Love It or List It

Under the Federal Credit Union Act and NCUA Regulations, federal credit unions can “purchase, hold, and dispose of property necessary or incidental to its operations.” The last part of the statement, “necessary or incidental to its operations” means that the federal credit union will use the space (for credit union business).   It shouldn’t be a surprise that, generally, the commercial real estate market has been experiencing a bit of a downturn for a while now.  Businesses wanting to lease or sell commercial property might have a more difficult time finding interested parties. 

NCUA’s regulation, "§701.36 Federal credit union occupancy and disposal of acquired and abandoned premises" contains specific requirements for when a federal credit union must partially occupy or sell excess space if the federal credit union isn’t using it -- but what happens if a credit union is unable to do so?  First, let’s take a look at some key definitions under this regulation: 

  • Abandoned premises means premises previously used to transact credit union business but no longer used for that purpose. It also means premises originally acquired to transact future credit union business but no longer intended for that purpose.
  • Partially occupy means occupation and use, on a full-time basis, of at least fifty percent of each of the premises by the federal credit union, or the federal credit union and a credit union service organization in which the federal credit union has a controlling interest in accordance with Generally Accepted Accounting Principles (GAAP).
  • Premises means any office, branch office, suboffice, service center, parking lot, other facility, or real estate where the federal credit union transacts or will transact business.
  • Unimproved land or unimproved real property means:
    • Raw land or land without development, significant buildings, structures, or site preparation;
    • Land that has never had improvements;
    • Land that was improved at one time but has functionally reverted to its unimproved state; or
    • Land that has been improved, but the improvements serve no purpose for the federal credit union's planned use of the property.

Now that you’re familiar with the definitions - what happens if the federal credit union can’t sell the excess space or partially occupy it?  Well, the federal credit union could request a waiver.  The regulation allows for a federal credit union to request a waiver from the occupancy or the timing requirements. 

For premises or property purchased for future expansion, federal credit unions have six years from the purchase date to occupy any premises/property that it has acquired. If the six-year mark is on the horizon and the federal credit union still hasn’t occupied at least 50% of the space on a full-time basis then the federal credit union can request a waiver from its NCUA Region.  The waiver request can be for either the 50% occupancy requirement or the six-year requirement. 

Federal credit unions can also seek a waiver from the timing requirement to get rid of abandoned property that the credit union doesn’t intend to use to transact business or is no longer using to transact business.  Under the regulation a federal credit union must sell it within 5 years of abandonment (the regulation requires that at the four-year mark, the property must have been publicly advertised for sale). 

For either waiver (occupancy or abandoned premises) the written request must be submitted to the federal credit union’s NCUA Region (or if applicable NCUA’s Office of National Examinations and Supervision), after which the regional director will send a written response within 45 days either approving or denying the request. 

Federal credit unions should clearly explain and provide supporting documentation on why the federal credit union is unable to meet the requirements of the regulation as it will deny any requests that appear to be purposely circumventing the requirements of the regulation. 

Keep in mind, under COVID relief, any days that fall between the period of April 21, 2020, and December 31, 2020, would likely be excluded when calculating timing as it relates to the need for a waiver, if the excess space was owned by the federal credit union during that period. 

Resources: 

12 U.S.C. 1757(4)

12 CFR §701.36 Federal credit union occupancy and disposal of acquired and abandoned premises.

COVID -19 Relief (NCUA Examiners Guide)

National Supervision and Policy Manual