Insuring Lease/Leaseback Projects David G. Jordan - Jeffrey J. Vita Overview Several states utilize a unique statutory mechanism to allow school districts to finance the construction of public-school facilities. This arrangement (known as a "lease-leaseback agreement") allows a school district to lease property to a contractor/developer, who then constructs or renovates a school facility on the property. Once the work is completed, the contractor/developer leases the school building back to the school district. The school district then makes lease payments over time, often many years, which can be structured in various ways to spread out the cost of construction. The arrangement typically requires a site lease for the land leased to the contractor/developer, a facilities lease for the lease-back of the school building to the school district and a traditional construction agreement. In some ways, the arrangement resembles a Public-Private Partnership (PPP) whereby a public entity collaborates with a private entity for the purpose of financing and delivering a project traditionally provided solely by the public sector. Potential Impacts on Commercial General Liability Coverage This project delivery method is attractive for school districts because it allows them to finance the construction over time, alleviating budgetary constraints (significantly, the amounts payable under the multi-year lease are not considered government debt for purposes of the state’s constitutional debt limitation.) The arrangement also facilitates early contractor involvement, which can expedite project timelines. Furthermore, in certain states, such as California, the lease-leaseback arrangement also allows a school district to avoid competitive bidding requirements otherwise mandated by state law. All of these reasons make the lease-leaseback arrangement a very attractive project delivery method for public school construction.

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