A-97282, SEPTEMBER 21, 1938, 18 COMP. GEN. 245

A-97282: Sep 21, 1938

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THE PRICE AT WHICH SELLER IS WILLING TO SELL AT A FAIR PRICE AND BUYER WILLING TO BUY AT A FAIR PRICE. SPECULATIVE COSTS OF SPECIAL SERVICES PROVIDED BY THE LESSOR IN GOVERNMENT LEASED PREMISES MAY NOT BE ACCEPTED AS ESTABLISHING EXPENDITURES TO BE CONSIDERED AS PART OF THE RENTAL PAYMENTS IN ARRIVING AT A DETERMINATION WHETHER THE NET RENTAL IN IS EXCESS OF THE STATUTORY LIMITATION ON SUCH PAYMENTS. WHICH LEASE APPEARS TO HAVE BEEN RENEWED FOR THE FISCAL YEAR 1939. STATING THAT THE ASSESSED VALUE OF THE BUILDING IS $2. 000 AND THAT THE LOT IS "NOT YET ASSESSED.'. IN EXPLANATION OF THE LOW ASSESSMENT IT IS STATED AS FOLLOWS: THIS ASSESSMENT IS ON THE BASIS OF ONE-THIRD OF THE DECLARED VALUE OF THE PROPERTY.

A-97282, SEPTEMBER 21, 1938, 18 COMP. GEN. 245

LEASES - RENT - LIMITATIONS - FAIR MARKET VALUE AND SPECIAL SERVICE COST INCLUSION IN RENTAL CONSIDERATION FAIR MARKET VALUE HAS BEEN DEFINED AS THE VALUE OF PROPERTY IN MONEY AS BETWEEN ONE WISHING TO PURCHASE AND ONE WISHING TO SELL; THE PRICE AT WHICH SELLER IS WILLING TO SELL AT A FAIR PRICE AND BUYER WILLING TO BUY AT A FAIR PRICE, BOTH HAVING REASONABLE KNOWLEDGE OF THE FACTS, AND AN ESTIMATED REPRODUCTION COST, NO MATTER HOW ACCURATE, OR AN UNSUPPORTED ADMINISTRATIVE STATEMENT OF VALUE MAY NOT BE ACCEPTED AS ESTABLISHING FAIR MARKET VALUE FOR GOVERNMENT LEASE STATUTORY RENTAL LIMITATION PURPOSES. SPECULATIVE COSTS OF SPECIAL SERVICES PROVIDED BY THE LESSOR IN GOVERNMENT LEASED PREMISES MAY NOT BE ACCEPTED AS ESTABLISHING EXPENDITURES TO BE CONSIDERED AS PART OF THE RENTAL PAYMENTS IN ARRIVING AT A DETERMINATION WHETHER THE NET RENTAL IN IS EXCESS OF THE STATUTORY LIMITATION ON SUCH PAYMENTS, NOR MAY THE COST OF FURNISHING AN ALLEGED SPECIAL SERVICE BE SO CONSIDERED WHERE THE SERVICE INVOLVES THE LEASE REQUIREMENT FOR THE CONTINUING OF THE PREMISES IN GOOD REPAIR AND TENANTABLE CONDITION DURING THE CONTINUANCE OF THE LEASE AS A PART OF THE RENTAL CONSIDERATION.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE SECRETARY OF THE INTERIOR, SEPTEMBER 21, 1938:

THERE HAS BEEN FILED IN THIS OFFICE LEASE NUMBERED ILPC-10 ENTERED INTO APRIL 1, 1938, BETWEEN THE UNITED STATES BY J. W. STEELE, CHAIRMAN, FEDERAL TENDER BOARD NO. 1 AND H. C. BLALOCK, FOR A TWO STORY STUCCO BUILDING CONTAINING 31 ROOMS AT KILGORE, TEX., FOR USE AS OFFICIAL HEADQUARTERS FOR FEDERAL TENDER BOARD NO. 1, FOR THE TERM BEGINNING APRIL 1, 1938, AND ENDING JUNE 30, 1938, AT A MONTHLY RENTAL OF $550, INCLUDING WATER, GAS, ELECTRICITY, AND UPKEEP OF LAWN, WHICH LEASE APPEARS TO HAVE BEEN RENEWED FOR THE FISCAL YEAR 1939.

