B-116238, SEPTEMBER 27, 1954, 34 COMP. GEN. 140

B-116238, SEPTEMBER 27, 1954, 34 COMP. GEN. 140

LEASES - RENT - REDUCTIONS BASED ON IMPROVEMENTS UNDER LEASE WHICH PROVIDES THAT RENT WILL BE DETERMINED BY AMOUNT SPENT FOR ALTERATIONS AND IMPROVEMENTS, THE LESSOR MAY NOT INCLUDE AS COST OF ALTERATIONS AND IMPROVEMENTS AMOUNTS FOR MORTGAGE INTEREST WHICH HAS NOT ACTUALLY BEEN PAID AND FOR "SUPERVISORY SERVICE" WHICH WAS PERFORMED BY THE LESSOR'S REPRESENTATIVE AS PART OF HIS REGULAR AND REQUIRED DUTIES AND NOT IN THE CAPACITY OF A GENERAL CONTRACTOR.

ACTING COMPTROLLER GENERAL WEITZEL TO LYNE, WOODWORTH AND EVARTS, ESQUIRES, SEPTEMBER 27, 1954:

REFERENCE IS MADE TO YOUR LETTER OF MAY 26, 1954, PROTESTING THE ACTION TAKEN IN SETTLEMENT OF MARCH 17, 1954, WHICH DISALLOWED $8,466.64 OF THE AMOUNT CLAIMED BY YOUR CLIENT, THE PACIFIC WAREHOUSE TRUST, AS THE BALANCE OF RENT DUE FOR THE PERIOD MAY 1, 1951 THROUGH FEBRUARY 28, 1953, FOR THE BUILDING LOCATED AT 130 AUCKLAND STREET, DORCHESTER, MASSACHUSETTS, OCCUPIED UNDER LEASE GS-01B-300, DATED FEBRUARY 15, 1951, AS RENEWED.

PARAGRAPH 7 OF THE LEASE OBLIGATES THE GOVERNMENT TO PAY THE LESSOR $99,500 PER ANNUM SUBJECT TO CERTAIN ADJUSTMENTS FOR TAXES AND SUBJECT TO A FURTHER PROVISION TO THE EFFECT THAT IF THE LESSOR ,SPENDS LESS THAN $123,555.00 IN ALTERATIONS AND IMPROVEMENTS, THE ANNUAL RENTAL SHALL BE ABATED BY AT LEAST ONE-FIFTH OF ANY DIFFERENCE.'

PURSUANT TO THE FOREGOING PROVISION THE LESSOR SUBMITTED AN ITEMIZED STATEMENT SHOWING ALTERATIONS AND IMPROVEMENTS TOTALING $128,290.74. THE REGIONAL COMPTROLLER IN DIFFERENCE STATEMENT DATED MARCH 11, 1952, DISALLOWED ITEMS TOTALING 126,303.99 FROM THE LESSOR'S ITEMIZED COST STATEMENT LEAVING A BALANCE OF ADMINISTRATIVELY APPROVED EXPENDITURES TOTALING $101,986.75, WHICH DISALLOWANCE WAS MADE WITH THE CONCURRENCE OF THE CONTRACTING OFFICER. THE LESSOR WAS FURNISHED WITH AN ITEMIZED STATEMENT OF THE DISALLOWED ITEMS UNDER DATE OF MARCH 11, 1952. THEREAFTER, ITEMS TOTALING $916.71 OF THE DISALLOWED ITEMS WERE VERIFIED AND APPROVED BY THE ADMINISTRATIVE REGIONAL COMPTROLLER. ON SUCH BASIS, UNDER THE FORMULA STIPULATED IN PARAGRAPH 7 OF THE LEASE, THE GOVERNMENT'S LIABILITY FOR RENT WAS COMPUTED AT THE PER ANNUM RATE OF $85,569.69 AND THE SETTLEMENT OF MARCH 17, 1954, WAS MADE ON THAT BASIS, RESULTING IN AN ALLOWANCE OF $336.16 FOR RENT FOR THE CLAIM PERIOD AND A DISALLOWANCE OF $8,466.64.

YOU ASSERT THAT IF THE INTEREST ITEM AGGREGATING $14,205.47 AND THE ITEM OF $6,000 FOR SUPERVISION HAD BEEN REGARDED AS PROPER ITEMS TO BE CONSIDERED IN CONSTRUCTING THE RENT THERE WOULD BE NO QUESTION OF AN ABATEMENT OF THE RENT. IN THAT CONNECTION YOU URGED IN EFFECT THAT IT IS CLEAR FROM THE NEGOTIATIONS AND UNDERSTANDING OF THE PARTIES PRIOR TO THE EXECUTION OF THE LEASE THAT THEY INTENDED THAT THESE TWO ITEMS WERE TO BE INCLUDED AS PART OF THE COSTS OF ALTERATIONS FOR THE PURPOSE OF CONSTRUCTING THE RENT. FOR THESE REASONS YOU EXPRESS THE VIEW THAT THE LAST SENTENCE OF PARAGRAPH 7 SHOULD BE AMENDED TO INCLUDE THESE TWO ITEMS AS PART OF THE COST OF ALTERATIONS AND IMPROVEMENTS TOGETHER WITH THE COST OF MAINTENANCE OF THE BUILDING DURING CONSTRUCTION AND LEGAL EXPENSE.

