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Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Proposed Rules space in order to serve as a landlord to tenants using space unrelated to the transaction of its business or bank operations for example, a grocery store or a branded hotel would likely not meet this requirement as the national bank or Federal savings association would not merely be avoiding economic waste in acquiring or developing real estate for such purposes but likely actively investing in real estate for a speculative non-banking purpose. In the case of leasing space to tenants such as a grocery store or a branded hotel, the national bank or Federal savings association would likely derive significant revenue related to such activity and would need to demonstrate that the real estate was not acquired primarily for its lease income but rather because of its suitability for bank purposes or use by bank persons. A
national bank or Federal savings association can only lease legitimate excess space or capacity, and if real estate is acquired or developed in a volume or manner that is not consistent with the banks operations or business, for example as set forth in its business plan, such real estate was likely not legitimately acquired or developed, and thus would be impermissible.
Excess space is space in bank occupied premises that is not being used by bank persons or for bank operations. Excess capacity in bank occupied premises can be either temporal or space-based. An example of temporal excess capacity is a bank auditorium that is used after bank business hours by members of the local community. An example of space-based excess capacity is a call center in which the bank needs space for 100 employees during eight months of the year but only needs space for 80 employees during the remaining four months of the year. In both examples, the space can be used by non-bank persons as long as the space was legitimately acquired or developed by the bank for its operations or business as required by 7.1024c1.
Proposed 7.1024c2 discusses situations in which legitimate excess space or capacity may be used by third parties. Section 7.1024c2i through iv have analogous provisions in the excess capacity provisions for electronic activities located in 12 CFR 7.5004.
Section 7.1024c2i provides that excess space or capacity can be used by third parties to the extent that the real estate acquired is consistent with the real estate available in the market. For example, if a national bank or Federal savings association is located in an area in which strip malls are the predominant type of commercial real estate, then a national bank or Federal
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savings association may be able to acquire a strip mall if the national bank or Federal savings association would occupy greater than 50 percent of the space and lease out the remaining space.
However, as the national bank or Federal savings association must have good faith and a non-speculative purpose in order for real estate to be legitimately acquired, a national bank or Federal savings association would need to analyze carefully whether this requirement would be met if many smaller strip malls than the one it acquired were available or if there were many free standing buildings more appropriately sized for bank purposes available in the market.
Section 7.1024c2ii provides that a national bank or Federal savings association may acquire and retain additional space or capacity, beyond its present needs, if it is reasonably necessary for planned future expansion or to meet the banks future expected banking needs as long as the bank uses the additional space or capacity in the real estate acquired for future bank expansion within five years. A national bank or Federal savings association may acquire real estate intended to be used for future banking purposes and may permit third parties to use this excess space or capacity, but the national bank or Federal savings association must use this real estate for banking purposes within five years of acquisition. The OCC understands that it is prudent for a national bank or Federal savings association to plan for future expansion and use, so a national bank or Federal savings association may legitimately acquire and develop real estate intended for future use as long as that real estate is used by the national bank or Federal savings association within five years of its acquisition or development. If the property does not become bank occupied premises within five years, it will become Other Real Estate Owned OREO and, subject to 12 U.S.C. 29 for national banks and 12 CFR 34.82 for national banks and Federal savings associations, must be disposed of within five years of becoming OREO, unless the bank requests an extension of up to an additional five years.
Proposed 7.1024c2iii provides that a national bank or Federal savings association may lease excess capacity resulting from a fluctuation caused by the banks need to use the full capacity of a space during peak periods but not in other off-peak periods. This situation is similar to the example discussed above related to a call center which the bank uses all 100 available seats during eight months of the year but only used 80 during the other four months. The
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bank may allow third parties to use the excess 20 seats in its call center provided the capacity was legitimately acquired for bank operations and does not impede the safe and sound operation of the bank.
Proposed 7.1024c2iv provides that a national bank or Federal savings association may lease excess capacity or space that is no longer needed due to a decline in the level of banking operations. In this situation, a bank acquired real estate for use in its banking operations and, based on a decline in bank activity or operation, no longer needs all of the space. The nexus between national bank or Federal savings association ownership of a building and its banking operations becomes clearer the closer the banks occupancy approaches one hundred percent. As with excess capacity in data processing, the OCC presumes a certain percentage of use of the property to be permissible. The bank may allow third parties to use the space provided the bank still otherwise occupies more than 50 percent of the real estate as required by 7.1024a2.
Question Five: Should the OCC permit a national bank or Federal savings association to lease out more than 50
percent of its premises on a temporary basis, provided that the national bank brings its percentage of occupancy back to at least 50 percent by a certain time period?
Question Six: Should the OCC impose additional time-based limitations on a banks ability to lease out excess space or capacity? For example, should a bank be permitted to lease out 50 percent of its space for a limited period for example, five years but be subject to a higher usage requirement for example, 75 percent on an ongoing basis?
Question Seven: Should certain uses be permissible but subject to a timebased limit?
Proposed 7.1024c2v provides that a national bank or Federal savings association may permit third parties to use bank occupied premises after bank business hours.19 For example, a bank may permit community members to use a bank auditorium or conference center after bank business hours. After hours 19 National banks and Federal savings associations are often key anchors in a local community and can be called on to play an important role in life-cycle events, for example supplying the use of a conference room or the institutions board room for a funeral viewing or community celebration during business hours.
Occasional use of facilities for such purpose is entirely consistent with the institutions role in the local community and is not inconsistent with section 29 or 1464 and this proposed rule.

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