IN REPLY TO A REQUEST FOR EVIDENCE OF THE FAIR MARKET VALUE OF THE LEASED PREMISES AND STATEMENT SHOWING THE ACTUAL COST OF THE SPECIAL SERVICES FURNISHED UNDER THE LEASE, THERE HAS BEEN SUBMITTED A PHOTOSTATIC COPY OF LETTER DATED JULY 20, 1938, FROM THE CHAIRMAN OF FEDERAL TENDER BOARD NO. 1 AT KILGORE, STATING THAT THE ASSESSED VALUE OF THE BUILDING IS $2,000 AND THAT THE LOT IS "NOT YET ASSESSED.' IN EXPLANATION OF THE LOW ASSESSMENT IT IS STATED AS FOLLOWS:

THIS ASSESSMENT IS ON THE BASIS OF ONE-THIRD OF THE DECLARED VALUE OF THE PROPERTY.

IT MUST BE REMEMBERED THAT THE ASSESSED VALUE DOES NOT ALWAYS REFLECT THE ACTUAL VALUE OF THE PROPERTY IN QUESTION, AS THE FACTORS INVOLVED DIFFER GREATLY IN MANY INSTANCES. THOSE PERSONS WITH POLITICAL INFLUENCE OFTEN ARE ABLE TO HAVE THE ASSESSED VALUES OF THEIR PROPERTIES CUT DOWN CONSIDERABLY, THEREBY RELIEVING THEM OF PAYING CERTAIN TAXES.

IN AN OIL FIELD TOWN PROPERTY IS ASSESSED ON AN ASSUMED ACTUAL VALUE RATHER THAN POTENTIAL VALUE AND THE TAX RENDITIONS DO NOT NECESSARILY REFLECT THE FAIR MARKET VALUE OF THE PROPERTY.

IN ADDITION TO THE FOREGOING IT IS STATED THAT IF THE LESSOR CHOSE TO DO SO HE COULD PROBABLY SELL THE LAND FOR APPROXIMATELY $35,000, EXCLUSIVE OF BUILDING, AND THERE HAS BEEN SUBMITTED ESTIMATES BY TWO GENERAL CONTRACTORS STATING THE REPRODUCTION COST OF THE BUILDING OCCUPIED UNDER THE LEASE AS $28,000 AND $28,348, RESPECTIVELY.

WITH RESPECT TO THE SPECIAL SERVICES REQUIRED UNDER THE TERMS OF THE LEASE TO BE FURNISHED BY THE LESSOR AS PART OF THE RENTAL CONSIDERATION IT IS ESTIMATED THAT THE COST OF SUCH SERVICES TOTALS $150 PER MONTH AND IT IS STATED THAT INFORMATION WAS OBTAINED FROM REPRESENTATIVES OF THE LIGHT AND GAS COMPANIES AND THE CITY ENGINEER THAT THE BILLS FOR SUCH SERVICES SINCE THE BEGINNING OF THE GOVERNMENT'S OCCUPANCY OF THE LEASED PREMISES HAVE AVERAGED AS FOLLOWS:

CHART

GAS ---------------------------------------------------- $12

ELECTRICITY -------------------------------------------- 38

WATER -------------------------------------------------- 25

75

IN ADDITION TO THE ABOVE ESTIMATED COSTS IT IS ESTIMATED THAT THE COST FOR UPKEEP OF THE BUILDING, LAWN, AND YARD AVERAGES $25 PER MONTH AND IT IS STATED THAT THE COST OF ELECTRICITY WILL BE INCREASED ON ACCOUNT OF THE RECENT INSTALLATION OF TWO ELECTRIC WATER COOLERS WHICH WILL BRING THE AMOUNT OF SPECIAL SERVICES UP TO $125. IT IS STATED FURTHER THAT DURING THE MONTHS OF AUGUST, SEPTEMBER, AND OCTOBER, THE ELECTRICITY BILL WILL BE MUCH HIGHER ON ACCOUNT OF "57 FANS GOING STEADILY DURING THE DAY" AND THAT DURING THE WINTER MONTHS THE GAS BILL WILL BE INCREASED CONSIDERABLY.

