A-85642, APRIL 30, 1937, 16 COMP. GEN. 967

A-85642: Apr 30, 1937

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AN APPRAISAL UPON WHICH A PRIOR LEASE WAS BASED MAY NOT BE ACCEPTED AS A BASIS FOR RENTAL TO BE PAID UNDER A NEW LEASE. HIS APPRAISAL IS FOR ADOPTION RATHER THAN THAT OF A REAL ESTATE FIRM. THERE IS NO OBJECTION TO THE PAYMENT OF A SUM NOT IN EXCESS OF 25 PERCENT OF THE RENTAL FOR THE FIRST YEAR UNDER A NEW LEASE FOR ALTERATIONS. IS AS FOLLOWS: THE RECONSTRUCTION FINANCE CORPORATION IS OCCUPYING PREMISES 1825 H STREET NORTHWEST. AS IT WILL BE NECESSARY FOR THE RECONSTRUCTION FINANCE CORPORATION TO CONTINUE TO OCCUPY THE PREMISES SUBSEQUENT TO JUNE 30. NEGOTIATIONS WILL BE STARTED SHORTLY FOR THE PURPOSE OF ARRIVING AT THE ANNUAL RENTAL RATE THAT THE GOVERNMENT WILL BE REQUIRED TO PAY FOR THE CONTINUED OCCUPANCY OF THE PREMISES AND AT WHICH TIME REQUEST WILL BE MADE OF THE LESSOR TO MAKE CONSIDERABLE STRUCTURAL AND MECHANICAL CHANGES NECESSITATED BY THE INCREASED USE BY THE RECONSTRUCTION FINANCE CORPORATION OF ELECTRICALLY DRIVEN OFFICE EQUIPMENT SUCH AS THE CHANGING OF PART OF THE ELECTRICAL SYSTEM FROM DIRECT CURRENT TO ALTERNATING CURRENT.

A-85642, APRIL 30, 1937, 16 COMP. GEN. 967

LEASES - RENT, ALTERATIONS, IMPROVEMENTS, AND REPAIRS - DETERMINATION OF FAIR MARKET VALUE AND USE OF VALUE AS DETERMINED UNDER A PRIOR LEASE SECTION 322 OF THE ACT OF JUNE 30, 1932, 47 STAT. 412, LIMITING EXPENDITURES FOR RENT AND ALTERATIONS, IMPROVEMENTS AND REPAIRS OF BUILDINGS, OR PARTS OF BUILDINGS, TO BE OCCUPIED FOR GOVERNMENT PURPOSES, REQUIRES A DETERMINATION OF THE FAIR MARKET VALUE OF THE PROPERTY AT THE DATE OF THE LEASE, AND AN APPRAISAL UPON WHICH A PRIOR LEASE WAS BASED MAY NOT BE ACCEPTED AS A BASIS FOR RENTAL TO BE PAID UNDER A NEW LEASE. THE ASSESSOR OF THE DISTRICT OF COLUMBIA BEING PARTICULARLY QUALIFIED TO EXPRESS AN EXPERT OPINION AS TO THE FAIR MARKET VALUE OF PREMISES LOCATED IN THE DISTRICT, HIS APPRAISAL IS FOR ADOPTION RATHER THAN THAT OF A REAL ESTATE FIRM, OR FEDERAL GOVERNMENT EMPLOYEE NOT REQUIRED BY STATUTE TO PERFORM SUCH DUTIES, IN ARRIVING AT RENTAL PROPERLY PAYABLE FOR BUILDINGS, OR PARTS OF BUILDINGS, TO BE LEASED BY THE GOVERNMENT, UNDER THE RENTAL LIMITATIONS IMPOSED BY SECTION 322 OF THE ACT OF JUNE 30, 1932, 47 STAT. 412, BUT SAID FAIR MARKET VALUE HAVING BEEN SO ESTABLISHED, THERE IS NO OBJECTION TO THE PAYMENT OF A SUM NOT IN EXCESS OF 25 PERCENT OF THE RENTAL FOR THE FIRST YEAR UNDER A NEW LEASE FOR ALTERATIONS, IMPROVEMENTS, AND REPAIRS NECESSARY TO GOVERNMENT OCCUPANCY.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE SECRETARY OF THE INTERIOR, APRIL 30, 1937:

YOUR LETTER OF APRIL 16, 1937, IS AS FOLLOWS:

THE RECONSTRUCTION FINANCE CORPORATION IS OCCUPYING PREMISES 1825 H STREET NORTHWEST, SITUATED ON LOT 825 IN SQUARE 105 OF THE DISTRICT OF COLUMBIA, UNDER LEASE NUMBERED I-1P-2431, ENTERED INTO ON THE 30TH DAY OF JUNE, 1934, BETWEEN LILLIAN R. WARDMAN AND HELEN WARDMAN AND THE UNITED STATES OF AMERICA, BY ARNO B. CAMMERER, DIRECTOR OF THE NATIONAL PARK SERVICE OF THIS DEPARTMENT, WHICH LEASE UNDER THE SAME TERMS AND CONDITIONS SUPERSEDED LEASE NUMBERED P.B.P. 820, DATED JUNE 30, 1933.

