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| ## Comptroller of the Currency                                        |
|                                                                       |
| > Administrator of National Banks                                     |
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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). 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 to prevent the accumulation
of large masses of such property in their hands . . .. " [Union Nat'l
Bank v. Matthews]{.underline}, 98 U.S. 621, 626 (1879(. [See
also]{.underline} First [Nat'l Bank v. Comptroller of the
Currency]{.underline}, 697 F.2d 675, 681 (5^th^ 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.]{.underline},
[Perth Amboy Nat'l Bank v. Brodsky y]{.underline}, 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]{.underline}, 118 F. 981 8^th^ Cir. 1902),
[aff'd]{.underline}, 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. 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]{.underline} 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]{.underline}, 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.

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 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