Generating Revenue from Commercial Development On or Adjacent to Airports (2017)

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29 C h a p t e r 3 Legal Considerations 3.1 Introduction When considering commercial development on or near an airport, legal issues are not necessarily the first thing that comes to mind, nor are they always readily apparent. This is certainly understandable, given that most airport personnel are neither lawyers nor involved in legal issues in their normal day-to-day tasks. Nonetheless, many legal issues could prevent or limit the scope of development on or near an airport, put the airport at risk of a legal challenge to the development, or even put the viability of the airport in jeopardy. All too often, legal issues are identified late in the development process and end up delaying or preventing the development that was originally planned, possibly including a costly and time-consuming legal challenge. This chapter in the guidebook is therefore intended to raise awareness of the primary legal issues with the potential to impact commercial development on or near an airport. Much like other topics covered by this guidebook, the discussion associated with legal considerations is complicated and potentially lengthy. Furthermore, not every legal issue will apply at a particular airport because of the vast differences among the airports across the United States. Also, legal considerations have been the subject of a number of other ACRP projects. Consequently, the discussion here will be brief, and direction will be provided to other resources that dive deeper into individual topics to support the guidebook user. Given the nature of the subject matter, however, the content is more technical than that in other chapters. When an airport is interested in developing property that is either FAA grant obligated (Tiers 1, 2 and 3) or may be considering allowing through-the-fence (TTF) access to an FAA grant-obligated airport (Tiers 2 and 4), there may be a number of federal regulations that must be met to remain in compliance with federal obligations. A discussion of grant obligations is provided in Chapter 2 of this guidebook and an understanding of that topic is an essential foundation of the discussion here. Even if compliance with grant assurance obligations is not necessary at the point in time of the planning and/or execution of the commercial development, it is often a This chapter does not present an exhaustive list of potential legal implications for development, nor is it intended to replace competent and appropriate legal advice. It is intended to be a valuable step in identifying areas of concern that might have legal ramifications. The chapter presents a general legal framework for airport managers and directors and others working for or with airports, and it identifies other agencies and organizations that may have jurisdiction over a commercial development project and thus may need to be contacted during the process. The goal of this chapter is to help airport managers and decision makers guard against unnecessary obstacles that common legal issues could pose to commercial development of areas on or near an airport. A basic understanding of these common issues helps underscore the need for legal review of any project and guides airport staff to identify and engage expert reviews and evaluations early in the process.

30 Generating revenue from Commercial Development On or adjacent to airports responsible choice to consider whether the possibility of future grant applications and awards would merit making grant assurance compliance decisions ahead of time. ACRP Project 03 38, “Understanding FAA Grant Assurance Obligations,” (currently active) is intended to provide a resource to help guide this decision making process. In addition to FAA obligations, property in Tiers 1 through 5 may also be regulated by other governmental authorities, and it is important to review those legal considerations as well. The initial discussion in this chapter focuses on federally obligated airports due to the large number of such airports and the sometimes overlooked or misunderstood federal grant obligations at these airports. The remainder of the chapter will address topics that apply to all airports, including federal involvement, environmental impacts, state and local laws, safety and security, and appropriate fiscal and business consideration, as follows: The FAA Airport Compliance Manual An airport’s federal obligations Local property laws such as zoning Environmental compliance (regulations) Liability and insurance concerns Safety regulations mandated by federal agencies including FAA, the Transportation Security Administration (TSA), and the Department of Homeland Security (DHS) Other ACRP resources

Legal Considerations 31 3.2 FAA’s Airport Compliance Manual and AIP Handbook Under 49 U.S.C. § 47101, et seq., FAA has authority to award federal grants to financially assist with the maintenance and development of public use airports that are considered significant to the national air transportation system, including all commercial service airports, all reliever airports, and selected general aviation airports. In the past, FAA’s authority was administered through the Federal Aid to Airports Program (FAAP), the Airport Development Aid Program (ADAP), and, most recently, the Airport and Airway Improvement Act (AAIA), which established the Airport Improvement Program (AIP). FAA is bound by statute to administer the grant program according to certain statutory requirements and other federal laws, including those that relate to the ability to successfully accomplish commercial development on or in the vicinity of an airport. The statute sets forth the terms, referred to as grant assurances, which FAA must include in every grant agreement as the sponsor’s conditions for receiving the federal grant. Upon acceptance of an AIP grant, the assurances become a binding contractual obligation between the airport sponsor and the federal government. FAA’s Airport Compliance Manual (FAA Order 5190.6B) sets forth in detail the specific policies and procedures that guide FAA in its oversight of airport compliance, including the grant program and FAA’s interpretation of an airport’s obligations made in the grant agreement. The manual also sets forth guidance for FAA’s administration of the obligations set forth in conveyance of federal land documents. This manual is updated periodically to reflect current FAA practice in administering the airport programs at all federally obligated airports. The FAA Airport Compliance Manual is a respected resource on the topic of airport sponsor compliance with federal grant assurances and conveyance terms. The manual itself is not regulatory, but it provides guidance for FAA personnel on how to interpret and administer the various continuing commitments that airport sponsors make to the United States as a condition of accepting the grant of federal funds or the conveyance of federal property for airport purposes. The airport sponsors are legally responsible for the ownership and operation of the airport; thus, they have the primary responsibility for keeping the airport in compliance with the terms of the agreements that gave them the land or money in support of the ongoing availability of the airport. The FAA Airport Compliance Manual can be found online at www.faa.gov. FAA’s AIP Handbook (FAA Order 5100.38D) is another valuable resource for understanding an airport sponsor’s grant obligations and the manner in which FAA oversees grant obligation compliance. The AIP Handbook also is updated on occasion and provides guidance and sets forth policy and procedures used by FAA in the administration of the grant program. The content includes the obligations that are accepted along with the grants issued through the program. This document also can be found online at www.faa.gov. FAA airports district offices (ADOs) and regional airports divisions have the responsibility to advise sponsors of their compliance requirements and to ensure that sponsors comply with their federal obligations. Given the great number of federally obligated airports and the variety of federal obligations, the compliance program primarily focuses on education with the goal of achieving voluntary compliance. The program supplements this educational approach with periodic compliance monitoring and investigation of potential violations. Generally, when a violation is identified, informal resolution is the preferred course of action. Such informal

32 Generating revenue from Commercial Development On or adjacent to airports resolution can be as simple as a phone call by the FAA to the airport to identify the violation and a voluntary adjustment by the airport in response. However, the FAA may take more formal compliance actions if they are warranted. Such formal actions may include withholding future federal funds, rejecting future grant applications, and/or initiating formal legal action, such as ordering the airport to cease and desist the offending conduct and/or to repay federal funds that have already been disbursed to the airport.

