Frustrated leaseholder moving cabin off state land

By Brian Tanko’s judgment, the choices were only bad or worse, so he has decided to move his cabin off a leased lot of state land on McGregor Lake to avoid future costs and uncertainty.

And he’s not alone.

“I’m in a growing minority of leaseholders who are abandoning their leases,” said Tanko, a Kalispell attorney. “I’m aware of at least a dozen people who will be abandoning their leases.”

They are driven by the latest reappraisal of state lease properties, which are mostly located on Western Montana lakes, resulting in annual fees that many leaseholders considered exorbitantly unfair.

In Tanko’s case, he built the cabin and installed a septic system and well on the leased lot around 2002.

“The rent was reasonable,” he said. “It was commensurate with what I thought the market was.”

His current rent is around $6,000 a year. As a result of the reappraisal, Tanko expects his rent to exceed $19,000 a year after 2012.

Similar impacts on other leaseholders caused a backlash that got the attention of the Department of Natural Resources and Conservation, which administers lease properties, and the State Land Board. After meetings were held in February, a proposal was developed to mitigate the financial impacts on leaseholders.

“Alternative 3-B” would base property valuations on the 2003 reappraisal cycle, then add 6.5 percent annually for every year that has passed since then, according to Jeanne Holmgren, bureau chief for real estate management for the Department of Natural Resources and Conservation.

That cumulatively results in a 46 percent valuation increase on state lease lots, with a 5 percent tax rate applied to the value to determine annual rent. That provides a considerable reduction in the actual rent rates for many leaseholders, Holmgren said recently.

But Tanko said it still results in an unfair increase relative to current real estate market trends, and he noted that the state would require leaseholders to sign onto Alternative 3-B by contract.

That, he said, puts them in a position where they may not be eligible for better relief that the Legislature might provide next year.

Other leaseholders have noted that another shortcoming is that the 2003 base valuation can no longer be appealed.

Tanko and other leaseholders stress that one of the biggest problems is that lease holders are appraised in the same manner as privately owned lots, even though there are considerable restrictions, limitations and uncertainties involved with them.

Removing timber, installing improvements or modifying the lots in the smallest of ways requires state permission. Largely because of the unpredictability of future lot rents, Tanko said, financing is difficult if not impossible to find for building on the lots.

“There is no predictability whatsoever in terms of cabin site leases or their future management,” he said.

Years ago, there apparently was enough stability with the system to satisfy some lending institutions.

Tanko said he’s aware of three leaseholders who have old mortgages on homes that stand on lease lots. He would not disclose who they are, but said they are walking away from them because the new lot rental rates are unaffordable.

He said he knows of one leaseholder who recently sold the improvements on his lot for an amount considerably below their value.

“There was a significant reduction in value for the improvements in order for the

 purchaser to be able to afford both the improvements and the dramatic increase in rent,” Tanko said.

Cumulatively, Tanko predicts that state school trust funds will lose a considerable amount of revenue because of abandoned leases.

If the system for setting rent rates is not somehow fixed, he believes potential interest in the lots will dry up and they will remain vacant.

“I don’t see how they are going to improve the situation long term unless they move to an open bidding process or the Legislature fixes the system to determine what really is a fair rent for those lots,” said Tanko, who believes the lease system is “broken.”

Tanko stressed that he has no animosity toward the Department of Natural Resources and Conservation.

“The DNRC is not the enemy here. They are given a playbook from the Land Board,” he said. “I worked very closely with the local DNRC when I had my improvements built and I’m working closely with them to remove my improvements.”

It’s a process that requires a string of permits for things such as removing timber to create a path for his cabin to be moved off the lot and onto a private lot on McGregor Lake just about a mile away.

“It’s a difficult process,” Tanko said.

Reporter Jim Mann may be reached at 758-4407 or by e-mail at jmann@dailyinterlake.com