PARAGRAPH 5 OF LEASE I-1P-2431 PROVIDES THAT THE INSTRUMENT MAY, AT THE OPTION OF THE GOVERNMENT, BE RENEWED ANNUALLY AT A MONTHLY RENTAL OF $11,039.58 AND OTHERWISE ON THE TERMS AND CONDITIONS THEREIN SPECIFIED, PROVIDING THAT NOTICE BE GIVEN IN WRITING TO THE LESSOR AT LEAST ONE MONTH BEFORE THE LEASE WOULD EXPIRE, AND PROVIDES FURTHER THAT NO RENEWAL THEREOF SHALL EXTEND THE PERIOD OF OCCUPANCY OF THE PREMISES BEYOND THE 30TH DAY OF JUNE, 1937.

AS IT WILL BE NECESSARY FOR THE RECONSTRUCTION FINANCE CORPORATION TO CONTINUE TO OCCUPY THE PREMISES SUBSEQUENT TO JUNE 30, 1937, NEGOTIATIONS WILL BE STARTED SHORTLY FOR THE PURPOSE OF ARRIVING AT THE ANNUAL RENTAL RATE THAT THE GOVERNMENT WILL BE REQUIRED TO PAY FOR THE CONTINUED OCCUPANCY OF THE PREMISES AND AT WHICH TIME REQUEST WILL BE MADE OF THE LESSOR TO MAKE CONSIDERABLE STRUCTURAL AND MECHANICAL CHANGES NECESSITATED BY THE INCREASED USE BY THE RECONSTRUCTION FINANCE CORPORATION OF ELECTRICALLY DRIVEN OFFICE EQUIPMENT SUCH AS THE CHANGING OF PART OF THE ELECTRICAL SYSTEM FROM DIRECT CURRENT TO ALTERNATING CURRENT, WHICH CHANGE WOULD NECESSITATE THE INSTALLATION OF NEW SERVICE EQUIPMENT, PANEL BOARDS, PULL BOXES, NEW FEEDER LINES, NEW FIRE ALARM SYSTEM, AND THE INSTALLATION OF ADDITIONAL LIGHTING AND CONVENIENCE OUTLETS.

WHEN NEGOTIATIONS WERE BEING MADE WITH THE LESSORS OF THE PROPERTY FOR THE GOVERNMENT'S OCCUPANCY UNDER LEASE NUMBERED P.B.P. 820, THE FAIR MARKET VALUE OF THE PREMISES WAS ARRIVED AT BY THE APPOINTMENT OF A BOARD CONSISTING OF H. TUDOR MORSELL, LAND PURCHASING OFFICER OF THE NATIONAL CAPITAL PARK AND PLANNING COMMISSION, SELECTED BY THE FORMER PUBLIC BUILDINGS COMMISSION; SHANNON AND LUCHS, REAL ESTATE DEALERS OF 1505 H STREET NW., SELECTED BY THE LESSORS; AND THE ASSESSOR OF THE DISTRICT OF COLUMBIA, SELECTED BY BOTH PARTIES TO ACT AS A THIRD MEMBER.

THE ESTIMATE OF THE FAIR MARKET VALUE OF THE PREMISES, AS DETERMINED BY MEMBERS FO THIS BOARD, WAS AS FOLLOWS:

MR. H. TUDOR MORSELL, LAND PURCHASING AGENT, NATIONAL CAPITAL PARK AND PLANNING COMMISSION ----------------------------------- $929,580.43

SHANNON AND LUCHS CO -------------------------------- 913,401.25

MR. RICHARDS, ASSESSOR OF THE DISTRICT OF COLUMBIA --------------- ------ ------------------------ 900,000.00

THE APPRAISAL OF $913,401.25 PRESENTED BY SHANNON AND LUCHS CO. WAS ACCEPTED BY THE FORMER PUBLIC BUILDINGS COMMISSION AS THE FAIR MARKET VALUE OF THE PREMISES IN QUESTION. 15 PERCENT OF THE FAIR MARKET VALUE THUS DETERMINED AMOUNTS TO $137,010.19. THE RENTAL OF $132,474.96 NOW BEING PAID BY THE GOVERNMENT IS, THEREFORE, $4,535.23 UNDER THE PERCENTAGE OF THE FAIR MARKET VALUE STIPULATED BY SECTION 322 OF THE ACT APPROVED JUNE 30, 1932, AS AMENDED. THIS INFORMATION WAS FURNISHED YOUR OFFICE IN A LETTER FROM THE DIRECTOR OF THE NATIONAL PARK SERVICE, DATED SEPTEMBER 22, 1933.

DURING THE FISCAL YEAR 1933, THE GOVERNMENT PAID AN ANNUAL RENTAL OF $151,400 FOR USE OF THE PREMISES IN QUESTION. THE PRESENT ANNUAL RENTAL OF $132,474.96 IS, THEREFORE, $18,925.04 OR 12.5 PERCENT BELOW THE AMOUNT PAID FOR THE SAME SPACE DURING THE FISCAL YEAR 1933.