Legal Considerations 33 3.3 Airports’ Federal Obligations Based on research conducted in the development of ACRP Report 156: Guidebook for Managing Compliance with Federal Regulations: An Integrated Approach, a federally obligated airport may be governed by more than 60 primary and 339 secondary regulations, as well as statutes, executive orders, and Office of Management and Budget (OMB) circulars. ACRP Report 156 provides much greater detail about specific obligations. This section of ACRP Research Report 176 reviews some of the primary federal grant obligations that come from accepting a federal grant of AIP funds or from a transfer of surplus property.

34 Generating revenue from Commercial Development On or adjacent to airports 3.4 Federal Grant Obligations and Responsibilities As noted in Chapter 2 of this guide, approximately 3,400 public use airports across the United States have either received federal grants or are eligible to receive such grants in the future should the opportunity and need arise. Chapter 4 of FAA’s Airport Compliance Manual addresses federal grant obligations and responsibilities. In this guidebook, Chapter 2 orients guidebook users to the basics of what airport sponsors need to know, have, and do in relation to federal grant obligations and the corresponding conditions and assurances. This chapter provides a brief summary, as follows: Under the various federal grant programs, the sponsor of a project agrees to assume certain federal obligations pertaining to the operation and use of the airport. The federal obligations become a part of the grant agreement, binding the grant recipient when the federal funds are accepted for airport development. Some obligations are for the life of the project (some not to exceed 10 years and others not to exceed 20 years), and some continue in perpetuity as long as the airport remains in operation. FAA has issued grants through three different programs. Generally the grant assurances have remained consistent through the three programs over time, although some changes have resulted from the passage of various pieces of legislation. Grant agreements may also contain special covenants or specific conditions that go beyond the requirements specified in the statute. This chapter presents an overview of the current grant assurances that are most likely to impact revenue generating activities on a grant obligated airport; however, it is important that the airport sponsor confirm the specific obligations imposed by the actual grant agreement associated with each specific grant award.

Legal Considerations 35 3.5 Federal Obligations from Property Conveyances Chapter 3 of the FAA Airport Compliance Manual addresses transfers of personal and/or real property to airport sponsors. The federal government may transfer (or convey) surplus property or nonsurplus property. These conveyances are of primary interest to this guidebook because the property may be used for aeronautical or non aeronautical purposes to generate revenue to support the airport’s aviation needs. Similar to accepting grant money, when an airport accepts a transfer of property from the government, it also accepts federal obligations that may vary according to the specific transfer document. For the most part, the federal obligations will be similar to those found in most grant agreements with respect to the basic compliance requirements, but there may be one or more special conditions. For instance, special conditions may result if the surplus property being transferred from the government was originally acquired through the War Powers Act. This law allows the federal government to take over land needed for national defense. The obligations associated with the transfer of real property usually run with the land—even if the land is sold—until the land is released from the obligations by the federal government, generally upon a showing that the land is no longer needed for the purpose for which it was conveyed and its release is necessary to advance the civil aviation interests of the United States. The airport sponsor should clearly understand how airport property has been acquired and whether obligations are associated with some or all of the property acquisition. This information may generally be found on a property map or through a title search. Airports that are federally obligated will most likely have an Exhibit ‘A’ Property Map that should be reviewed for historical property information. In this guidebook, Chapter 4 provides more information on this topic.

36 Generating revenue from Commercial Development On or adjacent to airports 3.6 Grant Assurances Pursuant to federal law related to airport improvement set out in 49 USC 47101 et seq. and its statutory predecessors, FAA may approve an application for project grants upon a certain showing of the need for a particular project at a public use airport. However, any grant is subject to the satisfaction of and continuing compliance with a number of assurances that are set forth in a contract signed by the recipient of those funds as a condition of receiving those funds. Not all grant assurances that are imposed as a condition of accepting federal grant monies apply to the commercial development issues at an airport. However, a working knowledge of the assurances that are most likely to apply will help the guidebook user assess whether there may be an impact to commercial development action plans. The following assurances generally bear consideration for commercial development; however, this is not an all inclusive list. Other assurances may also apply, depending on individual circumstances. Note: Unless otherwise noted, text set as a block indent is taken from the section “Assurances for Airport Sponsors” in FAA’s AIP Handbook. 3.6.1 Assurance 5, Preserving Rights and Powers A sponsor cannot take any action that may deprive it of its rights and powers to direct and control airport development and comply with the grant assurances, and a sponsor may not sell, lease, encumber, or otherwise transfer or dispose of any part of its title or other interests in the property without the prior written approval of the FAA. Of particular concern to the FAA is granting a property interest to tenants on the airport. These property interests may restrict the sponsor’s ability to preserve its rights and powers to operate the airport in compliance with its federal obligations. Providing developers with an option to acquire a fee interest in federally obligated airport property is not acceptable to the FAA under this grant assurance. An option to acquire a fee interest in airport property should be considered a sale of airport property for purposes of requiring an FAA release, since the result is potentially the same. By this assurance, with its several subparts, the airport may not sell grant obligated property or enter into leases that have the effect of selling property or unencumbering the airport from compliance with applicable grant assurances. If the airport leases property, the airport is still responsible for complying with the grant assurances so it must maintain more control over the property than may be standard for other property leases. This relates back to the Airport Layout Plan (ALP) review by FAA for any change in property use designation (see Chapter 2). Assurance 5 is also one of several grant assurances that relate to FAA’s authority to review lease terms, rates, and length of leases. In the course of any review, FAA will look at any lease or agreement granting the right to serve the public on the airport to determine if there is a contractual term that the lease interest is subordinate to the sponsor’s federal obligations and that the lease will be interpreted to preserve the airport’s compliance with the federal obligations. (For more information on the topic of lease agreements, refer to ACRP Report 47: Guidebook for Developing and Leasing Airport Property.)

