1. 1. The division shall receive at least fair market value for surface leases. Fair market value of the subject property shall be determined by the division based upon a market analysis including:

   1. (a) the income-producing ability of the highest and best use of the property; and
   2. (b) a market study of comparable values of similar properties.

2. 2. Lease rates shall be based on fair market value. Lease rates may be determined by the division by:

   1. (a) multiplying the fair market value of the subject property by the current division-determined interest rate.
   2. (b) comparable lease data which may include percentage rent based on either net or gross income with a guaranteed minimum.
   3. (c) using either a fixed rate per acre or a crop-share formula for agricultural leases providing that the rental rate is customary and reasonable. The division may require the lessee to acquire adequate crop insurance.
3. 3. The division may periodically establish minimum lease rates for special use leases based on the costs incurred in administering the leases, and a desired minimum rate of return.

4. 4. Rental Review Procedures for Special Use Leases

   1. (a) Standard

      1. (A) Changes in assessed value for the most current year for the appropriate category of land as published by the State Tax Commission
      2. (B) The applicable component of the CPI-U
      3. (C) The applicable Implicit Price Deflators for the Gross National Product
      4. (D) Data from market analyses of comparable leases

      5. (E) Public comment

         v) A separate index shall be established for each of the following lease types:

      6. (A) Commercial/industrial
      7. (B) Residential
      8. (C) Agricultural

      9. (D) Recreational

         vi) For the purpose of this rule, the Military, Telecommunications, and Governmental lease types shall be adjusted using the Industrial Index.

         vii) The adjusted rental amount as determined pursuant to this rule shall be rounded to the nearest number evenly divisible by $10.

      i) Base rentals shall be adjusted as of the effective date specified in the respective lease through a lease review conducted by the division. Any lease which is reviewed within one year of the effective date specified in the lease shall be deemed to have been reviewed timely and any adjustment in base rentals shall be as of the effective date.

      ii) Adjustments in base rentals may be based upon changes in the market value, changes in established indices, or other methods which may be appropriate and in the best interest of the beneficiaries. The determination of which method to use may be based upon an analysis of the cost effectiveness of performing the review.

      iii) When using established indices, the rate of adjustment shall be the sum of the indices established for the years involved in the review period, unless the rate of adjustment exceeds a maximum adjustment rate, or fails to reach a minimum rate of adjustment as specified in the respective lease. If no maximum adjustment rate or minimum rate of increase is specified in the lease, then the percent change will increase or decrease according to the above described rate of adjustment.

      iv) The index/indices used by the division shall reflect the percent of change to be required in the base rental of applicable leases. The index/indices may be amended at any time during the first quarter of the calendar year using information from any or all of the following sources:

   2. (b) Unit Development

      Rental adjustments for unit development leases shall be based upon changes in the market value of the property or the applicable index as may be appropriate as determined by the division.

   3. (c) Suspension, Deferral, and Waiver of Lease Rental Adjustment

      The director may suspend, defer, or waive the adjustment of base rentals in specific instances when justified by natural disasters or periods of economic crises, based on a written finding that the suspension, deferral, or waiver is in the best interest of the beneficiaries.

KEY: administrative procedures, leases

Date of Last Change: July 13, 2000

Notice of Continuation: March 7, 2022

Authorizing, and Implemented or Interpreted Law: 65A-7-1; 65A-7-5(4)