THERE ARE SUBMITTED FOR YOUR CONSIDERATION TWO QUESTIONS:

(1) IN VIEW OF THE CONTINUATION OF THE TERMS AND CONDITIONS OF THE PRESENT LEASE DURING THE GOVERNMENT'S OCCUPANCY, WOULD THERE BE ANY OBJECTION TO THIS DEPARTMENT USING THE APPRAISAL OF $913,401.25, ACCEPTED AS THE FAIR MARKET VALUE IN CONNECTION WITH THE PRESENT LEASE, IN NEGOTIATING FOR THE ANNUAL RENTAL TO BE PAID BY THE GOVERNMENT UNDER THE PROPOSED NEW LEASE?

(2) WOULD THERE BE ANY OBJECTION TO THIS DEPARTMENT COMMITTING THE GOVERNMENT TO PAY TO THE LESSOR, IF NECESSARY, A SUM NOT IN EXCESS OF 25 PERCENT OF THE RENTAL FOR THE FIRST YEAR OF THE PROPOSED NEW LEASE FOR ALTERATIONS, IMPROVEMENTS, AND REPAIRS NECESSARY TO MEET THE ADDITIONAL AND CHANGED CONDITION OF THE GOVERNMENT?

SECTION 322 OF THE ACT OF JUNE 30, 1932, 47 STAT. 412, PROVIDES:

HEREAFTER NO APPROPRIATION SHALL BE OBLIGATED OR EXPENDED FOR THE RENT OF ANY BUILDING OR PART OF A BUILDING TO BE OCCUPIED FOR GOVERNMENT PURPOSES AT A RENTAL IN EXCESS OF THE PER ANNUM RATE OF 15 PERCENTUM OF THE FAIR MARKET VALUE OF THE RENTED PREMISES AT DATE OF THE LEASE UNDER WHICH THE PREMISES ARE TO BE OCCUPIED BY THE GOVERNMENT NOR FOR ALTERATIONS, IMPROVEMENTS, AND REPAIRS OF THE RENTED PREMISES IN EXCESS OF 25 PERCENTUM OF THE AMOUNT OF THE RENT FOR THE FIRST FISCAL YEAR OF THE RENTAL TERM, OR FOR THE RENTAL TERM IF LESS THAN ONE YEAR: PROVIDED, THAT THE PROVISIONS OF THIS SECTION SHALL NOT APPLY TO LEASES HERETOFORE MADE, EXCEPT WHEN RENEWALS THEREOF ARE MADE HEREAFTER, NOR TO LEASES OF PREMISES IN FOREIGN COUNTRIES FOR THE FOREIGN SERVICES OF THE UNITED STATES.

AS THIS STATUTE REQUIRED DETERMINATION OF THE FAIR MARKET VALUE FOR THE PURPOSE OF THE LEASE, THE APPRAISAL UPON WHICH THE 1934 LEASE WAS BASED MAY NOT BE ACCEPTED AS A BASIS FOR THE RENTAL TO BE PAID UNDER A PROPOSED NEW LEASE. IT IS NOTED, ALSO, THAT THE APPRAISAL BY THE ASSESSOR OF THE DISTRICT OF COLUMBIA WAS $900,000, WHILE THE APPRAISAL WHICH YOU STATE WAS ACCEPTED BY THE PUBLIC BUILDINGS COMMISSION WAS $913,401.25. SUCH A DIFFERENCE BECOMES A MATERIAL FACTOR IN DETERMINING THE RENT TO BE PAID, AND THE VALUATION BY THE ASSESSOR WOULD BE FOR ADOPTION AS HE IS, IN VIEW OF THE PROVISIONS OF SECTION 4 OF THE ACT OF JULY 3, 1926, 44 STAT. 833, AND ACT OF FEBRUARY 11, 1932, 47 STAT. 48, PARTICULARLY QUALIFIED TO EXPRESS AN EXPERT OPINION AS TO THE FAIR MARKET VALUE OF PREMISES LOCATED IN THE DISTRICT OF COLUMBIA. 14 COMP. GEN. 83. UNDER THE CIRCUMSTANCES A NEW DETERMINATION OF THE FAIR MARKET VALUE OF THE PREMISES IN THIS CASE MUST BE MADE AS A BASIS FOR THE DETERMINATION OF THE PROPER RENT PAYABLE UNDER THE NEW LEASE.

SUBJECT TO THE FOREGOING, THIS OFFICE WOULD NOT BE REQUIRED TO OBJECT TO YOUR DEPARTMENT OBLIGATING THE GOVERNMENT TO PAY TO THE LESSOR, IF NECESSARY, A SUM NOT IN EXCESS OF 25 PERCENT OF THE RENTAL FOR THE FIRST YEAR UNDER THE NEW LEASE FOR ALTERATIONS, IMPROVEMENTS, AND REPAIRS NECESSARY TO MEET THE GOVERNMENT'S NEEDS.