Legal Considerations 37 3.6.2 Assurance 6, Consistency with Local Plans The project is reasonably consistent with plans of public agencies that are authorized by the State in which the project is located to plan for the development of the area surrounding the airport. This assurance recognizes that there are local, state, and regional planning agencies and public investments in areas surrounding the airport and that actions by the airport could have an impact on these surrounding areas. Whether or not a specific project is grant funded, the airport sponsor has a continuing obligation to comply with this grant assurance. Through this assurance, the airport is required to consider whether the airport plans and policies are consistent with existing or planned zoning or future land use plans. This is especially relevant when the airport is in one jurisdiction but surrounded by other jurisdictions. In some cases, a local jurisdiction can withhold permits or zoning approval if they determine that a project does not meet the local standards and requirements, even if FAA would otherwise agree that the project does not violate federal obligations and might be in the best interest of the airport. Also, if a project requires an Environmental Assessment (EA), the airport will usually be required to provide a letter from the sponsor stating that the project is consistent with local plans. (For a discussion of environmental permitting, see Chapter 5, “Site Evaluation Toolkit,” in this guidebook.) 3.6.3 Assurance 7, Consideration of Local Interest [The airport sponsor] has given fair consideration to the interest of communities in or near where the project may be located. This similarly ongoing assurance expands the requirements set out in Assurance 6 to say that the sponsor has to let the local communities comment on the airport’s plans or proposals. The airport does not have to follow the input received from the community, but it must at least consider the comments. Written records, such as summaries of community comments, staff reports, and/or meeting minutes can help to demonstrate the airport sponsor’s consideration of the community’s expressed concerns and interests and the reasons for any deviation from community requests. 3.6.4 Assurance 8, Consultation with Users In making a decision to undertake any airport development project under Title 49, United States Code, [the airport sponsor] has undertaken reasonable consultations with affected parties using the airport at which project is proposed. Similar in theme to assurances 6 and 7, this ongoing grant assurance points the airport toward communication with stakeholders who may potentially be affected by an airport development project. In this case, affected parties may be current airport tenants, based aircraft owners, and airlines. Users that may be affected by any proposed development projects need to be consulted. Here again, the grant assurance does not require the airport to adhere to the input received but rather to engage in some dialogue to gather information and input and have it appropriately considered. 3.6.5 Assurance 19, Operation and Maintenance The airport and all facilities which are necessary to serve the aeronautical users of the airport, other than facilities owned or controlled by the United States, shall be operated at all

38 Generating revenue from Commercial Development On or adjacent to airports times in a safe and serviceable condition and in accordance with the minimum standards as may be required or prescribed by applicable federal, state and local agencies for maintenance and operation. It will not cause or permit any activity or action thereon which would interfere with its use for airport purposes. As its title suggests, this grant assurance addresses both operation and maintenance. The airport also agrees not to cause or permit any activity or action on the airport that would interfere with airport purposes. For example, with regard to airport operations, the airport is responsible for marking and lighting hazards, clearing snow and high grass or wind debris, and communicating information about conditions at the airport—including possible wildlife management issues and hazard assessments—to the aeronautical users of the airport. The airport must maintain the minimum services, staff, and equipment to fulfill this responsibility, and a commercial development project may require that the airport accept the burden of more resources to satisfy this responsibility. This assurance may also need to be taken into account if multiple options for commercial development exist, prompting a need to consider an aviation use that fills a need at the airport versus a less necessary aviation use or a non aeronautical use that might otherwise generate more airport revenue. 3.6.6 Assurance 20, Hazard Removal and Mitigation [The airport sponsor] will take appropriate action to assure that such terminal airspace as is required to protect instrument and visual operations to the airport (including established minimum flight altitudes) will be adequately cleared and protected by removing, lowering, relocating, marking, or lighting or otherwise mitigating existing airport hazards and by preventing the establishment or creation of future airport hazards. Generally, this grant assurance assigns the airport responsibility for actively working to prevent or to correct airport hazards. Hazards include tall structures, wildlife attractants, and other features that may interfere with aircraft operations. Assurance 20 addresses both on airport development projects and projects that might be encouraged around the airport. For example, development of a new company headquarters building near the airport is likely to encourage business use of the airport, but the building will need to be located and scaled so that the building height does not pose a hazard to aircraft operations. Also, for a commercial development project, Assurance 20 would require the airport to be mindful of construction vehicle placement—in particular, any cranes protruding into the airspace environment of the airport—and of the need to communicate information about any potential hazard to airport users. 3.6.7 Assurance 21, Compatible Land Use [The airport sponsor] will take appropriate action, to the extent reasonable, including the adoption of zoning laws, to restrict the use of land adjacent to or in the immediate vicinity of the airport to activities and purposes compatible with normal airport operations, including landing and takeoff of aircraft. Some land uses are incompatible with the airport because of impacts (such as smoke and glare) that interfere with visual operations, or because they are likely to attract birds and wildlife. Other land uses, such as schools, hospitals, or apartment buildings, are considered incompatible because the noise caused by airport operations could be disruptive. The multi volume ACRP Report 27: Enhancing Airport Land Use Compatibility provides an excellent resource on this topic.

