("Board") affirmed that although both parties to a lease agreement failed to implement a mandatory rental adjustment in accordance with lease terms and conditions, the violation did not require a lease termination action.

In these consolidated appeals, Naomi Dobbins (Dobbins) and Roger P. Marshall Holding Company, LLC (Holding Company) (collectively, Appellants) each appealed to the Board from separate portions of an October 6, 2011, decision (Decision) of the Acting Eastern Oklahoma Regional Director (Regional Director), Bureau of Indian Affairs (BIA), regarding Business Lease No. G07-733 (Lease) between Dobbins as lessor and Oak Grove Center, Inc. (Oak Grove) as lessee, encumbered by a mortgage of the leasehold interest held by Tulsa National Bank (Bank).

The Bank/Holding Company appealed from the portion of the Decision affirming a January 25, 2011, decision of BIA’s Okmulgee Agency Superintendent (Superintendent) that provided notice that the Lease rent was adjusted to $3,893.10/month for the 5-year period from October 1, 2005, through September 30, 2010 (2005 rental adjustment). The Bank asserted that BIA and Dobbins waited too long to provide notice of the 2005 rental adjustment, and thus it shouldn’t be required to remit the corresponding $33,786 difference in rent to maintain the Lease.

Dobbins appealed the portion of the Decision affirming a separate June 28, 2011, decision of the Superintendent that rejected Dobbins’s assertion that she unilaterally terminated the Lease in 2011 and that BIA declined to join in the termination and eject the lessee from the premises for alleged Lease violations. Dobbins argued that she had the authority to cancel the Lease without BIA approval and that it was an abuse of discretion for BIA to decline to cancel the Lease and allow the Bank additional time to remedy the alleged defaults.

The Board affirmed the Decision because neither the Bank/Holding Company nor Dobbins met their burden on appeal. The 2005 rental adjustment was mandatory under the terms of the Lease as amended, and the delay in giving notice of the amount of the adjustment was insufficient reason for the Board to relieve the lessee or the Bank/Holding Company from paying the difference in rent.

Leases that include a rental adjustment specify the method of adjusting the rent. Under 25 CFR §162.428(c), leases "...a review of the adequacy of compensation must occur at least every fifth year, in the manner specified in the lease." This action is subject to the consent requirements in the same manner the consent requirements are required to approve a lease. Leases with a term of 5 years or longer should follow this rental adjustment requirement.

Dobbins’ appeal asked the BIA to cancel the lease but the Board stated basically that neither party is damaged provided that the rental adjustment is implemented. Even if the end result was termination of the lease, the past due rental adjustment would still be due to the landowner, through a separate action by BIA.

Most business leases don’t include a rental bond but should. The only issue with the rental bond is that it would have guaranteed one year’s rent and at the rental rate of the original rental term. Failure to pay timely, when due, then results in a violation and possible termination of the lease. Most bonds are performance bonds insuring "labor and material payment." It is important to also require a rental bond to ensure that any rental loss may be recovered in whole or in part.

I wrote a series of articles regarding rights-of-way and lease negotiation to assist landowners in negotiating contracts and what to consider when negotiating. There are so many nuances and sometime difficult to understand the different scenarios that can occur once the contract is approved and construction or use has commenced. Understand your rights and know how to properly negotiate contracts/leases/ rights-of-ways so that you will be somewhat satisfied down the road. The negotiation should be driven by the Indian landowner’s terms and conditions and not dictated by other parties.

If you end up with a bad deal, you can’t hardly blame anyone else because you signed on the dotted line. You have to understand your rights. Know, understand, and think about what you want in the future before giving consent to use of your land. It’s your land so don’t hesitate to negotiate what you want for your land.

Jay Daniels has 30 years of experience working in Indian Country, managing trust lands and is a member of the Cherokee Nation of Oklahoma. You can find resources and information at http://roundhousetalk.com.