INSOFAR AS CONCERNS THE AMENDMENT OF PARAGRAPH 7 OF THE LEASE AS PROPOSED IN YOUR LETTER THE CONTRACTING OFFICER IN A SUPPLEMENTAL STATEMENT DATED AUGUST 6, 1954, FURNISHED AT THE REQUEST OF THIS OFFICE, ADHERED TO HIS ORIGINAL DETERMINATION TO THE EFFECT THAT THE ITEMS FOR INTEREST AND SUPERVISION ARE NOT PROPERLY FOR CONSIDERATION AS ALTERATIONS AND IMPROVEMENTS WITHIN THE MEANING OF PARAGRAPH 7 OF THE LEASE. WITH RESPECT TO THE $6,000 ITEM FOR SUPERVISORY SERVICE ASSERTED TO HAVE BEEN PERFORMED BY MR. BARROWS ( LESSOR-TRUSTEE) IN LIEU OF HIRING A GENERAL CONTRACTOR, THERE IS NOTHING IN EITHER OF THE TWO BIDS SUBMITTED BY THE OWNERS OF THE BUILDING INDICATING THAT SUCH A CHARGE WOULD BE INCLUDED AS PART OF THE ALTERATION AND IMPROVEMENT COSTS NOR IS THERE ANYTHING IN THE RECORD ESTABLISHING ANY AGREEMENT BETWEEN THE CONTRACTING PARTIES TO THAT EFFECT. IN COMMENTING ON THAT ITEM THE NEGOTIATING OFFICER HAS STATED THAT, WHILE IT WAS KNOWN BEFORE THE EXECUTION OF THE LEASE THAT MR. BARROWS WAS TO ACT AS THE GENERAL CONTRACTOR, THE MATTER OF A FEE WAS NOT DISCUSSED WITH HIM. WITH RESPECT TO THIS PHASE OF THE MATTER THE REGIONAL COMPTROLLER STATES THAT ALL EVIDENCE EXAMINED IS TO THE EFFECT THAT MR. BARROWS RENDERED SUPERVISORY SERVICES ONLY WHICH WERE PART OF HIS REGULAR AND REQUIRED DUTIES AND RESPONSIBILITIES AS LESSOR-TRUSTEE AS DEFINED IN THE TRUST AGREEMENT; THAT NO EVIDENCE WAS PRODUCED ESTABLISHING THAT HE PERFORMED OR RENDERED SERVICES AS AN INDIVIDUAL IN THE CAPACITY OF GENERAL CONTRACTOR; THAT HE HAD NO EMPLOYEE ORGANIZATION AND CARRIED NO INSURANCE; THAT HE INCURRED NO EXPENSE OR LIABILITY OF ANY NATURE; THAT HE MADE NO ALTERATION JOB DISBURSEMENTS; AND THAT ALL FOUR CONTRACTORS AND SUPPLIERS ACTED AS PRIME CONTRACTORS AND WERE PAID DIRECTLY BY THE TRUST. FOR THE ABOVE REASONS THE $6,000 ITEM PROPERLY MAY NOT BE REGARDED AS A PART OF THE ALTERATION AND IMPROVEMENT COSTS WITHIN THE MEANING OF PARAGRAPH 7 OF THE LEASE.

WITH RESPECT TO THE INTEREST ITEM OF $14,205.47, THE RECORD CLEARLY SHOWS, AS INDICATED IN YOUR LETTER, THAT DURING THE ORIGINAL NEGOTIATIONS IT WAS UNDERSTOOD AND AGREED BY THE NEGOTIATING PARTIES THAT INTEREST ON THE MORTGAGE LOAN FOR THE PURPOSE OF FINANCING THE ALTERATIONS AND IMPROVEMENTS WOULD BE INCLUDED AS PART OF THE COSTS THEREOF FOR THE PURPOSE OF CONSTRUCTING THE RENT. HOWEVER, THE ADMINISTRATIVE REGIONAL COMPTROLLER IN DISAPPROVING THE INTEREST ITEM STATES AS FOLLOWS:

THIS CHARGE AS CLAIMED REPRESENTS AN ANTICIPATED EXPENDITURE THAT MAY OR MAY NOT BE MADE DURING THE PERIOD APRIL 9, 1951--- APRIL 8, 1956. AS OF DECEMBER 14, 1951 AN EXAMINATION OF THE LESSOR'S BOOKS, RECORDS AND/OR CANCELLED CHECKS DISCLOSE NO PAYMENTS OF INTEREST APPLICABLE TO THIS MORTGAGE. AS PRESENTLY CONSTITUTED THIS CLAIM IN THE AMOUNT OF $14,205.47 CANNOT BE VERIFIED OR SUPPORTED AS AN EXPENDITURE. THE CHARGE IS CONJECTURABLE; LACKS FINALITY; AND SUBJECT TO THE WHIM OR DECISION OF THE PRESENT OR A FUTURE LESSOR TRUSTEE.

ACCORDINGLY ON THE PRESENT RECORD THE INTEREST ITEM OF $14,205.47 PROPERLY MAY NOT BE REGARDED AS PART OF THE ALTERATION AND IMPROVEMENT COSTS WITHIN THE MEANING OF PARAGRAPH 7 OF THE LEASE.

FOR THE REASONS STATED ABOVE THERE IS NOT PROPER BASIS FOR AMENDING PARAGRAPH 7 OF THE LEASE AS PROPOSED IN YOUR LETTER NOR FOR ALLOWANCE OF ANY ADDITIONAL AMOUNT.