Legal Considerations 39 This grant assurance places the responsibility on the airport sponsor for taking actions, as needed, to restrict incompatible land uses near the airport. The federal government does not have land use authority and cannot regulate land uses around the airport. The airport sponsor does not have land use authority but can be an active participant in community conversations and decisions regarding land use around the airport. The airport can encourage the community to adopt an airport zoning ordinance to codify a plan for compatible land use. In those cases where an airport is actively working to attract or recruit new businesses to the area, land use compatibility should be considered before reaching out to potential commercial developers. In this guidebook, these possible airport actions are discussed further in Chapter 7, “Off Airport Considerations and Revenue.” 3.6.8 Assurance 22, Economic Non discrimination [The airport sponsor] will make the airport available as an airport for public use on reasonable terms and without unjust discrimination to all types, kinds and classes of aeronautical activities, including commercial aeronautical activities offering services to the public at the airport. The excerpted text shown is just one of nine subsections in Grant Assurance 22, Economic Non discrimination. This assurance is one of the broadest assurances that apply to a federally obligated airport, and it potentially applies to any use of the airport. In addition to the requirement of public use, there are provisions regarding leases, rates, and fees, which may all guide or impact plans for on airport development. For example, it is the airport sponsor’s responsibility to ensure that the rates and fees are reasonable for the facilities that are being provided—even for subleases on airport property executed by an airport tenant. Also, the rates and fees must be comparable for tenants renting similar spaces, such as similarly situated Fixed Base Operators (FBOs). Compliance with Assurance 22 also is important with regard to terms for TTF agreements. Language requiring compliance with this economic non discrimination obligation must be included in any agreement, contract, lease, or other arrangement under which a right or privilege at the airport is granted to any person, firm, or corporation to conduct or to engage in any aeronautical activity for furnishing services to the public at the airport. A useful guide in this regard is ACRP Legal Research Digest No. 23: A Guide for Compliance with Grant Agreement Obligations to Provide Reasonable Access to an AIP Funded Public Use General Aviation Airport (February 2013). 3.6.9 Assurance 23, Exclusive Rights [The airport sponsor] will permit no exclusive right for the use of the airport by any person providing, or intending to provide, aeronautical services to the public. The oldest federal obligation affecting federally funded airports, Assurance 23 requires that multiple providers of the same services be permitted to conduct business at the airport if such accommodations can be reasonably made. This topic is addressed in Chapter 8 of the FAA Airport Compliance Manual. According to that source, the intent of this restriction is to promote aeronautical activity and protect fair competition at federally obligated airports. This assurance does not absolutely require that multiple service providers exist at a federally obligated airport, just that interested providers not be specifically excluded if the opportunity for bringing the business to the airport is available. An airport may be found to have granted exclusive rights

40 Generating revenue from Commercial Development On or adjacent to airports through a specific agreement or by imposing unreasonable standards or taking other actions that have the same effect. One example of such an action would be if an airport allows a single company to lease all of the available development property when it is far in excess of the amount that would be needed by that company, thereby preventing others from doing business at the airport. However, an airport may decide to offer some services itself as a means of revenue generation without being found to be violating this provision, including that the airport provides that service with its own employees. FAA AC 150/5190 6, Exclusive Rights at Federally Obligated Airports, provides airport sponsors with more information. The exclusive rights prohibition applies as long as a public use airport is in operation as an airport—essentially, in perpetuity. 3.6.10 Assurance 24, Fee and Rental Structure [The airport sponsor] will maintain a fee and rental structure for the facilities and services at the airport which will make the airport as self sustaining as possible under the circumstances existing at the particular airport, taking into account such factors as the volume of traffic and economy of collection. The FAA Airport Compliance Manual addresses this assurance in Chapter 17, “Self sustainability.” Fees also need to be consistent with FAA’s published Policy Regarding the Establishment of Airport Rates and Charges. The rates and charges policy provides guidance on the legal requirement that airport fees be fair, reasonable, and not unjustly discriminatory. In FAA’s policy guidance, airport sponsors are encouraged to be as self sustaining as possible when entering into new or revised agreements or when otherwise establishing rates, charges, and fees. The FAA recognizes, however, that not all airports will be able to be self sustaining. Above all, fees and rents must be reasonable in reflecting the cost of the services or facilities. Fair market value is considered reasonable for non aeronautical use of the airport. Although the FAA does not have to approve rates and charges in advance, they may be reviewed as part of determining compliance with grant assurances. Therefore, it is a good idea to clearly document the methodology used to arrive at certain rates and charges at the time that they are decided so that compliance is assured at the time and may then be acceptable to the FAA in any subsequent review. 3.6.11 Assurance 25, Airport Revenues All revenues generated by the airport and any local taxes on aviation fuel established after December 30, 1987, will be expended by it for the capital or operating costs of the airport; the local airport system; or other local facilities which are owned or operated by the owner or operator of the airport and which are directly and substantially related to the actual air transportation of passengers or property; or for noise mitigation purposes on or off the airport. This grant assurance requires the use of airport revenue for airport purposes for the life of the airport, which is a consideration when an airport sponsor is considering self funding an airport development project. When planning for the use of revenues from commercial projects, it is important to understand how they may be used and that they may not be diverted away from the airport’s core purposes. ACRP Legal Research Digest No. 2: Theory and Law of Airport Revenue Diversion (June 2008) is an excellent resource on this topic.

