Letter concludes that Bank may retain ownership of condominium donated to it by its holding company for use in providing lodging to bank employees, consultants, and customers because commercial accommodations frequently are not available. In addition, under the excess capacity theory, the bank may rent the condo to outside parties when it is not being used for business purposes. Business must continue to be substantial and not just a token amount.

O

Comptroller of the Currency

Administrator of National Banks

Washington, DC 20219

July 8, 1993 Interpretive Letter #1043

December 2005

12 USC 29

Dear [ ]:

This letter responds to your correspondence of June 22, 1993, in which you inquire whether

[ ] (“the Bank”) its condominium when it is not being used for bank purposes. In a

previous letter, dated January 21, 1993, I opined that the Bank could legally retain the

condominium as bank premises under 12 U.S.C. § 29. At the time, the condominium was used

only for bank purposes and the Bank did not intend to rent it. Now, the Bank proposes to lease

the condominium when it is not being used by the Bank in order to offset some of the

condominium’s expenses. Subject to the conditions discussed below, I believe that the Bank

may let the condominium when it not being used for bank purposes.

The condominium in question was contributed at not cost to the Bank upon the dissolution of the

Bank’s former holding company. It has been used exclusively for purposes of the Bank’s

business. At certain times of the year, is so crowded that commercial accommodations are not

available for the Bank’s auditors, consultants, and certain off-island customers. The Bank has

maintained the condominium on its books at no more that $1.00 and claimed the condominium

fee of approximately $9600 annually as a business deduction on its tax return.

The National Bank Act allows national banks to purchase, hold, and convey real estate for only

four purposes. On of those purposes is “[s]uch as shall be necessary for its accommodation in

the transaction of its business.” 12 U.S.C § 29 (First)

ium on its books at no more that $1.00 and claimed the condominium

fee of approximately $9600 annually as a business deduction on its tax return.

The National Bank Act allows national banks to purchase, hold, and convey real estate for only

four purposes. On of those purposes is “[s]uch as shall be necessary for its accommodation in

the transaction of its business.” 12 U.S.C § 29 (First). In my earlier letter, I opined that the

Bank could retain the condominium because providing accommodations for outside consultants,

auditors and customers, when other commercial lodging is not readily available, is a legitimate

business concern of the Bank.

Section 29’s limitations are designed “to keep the capital of the banks flowing in the daily

channels of commerce; to deter them from embarking in hazardous real estate speculations; and

- -

2

to prevent the accumulation of large masses of such property in their hands . . .. “ Union Nat’l

Bank v. Matthews, 98 U.S. 621, 626 (1879(. See also First Nat’l Bank v. Comptroller of the

Currency, 697 F.2d 675, 681 (5th Cir. 1983). However, 12 U.S.C. § 29 does not prohibit a

national bank from owning or leasing a building larger that its current needs dictate. See, e.g.,

Perth Amboy Nat’l Bank v. Brodsky y, 207 F. Supp. 785, 788 (1962). Additionally, consistent

with section 29, both the courts and the OCC have recognized that it is appropriate for a bank to

maximize the utility of its banking premises.

In Brown v. Schleier, 118 F. 981 8th Cir. 1902), aff’d, 194 U.S. 18 (1904), the court stated:

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

18 (1904), the court stated:

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. There is nothing, we

think, in the national bank act, when rightly construed, which precludes

national bank, so long as they act in good faith, from pursing the

policy above outlined.

The basic requirement, therefore, is that the Bank’s activities must be conducted in good faith,

that is, for banking purposes and not in an effort to violate 12 U.S.C. § 29. And, once land is

owned appropriately ban a national bank, better utilization thereof is also permissible under

section 29. The Brown decision continued:

When an occasion arises for an investment in real property for either of the

purposes specified in the statute, the national ban k act permits banking

associations to act as any prudent person would act in making an investment in

real estate, and to exercise the same measure of judgment and discretion. The act

out not to be construed in such a way as t o compel a national bank, when it

acquires real property for a legitimate purpose, to deal with it otherwise than a

prudent landowner would ordinarily deal with such property.

Brown, 118 F. at 984.

It is prudent for the Bank to attempt to offset some of the expenses associated with its legitimate

condominium ownership. If, in good faith, the Bank maintains the condominium as bank

premises by continuing to use it for bank purposes, it may legitimately, under the National Bank

Act, rent the condominium when it is not being used by the Bank. The Bank’s continued use of

the condominium must be substantial in order for the property to continue to be regarded as

“bank premises for the purposes of 12 U.S.C. § 29

If, in good faith, the Bank maintains the condominium as bank

premises by continuing to use it for bank purposes, it may legitimately, under the National Bank

Act, rent the condominium when it is not being used by the Bank. The Bank’s continued use of

the condominium must be substantial in order for the property to continue to be regarded as

“bank premises for the purposes of 12 U.S.C. § 29.

The Bank has indicated that it estimates possible proceeds from the condominium rental to be

$4900. Since the condominium fees are approximately $9600 per year, the Bank would not

profit as a result of renting the condominium. Your correspondence states that “[t]the Bank does

not intend and will not turn this into a net income producing situation whereby the rental income

- -

3

will exceed the occupancy expenses.” In my opinion, under the described circumstances, the

Bank may lease the condominium when it is not being used by the Bank for business purposes.

I trust this reply is responsive to your request

Sincerely,

/s/ William B. Glidden

William B. Glidden

Assistant Director

Bank Operations and Assets Division