THE STATUTORY REQUIREMENT IS THAT RENTAL MAY NOT EXCEED 15 PERCENT OF THE FAIR MARKET VALUE AT DATE OF THE LEASE. FAIR MARKET VALUE HAS BEEN DEFINED AS THE VALUE OF PROPERTY IN MONEY AS BETWEEN ONE WISHING TO PURCHASE AND ONE WISHING TO SELL; THE PRICE AT WHICH SELLER IS WILLING TO SELL AT A FAIR PRICE AND BUYER WILLING TO BUY AT A FAIR PRICE, BOTH HAVING REASONABLE KNOWLEDGE OF THE FACTS. PHILLIPS V. UNITED STATES, 12 FED./2D) 598, 601. ON THE RECORD HERE PRESENTED THERE HAS NOT BEEN ESTABLISHED A FAIR MARKET VALUE TO JUSTIFY A NET RENTAL OF $4,800, IT BEING OBVIOUS THAT THE ESTIMATED REPRODUCTION COST, NO MATTER HOW ACCURATE, OR THE UNSUPPORTED STATEMENT BY THE CHAIRMAN OF THE FEDERAL TENDER BOARD NO. 1, MAY NOT BE ACCEPTED AS ESTABLISHING THE FAIR MARKET VALUE OF THE LEASED PREMISES. IN THE CIRCUMSTANCES THERE SHOULD BE SUBMITTED A STATEMENT BY THE COUNTY TAX ASSESSOR SHOWING THE ASSESSED VALUE OF THE LAND IF IT HAS NOW BEEN ASSESSED AND THE RELATIONSHIP OF THE ASSESSED VALUE OF THE LAND AND BUILDING TO THE FAIR MARKET VALUE TOGETHER WITH ANY OTHER AVAILABLE EVIDENCE AS TO THE FAIR MARKET VALUE OF THE LEASED PREMISES.

ALSO, THE STATEMENTS IN THE LETTER OF JULY 20, 1938, SUPRA, WITH RESPECT TO THE COST OF SPECIAL SERVICES ARE NOT SATISFACTORY IN THAT THE BASIS FOR SUCH COSTS IS TOO SPECULATIVE, PARTICULARLY WITH REFERENCE TO THE COST OF ELECTRICITY AND GAS. THE SHOWING MADE DOES NOT SUFFICIENTLY ESTABLISH AN EXPENDITURE BY THE LESSOR OF $150 MONTHLY FOR THE SPECIAL SERVICES REQUIRED TO BE FURNISHED BY HIM AS PART OF THE RENTAL. MOREOVER, WHILE $25 OF THE AMOUNT OF ESTIMATED COST FOR SPECIAL SERVICE IS ALLOCATED TO "UPKEEP OF BUILDING, LAWN, AND YARD PER MONTH" THE OBLIGATION OF THE LESSOR WITH RESPECT TO THIS ITEM UNDER PARAGRAPH 6 OF THE LEASE IS CONFINED TO "UPKEEP OF N.' ACCORDINGLY THERE IS NO AUTHORITY FOR INCLUDING THE UPKEEP OF BUILDING AS A SPECIAL SERVICE ITEM IN VIEW OF THE SPECIFIC PROVISIONS OF PARAGRAPH 7 OF THE LEASE WHICH REQUIRES THE LESSOR TO KEEP THE PREMISES IN GOOD REPAIR AND TENANTABLE CONDITION DURING THE CONTINUANCE OF THE LEASE AS PART OF THE RENTAL CONSIDERATION. IT IS REQUESTED THAT THERE BE SUBMITTED A SUPPLEMENTAL STATEMENT BASED ON CURRENT REPORTS OBTAINED FROM THE LIGHT AND GAS COMPANY AND THE CITY ENGINEER SHOWING THE COST OF THE GAS, ELECTRICITY, AND WATER FURNISHED BY THE LESSOR TO DATE TOGETHER WITH STATEMENT BY THE LESSOR SHOWING HIS EXPENDITURES TO DATE FOR "UPKEEP OF LAWN.'

MEANWHILE IT MAY BE STATED THAT CREDIT FOR RENTAL PAYMENTS UNDER THE LEASE WILL NOT BE ALLOWED IN THE ACCOUNTS OF DISBURSING OFFICERS PENDING FILING OF THE ADDITIONAL EVIDENCE HEREIN REQUESTED.