Legal Considerations 41 3.6.12 Assurance 29, Airport Layout Plan Grant Assurance 29, Airport Layout Plan, requires the sponsor to depict the airport’s boundaries, including all facilities, and to identify plans for future development on its ALP. An FAA approved ALP (signed and dated) is a prerequisite to the grant of AIP funds for airport development or for the modification of the terms and conditions of a surplus property instrument transfer (FAA Airport Compliance Manual). The ALP is a key “communication” and “agreement” document between the airport sponsor and FAA. It represents an understanding between the airport sponsor and FAA regarding the current and future development and operation of the airport. The ALP serves as a critical planning tool that depicts both existing facilities and planned development for an airport and also includes information about adjacent off airport properties that are not controlled by the airport. The airport sponsor is obligated to keep the ALP up to date. Sponsors The ALP also is discussed in Chapter 2 of this guidebook in the section on aviation planning. Specific guidance is provided in FAA’s Standard Operating Procedure (SOP) 2.0, Standard Procedure for FAA Review and Approval of Airport Layout Plans (ALPs). Coordination with the local FAA ADO is strongly encouraged. 3.6.13 Assurance 30, Civil Rights [The airport sponsor] will promptly take any measures necessary to ensure that no person in the United States shall, on the grounds of race, creed, color, national origin, sex, age, or disability be excluded from participation in, be denied the benefits of, or be otherwise subjected to discrimination in any activity conducted with, or benefiting from, funds received from this grant. The authority for this grant assurance comes from Title VI of the Civil Rights Act of 1964, as amended. Its compliance is guided by U.S.DOT’s regulation on Non discrimination in Federally Assisted Programs of the Department of Transportation (49 CFR Part 2) and by FAA Advisory Circular (AC) 150/5100 15, Civil Rights Requirements for the Airport Improvement Program (AIP). The FAA Office of Civil Rights handles alleged violations of laws relating to civil rights. For grants executed subsequent to the passage of the Civil Rights Act of 1964, the statutory requirement prohibiting discrimination applies to all of the sponsors’ programs and activities at the airport—not just to the project that was funded by the federal grant—and compliance with this assurance remains in effect for as long as the property is used as an airport. Therefore, this non discrimination obligation, and the actions that an airport sponsor must take to fulfill this obligation, must be considered any time a commercial development project on or near the airport affects federal funding activities or programs, involves land acquired with federal funds, or will use federal funds in the development project. of airport development carried out at federally obligated airports must do what they can to avoid any commercial development projects on or near the airport that will conflict with the expectations set forth in an FAA approved ALP. If development plans on or around the airport change in a way that affects what is depicted and planned in the ALP, the grant assurances obligate the airport sponsor to evaluate what, if any, revisions must be made to the existing ALP and submit those proposed revisions to FAA for approval before the planned development may continue.

42 Generating revenue from Commercial Development On or adjacent to airports 3.7 Lease Agreements As noted through earlier sections, several grant assurances affect the language and provisions that are permissible in a lease agreement between a sponsor and a lessee of airport land. Aeronautical lease agreements are addressed in Chapter 12 of the FAA Airport Compliance Manual. FAA does not approve or deny lease agreements, and an airport is not obligated to get permission from the FAA for a lease agreement prior to its execution; however, if consulted, FAA will advise sponsors when the terms of proposed lease agreements have the effect of limiting the sponsor’s ability to fulfill its federal obligations. When an opinion is proffered, FAA’s opinion is limited to the lease’s impact on the sponsor's federal obligations. Lease durations can be a sticking point between airport sponsors and ground lessees, who generally prefer longer lease terms. To protect their investment, ground lessees may look for lease terms up to 99 years. The FAA Airport Compliance Manual provides policy direction with regard to aeronautical lease durations. FAA staff members are instructed to consider whether or not the lease term exceeds the time that is reasonably necessary to amortize a tenant’s investment. Specifically, the text advises: Most tenant ground leases of 30 to 35 years are sufficient to retire a tenant’s initial financing and provide a reasonable return for the tenant’s development of major facilities. Leases that exceed 50 years may be considered a disposal of the property in that the term of the lease will likely exceed the useful life of the structures erected on the property. FAA offices should not consent to proposed lease terms that exceed 50 years (FAA Airport Compliance Manual). Although this direction seems fairly straightforward, case study interviews conducted as part of ACRP Project 03 39 revealed that FAA offices varied widely in interpretation. Lease agreements must also satisfy the airport sponsor’s obligation to afford fair and reasonable access to the airport, allow for providers to set up businesses at the airport when circumstances allow for competition, and set appropriate fees at the airport, which all have a direct bearing on the content of a lease agreement. Extensive guidance for this grant assurance exists in relation to TTF agreements (see the section on TTF Agreements in this chapter). ACRP Report 47: Guidebook for Developing and Leasing Airport Property also provides extensive guidance on the topic of airport leases.

Legal Considerations 43 3.8 Buy American Preferences and Other Federal Contract Labor Requirements Although not strictly an assurance, the “Buy American” preferences required under 49 U.S.C. § 50101 require that all steel and manufactured goods used in federally funded projects be produced in the United States. Therefore, to the extent that the commercial development at or near the airport may involve a project that is federally funded, the airport must take into account this statutory requirement. It bears considering that this requirement may be waived under certain conditions. Whether the project is undertaken by the airport or by a private developer, if no federal funds are involved in the project itself, the requirement does not apply. A good resource for understanding an airport’s obligations is ACRP Legal Research Digest No. 18: Buy America Requirements for Federally Funded Airports (February 2013). In addition, federally funded construction contracts over $2,000 must comply with prevailing wage rate requirements of the Davis–Bacon Act of 1931, as amended. Federally funded construction contracts over $2,500 also must comply with certain work hour and working conditions requirements of the Contract Work Hours and Safety Standards Act, as amended.

44 Generating revenue from Commercial Development On or adjacent to airports 3.9 TTF Agreements and Operations TTF operations are generally defined as the ground movement of aircraft from off airport property to the aircraft operating surfaces of the airport (e.g., runways and taxiways). There need not be a physical fence delineating the aircraft operating surfaces for an operation to be classified as a TTF operation. TTF operations can involve residential, aeronautical, and non aeronautical uses, except that residential TTF agreements are prohibited at commercial service airports. The general guidelines for such activities being off airport but utilizing airport facilities by operating TTF is that TTF operations should be treated as if they are based on airport property. Therefore all the rules, regulations, policies, rents and fees, and terms and conditions that apply to on airport uses should apply to TTF operations. This is consistent with the sponsor’s responsibility to maximize the benefits from the use of federally obligated land, facilities, and improvements on an airport. Any commercial development near an airport that may involve aircraft access to and from the airport must carefully evaluate the impact of FAA’s very strict view of TTF operations. Although FAA recognizes that there are times when an airport sponsor will enter into a TTF agreement, FAA does not support these agreements as a general policy because TTF arrangements can place an encumbrance upon the airport property and reduce the airport’s ability to meet its federal obligations. However, the FAA Airport Compliance Manual recognizes that TTF agreements may be approved on a case by case basis and provides guidance for preparing an access agreement for those airports that do grant a right of TTF access. The airport does not have to obtain FAA’s approval for a TTF lease agreement, but FAA can take enforcement action if the agreement violates the sponsor’s grant obligations. ACRP Report 114: Guidebook for Through the Fence Operations explores the subject in detail.

Legal Considerations 45 3.10 Environmental and Mineral Rights Considerations Existing environmental conditions, the timeline for an environmental review or permitting process, or the potential for negative environmental impacts can all contribute to the potential viability of generating revenue from development on or adjacent to the airport. There are legal requirements and potential legal consequences to consider when assessing potential development activity. Mineral extraction and the sale of other natural resources may also offer a potential for revenue generation. These activities are subject to FAA consideration at grant obligated airports. This section of ACRP Research Report 176 provides a broad overview of the regulatory framework on both topics. 3.10.1 The National Environmental Policy Act (NEPA) 3.10.2 Environmental Contamination EPA is the federal agency responsible for protecting the environment against contamination and requiring remediation when there has been contamination. Development occurring on or near an airport can result in air emissions, water or waste discharges, or other types of contamination, resulting in environmental impacts that could be hazardous. It is necessary to identify the environmental impacts of a project before deciding whether to proceed. Moreover, it is in the airport’s best interest to assign responsibility for the environmental impacts of a particular use in advance of a project. For example, when considering a commercial development use that is likely to cause contamination or other ecological impacts, even if only lingering, the airport should include a term in the lease or the contract that specifically identifies whose responsibility it will be to investigate for any contamination and who will be responsible for the cost and execution of any necessary remediation at the end of the lease period. In some instances, especially at airports that used to be military institutions or manufacturing hubs, environmental pollutants or contamination may exist in the soil, groundwater, sediment, or surface water. If this is found to be the case, the planning process must address how the pollutants or contaminants will be remediated or further remediated. The remediation requirement may be imposed by the governing body (i.e., EPA or a state environmental agency) on the entity that is responsible for the contamination, or the job may fall to the airport. At some airports, it comes as a surprise that there is contamination in the ground from previous and long ago uses. In this regard, it is helpful to know the history of activity on the airport land in order to NEPA requires that projects using federal money, requiring federal approvals or federal permits, or taking place on a federally obligated airport undergo an environmental review to identify the potential environmental impacts of the proposed project. Similarly, many states have enacted environmental impact requirements. FAA has adopted specific orders outlining the steps necessary to prepare NEPA documentation; a Categorical Exclusion (EA), or an Environmental Impact Statement is generally required. The requirements for environmental analysis and findings are included in the current version of FAA Order 5050.4, National Environmental Policy Act (NEPA) Implementing Instructions for Airport Projects. Under FAA policy, the ADO is not permitted to fund a project until the environmental finding is complete. In this guidebook, this topic is explored further in Chapter 5, “Site Evaluation Toolkit.” A helpful resource on this topic is ACRP Legal Research Digest No. 22: The Role of the Airport Sponsor in Airport Planning and Environmental Reviews of Proposed Development Projects Under the National Environmental Policy Act (NEPA) and State Mini NEPA Laws (April 2014).

46 Generating revenue from Commercial Development On or adjacent to airports anticipate whether there may need to be any environmental remediation addressed before development may begin. 3.10.3 Noise Airport noise considerations are important to any decisions about commercial development on or near an airport. For both legal and practical reasons, it is in the airport’s best interest to plan for development projects that are compatible with the noise impacts caused by the airport’s use. Practically, it is advantageous to maintain a cooperative working environment in order to retain the commercial activity. Many airports may have already conducted a noise study pursuant to FAA regulatory standards; thus, they may already have a noise compatibility plan in place that identifies noise contours and the compatible uses that may fall within those contours. Legally, the airport will want to guard against lawsuits that claim that the airport harms or interferes with the commercial development activity. The airport can seek to protect itself with contract and lease provisions that acknowledge the existence of noise so that noise does not become a basis for complaints. In addition, complaints may be avoided through the use of the results of a noise study, which may be used by the airport to demonstrate a reasonable and justifiable view of airport noise impacts that can then assist in making commercial development decisions. Otherwise, if complaints do occur, they could lead to subsequently limiting the availability and use of the airport. 3.10.4 Other Environmental Issues Other environmental issues that may need to be considered by any airport contemplating a development project include impacts to wetlands and to water resources, soil conservation and stabilization, threatened and endangered species, and other environmentally sensitive or protected resources. Even if the development does not trigger the NEPA review, federal regulation may apply to protected resources, and state and local permitting requirements may also apply. In this guidebook, Chapter 5 provides information and checklists to help airport sponsors identify potential environmental issues for specific site development concepts. Local planning offices and regional and state environmental offices also can help to provide direction and information. 3.10.5 Mineral Rights Airports may be able to generate revenue connected to mineral rights associated with the airport property. Oil and gas extraction in particular is a burgeoning issue at airports; but coal, sand, gravel, and timber are also subject to FAA consideration, as they may affect airport compliance and other legal obligations. FAA has adopted guidance that generally states that all existing FAA policies and procedures that relate to environmental, safety, and compliance considerations may still apply to mineral extraction activities. FAA has the statutory authority to exempt a defined amount of airport revenue generated from mineral extraction activities on general aviation airports from statutory, grant assurance, and policy obligations if certain conditions are met. Whether mineral rights constitute potential airport revenue will depend on the specific circumstances at the airport, including situations in which a property conveyance may have excluded mineral rights or a situation in which the airport is otherwise federally obligated through a grant agreement or surplus property transfer. Any lease of airport property to conduct drilling or extraction activities must be at fair market value for non aeronautical use.

Legal Considerations 47 3.11 An Airport’s Consideration of State and Local Law Restrictions The Tenth Amendment to the United States Constitution states that the powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people. The power to regulate and control land use is a power that is reserved to the states, and within states, is then often given to the local community. At the same time, compatible land use planning protects the navigable airspace and ground area around airports and maximizes the return of investment on infrastructure, while maintaining a safe operating environment. FAA recognizes that land uses on and surrounding an airport have the potential to impact the functioning and use of the airport. Although FAA seeks to minimize any negative impact to the extent possible, the agency does not always have the legal authority to require it. As a result, protecting the airport’s viability is sometimes achieved through cooperation, education, and communication with the local authorities. As has been noted in other sections of this guidebook, land use compatibility is addressed through the grant assurances. FAA also works to protect the space needed for airport operations through review programs for tall structures and through airport design standards. Local zoning restrictions often are put in place to protect the airport and its environment against encroachment by incompatible land uses. In this regard, “incompatible” uses could include those that would be adverse to the continuation of the airport (e.g., residential uses that would lead to noise complaints or wildlife attractants that may lead to an unnecessary increase in bird strikes) as well as uses that pose an unnecessary danger to aircraft or persons and property on the ground (e.g., construction that intrudes into runway protection zones [RPZs] or that involves bright lighting that creates a potential hazard). Through zoning ordinances, local land use regulation controls the types of uses to which land may be put and the types of structures that may be built and used in the community. As a rule of thumb, local zoning regulations apply to areas around the airport and also to areas on the airport that are outside of the airport operations area (AOA). This varies by location and should be investigated as part of any airport development planning process. The rules and regulations affect not only the construction of any development, but also usually the permissible uses for those developments. Zoning authority provides the power to regulate and prevent the design issues that can restrict or impair the airport’s ability to operate, such as height, smoke, and glare, and to prevent or restrict uses that can be incompatible with an airport. In this guidebook, the toolkit in Chapter 4 helps with an assessment of current conditions and Chapter 7 advises on strategies to change and improve current conditions. Zoning around the airport can limit commercial development in total or in type, including protecting airspace (especially along approach and departure paths) and mitigating and preventing hazards. As such, zoning is a powerful tool for addressing land use compatibility around the airport. ACRP Report 27: Enhancing Airport Land Use Compatibility, Volume 1: Land Use Fundamentals and Implementation Resources is a comprehensive resource regarding issues associated with land uses around airports. Several states also have produced useful documents that may help explain zoning issues the airport might face. For example, the Washington State Department of Transportation (Washington State DOT) has published an Airport and Compatible Land Use Program Guidebook (2011) that includes an overview of most common zoning issues. The Florida DOT’s Airport Compatible Land Use Guidebook (2010) is another valuable reference.

48 Generating revenue from Commercial Development On or adjacent to airports Design standards are FAA regulations that apply on airport property but may be supported by local land use cooperation if the areas extend off the airport property. On the ground, safety areas (as defined by FAA AC 150/5300 13, Airport Design) apply to areas such as runway safety areas, runway object free areas, and RPZs. FAA recommends that, whenever possible, the entire RPZ be owned by the airport and be clear of all obstructions. Private development in the RPZ will not be permitted on airport and will not be tolerated off airport by the FAA. If private development should occur off airport, the issue will need to be addressed in a future ALP update. In the air, FAA has adopted regulations that set out obstruction standards and require notification to the FAA of any construction that may intrude into the areas where FAA must protect the navigable airspace (14 CFR Part 77). Federal Aviation Regulation (FAR) Part 77 is intended to ensure that aircraft can safely approach, land, take off, and depart an airport and seeks to protect against an object’s interference with any navigational aids and facilities. Adjacent to airport property, navigation easements may be acquired for the protection of the airspace necessary to approach, land, and depart from the airport. Through FAR Part 77, FAA is authorized to determine whether a structure or object is or could be a hazard to air navigation. This is done through the submittal of an FAA Form 7460 1, Notice of Proposed Construction or Alteration. FAA provides comments in response to the submittal. FAA’s determination of whether the project does or does not pose a hazard to aviation does not have any legal effect in and of itself; however, the FAA’s “no hazard” determination is almost always required before any building or construction permits will be issued and before any insurance coverage may be obtained. Effectively, then, the required process in getting the “hazard” or “no hazard” determination also stands as a determination that will allow (or not allow) a commercial development project. Also, in every aeronautical study determination, FAA acknowledges that state or local authorities control the appropriate use of property beneath an airport’s airspace. Other local rules that may affect development on and adjacent to airports, such as regulations on leasing, bidding, employment, and construction can vary among states and across jurisdictions. In addition to the RPZs and FAR Part 77 surfaces, other surfaces are evaluated by FAA for obstructions. These other surfaces may contribute to the height limitations for airports and may impact recommended land use patterns due to other hazards to visual air navigation, such as smoke, glare, vapors, and dust. They also include surfaces defined in relation to terminal instrument flight procedures (TERPS) established by FAA Order 8260.3 B Changes 19 through 22. For runways and airports that support air carrier operations, FAA AC 150/5300 13, Appendix 2, “Airport Design,” requires the identification of one engine inoperative (OEI) obstacle surfaces. Runways with an instrument approach must also consider the departure surface for instrument runways, which also is defined in FAA AC 150/5300 13, Appendix 2.

Legal Considerations 49 3.12 An Airport’s Consideration of Potential Liability and Insurance Coverage Airports must make business and fiscal decisions that include consideration of potential liability claims and awards. Liability is always a concern for any business entity, but especially so for government owned and government operated airports, which arguably have a heightened fiduciary duty to protect citizen and taxpayer interests in the financial stability of the municipality. Airport sponsors must make decisions that guard against claims, and they must ensure the availability of appropriate insurance coverage. If commercial development is being considered, the airport must consider not only the availability and adequacy of the necessary insurance coverage for the airport, but also the type and minimum amount of coverage it may require any commercial development company to carry to further protect the airport against exposure to potential liability. The possibility of liability depends on the specific use of the land on or near the airport and is necessarily case specific. Potential causes of action that exist in the airport context have included noise tort, damage to property, bodily harm, and environmental tort. Airports considering a potential commercial development are in the best position to assess the potential liability concerns presented by the development as it relates to the location, size, and use of the airport. It is important to review and evaluate the proposed uses to determine what potential liabilities they present. In this regard, it may be necessary to seek consultants to assess vulnerabilities and to coordinate with insurance carriers to identify the availability of (and the airport’s ability to obtain) adequate insurance coverage. Furthermore, existing insurance policies may contain restrictions against certain kinds of development or a manner of development. Such restrictions would affect how a commercial development action plan would be written and executed. Many states offer limited tort liability to municipalities and their divisions when they are acting in their governmental role. This means that there may be a statutory limit to the amount of damages for which the airport may be liable. Insurance coverage decisions should be considered in light of these statutory limitations.

50 Generating revenue from Commercial Development On or adjacent to airports 3.13Application of FAA Safety Considerations and TSA Security Requirements to Development FAA is statutorily responsible for the nation’s airspace and the safe and efficient use of that airspace. In the exercise of that authority, as pertinent to the development of property on and around the airport, FAA has set certain standards that can restrict development on or in the vicinity of an airport, such as RPZs, noise contours, and height restrictions. Apart from federal obligations that stem from accepting grant monies, other federal government rules and regulations may apply to property development on or around an airport. For example, TSA, an agency within the U.S. Department of Homeland Security, is responsible for the security of our nation’s infrastructure and borders. Following the terrorist attacks of September 11, 2001, TSA was given responsibility over aviation security at the nation’s commercial airports. For the most part, TSA adopted FAA’s existing airport security requirements, at least initially. As a result airports whose aircraft operations regularly involved air carriers and commercial operators were already very familiar with well established security requirements, and those airports have continued to comply with those requirements as they have been modified and expanded over the years. For some airports, however, new commercial development may trigger new TSA compliance requirements. This situation warrants close coordination between the airport and the commercial developer to assure appropriate security compliance, not only with the regulations but also with the requirements embodied in confidential airport security programs that are adopted and particular to each airport that services commercial air traffic. Generally speaking, general aviation airports and the general aviation areas at commercial airports are not impacted by security requirements provided the general aviation area is separated by adequate security systems, measures, or procedures from the commercial airport operations area (AOA). The extent of any impact that TSA security regulations will have on a commercial development project will most likely depend on the location of the development and any need for access to the commercial airport operating environment.

Legal Considerations 51 3.14 Other ACRP Resources ACRP develops near term, practical solutions to problems faced by airport operators. PDF versions of all ACRP publications are available for free download from https://www.nap.edu/content/the bookstore or from www.trb.org. Specific ACRP publications number, or key words related to the topic. The following resources provide additional information about grant assurances, grant obligations, and other federal compliance topics. ACRP Report 156: Guidebook for Managing Compliance with Federal Regulations: An Integrated Approach. This guidebook is accompanied by a spreadsheet based Regulation Compliance Management Tool (RCM Tool) that can be downloaded from a link on the applicable regulatory elements, including grant assurances. ACRP Legal Research Digest 23: A Guide for Compliance with Grant Agreement Obligations to Provide Reasonable Access to an AIP Funded Public Use General Aviation Airport. This research digest offers insight into the very specific responsibility of federally obligated general aviation airports to provide public use of the facility on reasonable and not unjustly discriminatory terms. ACRP Report 47: Guidebook for Developing and Leasing Airport Property. This ACRP report explores issues associated with developing and leasing available airport land and summarizes best practices from the perspective of the airport sponsor. ACRP Report 58: Airport Industry Familiarization and Training for Part Time Airport Policy Makers. This report provides an opportunity to educate the guidebook user on the roles and responsibilities of the airport operator in developing, maintaining, and operating airports, which is directly related to maintaining compliance with federal obligations. ACRP Project 03 38, “Understanding FAA Grant Assurance Obligations.” This ACRP research project was active at time of the publication of ACRP Research Report 176. Once the research deliverables have been completed, they will provide an additional resource for airports on the specific topic of compliance with FAA grant assurances. can be found on either webpage by using the search function by keying in the title, series report’s webpage and used by individual airports to identify and assess

52 Generating revenue from Commercial Development On or adjacent to airports 3.15 Summary When considering any commercial development on or near an airport, legal issues are one category among many that can have an impact on development plans and decisions. This chapter is not intended to replace legal counsel; rather, it provides an introduction to a series of topics that may arise in relation to commercial development on or adjacent to public use airports. With a basic understanding of legal issues that are directly connected to commercial development and airports, the guidebook user may be able to identify potential legal issues early in the planning process and thus avoid them, along with any associated delays and costs. FAA grant assurances are conditions that are accepted by airports as receiving federal AIP grants or property transfers from the federal government. These conditions are imposed to preserve the safety and the operational capacity of the airport, but they also have a direct bearing on the sale and lease of airport land and buildings. Even if an airport is not grant obligated, familiarity with FAA grant assurances may prove wise in relation to potential future development efforts. All airports need to be aware of environmental and land use regulations. Environmental resources may be regulated at the federal, state, and local levels. Land use regulations are primarily local with some state influence. Each project is different, and it is impossible to customize the information in this guidebook to a specific project; but an overall awareness of these regulations can help airport sponsors anticipate and avoid potential legal issues associated with property development. Liability and insurance, as well as safety and security, are topics that also involve potential legal considerations for airport development. The overview presented in this chapter, along with the additional resources provided in the toolkit chapters, establishes an effective starting point for identifying areas with potential legal ramifications. The goal is to help the guidebook user anticipate and reduce or eliminate legal obstacles that could otherwise result in a delay or cancellation of a development project.