B-143296, JUL. 12, 1960

B-143296, JUL. 12, 1960

TO HONORABLE FRANKLIN FLOETE, ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION:

YOUR LETTER OF JUNE 21, 1960, REQUESTS A DECISION WHETHER PARAGRAPH 5 OF LEASE NO. GS-09B-310, AS AMENDED, WITH THE VALENCIA PROPERTY COMPANY MAY BE REFORMED TO PROVIDE FOR AN INCREASED RENTAL RATE IN THE AMOUNT OF $146,471.04 DURING THE FIRST RENEWAL TERM AND $142,471.04 FOR EACH RENEWAL TERM THEREAFTER INSTEAD OF THE PRESENT RATES STIPULATED IN PARAGRAPH 5 OF THE LEASE.

THE LEASE, DATED JANUARY 21, 1954, PROVIDES FOR THE FURNISHING OF A TWO- STORY BUILDING LOCATED AT SIXTH AND VALENCIA STREETS, LOS ANGELES, CALIFORNIA, CONTAINING APPROXIMATELY 66,722 SQUARE FEET OF SPACE CONSISTING OF 40,000 SQUARE FEET OF OFFICE SPACE AND 26,772 SQUARE FEET OF GARAGE SPACE FOR A FIVE-YEAR TERM BEGINNING ON A DATE TO BE ESTABLISHED BY AN APPROPRIATE AMENDMENT TO THE LEASE. THE RENTAL RATE FOR THE ORIGINAL TERM IS STIPULATED IN PARAGRAPH 7 AS $140,079 PER ANNUM REPRESENTING $120,000 FOR OFFICE SPACE AND $20,079 FOR GARAGE SPACE. PARAGRAPH 5 PROVIDES FOR RENEWAL AT THE OPTION OF THE GOVERNMENT FOR THREE ADDITIONAL FIVE-YEAR PERIODS WITH AN ANNUAL RENTAL FOR EACH RENEWAL PERIOD FOR THE GARAGE AREA OF $20,079 AND AN ANNUAL RENTAL FOR THE OFFICE SPACE OF $114,000 FOR THE FIRST RENEWAL PERIOD AND $110,000 PER ANNUM FOR EACH RENEWAL PERIOD THEREAFTER. PARAGRAPH 11 PROVIDES FOR INSTALLATION OF ADDITIONAL FACILITIES AND IMPROVEMENTS BY THE LESSOR AS REQUESTED BY THE CONTRACTING OFFICER, THE COST THEREOF NOT TO EXCEED $25,000 AND FOR AN ADDITIONAL RENTAL FOR SUCH ADDITIONAL FACILITIES AND IMPROVEMENTS AT THE RATE OF ONE PERCENT PER MONTH OF THE ACTUAL COST THEREOF.

BY SUPPLEMENTAL AGREEMENT NO. 1, THE LEASE WAS AMENDED TO PROVIDE FOR AN ORIGINAL TERM BEGINNING MARCH 7, 1955, AND ENDING MARCH 6, 1960. SUPPLEMENTAL AGREEMENT NO. 2, DATED MARCH 7, 1955, THE LEASE WAS AMENDED TO PROVIDE FOR THE INSTALLATION OF ADDITIONAL FACILITIES AT A COST OF $19,933.89 AND PARAGRAPH 7 OF THE ORIGINAL LEASE WAS AMENDED EFFECTIVE MARCH 7, 1955, TO PROVIDE FOR AN INCREASE OF $2,392.08 IN THE ANNUAL RENTAL. THIS AMENDMENT CONTAINED NO PROVISION FOR ANY INCREASE IN THE RENTAL FOR THE RENEWAL TERMS. BY SUPPLEMENTAL AGREEMENT NO. 3, DATED APRIL 7, 1956, THE LEASE WAS FURTHER AMENDED TO PROVIDE FOR FURNISHING REFRIGERATED AIR CONDITIONING FOR THE 40,000 SQUARE FEET OF OFFICE SPACE AND PARAGRAPH 7 WAS AMENDED TO PROVIDE FOR THE PAYMENT OF AN INCREASED ANNUAL RENTAL RATE OF $152,471.04 REPRESENTING $132,392.04 FOR THE OFFICE SPACE AND $20,079 FOR THE GARAGE SPACE. AS IN THE CASE OF THE PRIOR AMENDMENT THE AMENDMENT EFFECTED BY SUPPLEMENTAL AGREEMENT NO. 3, LIKEWISE CONTAINED NO PROVISION FOR ANY INCREASE IN THE RENT FOR ANY OF THE RENEWAL TERMS.

BY LETTER DATED FEBRUARY 29, 1960, THE PRESIDENT OF THE VALENCIA PROPERTY COMPANY CONTENDED THAT IT WAS THE UNDERSTANDING OF THE LESSOR THAT THE AMENDMENTS EFFECTED BY SUPPLEMENTAL AGREEMENTS NOS. 2 AND 3 WERE INTENDED TO COVER THE ENTIRE TERM INCLUDING THE RENEWAL TERMS AND HE REQUESTED REFORMATION OF THE LEASE SO THAT THE INCREASED RENTALS SHOWN IN SUCH AMENDMENTS WOULD BE APPLICABLE TO THE RENEWAL TERMS.

IN THE STATEMENT OF FINDINGS AND RECOMMENDATIONS REGARDING REFORMATION OF LEASE EXECUTED BY THE PRESENT SUPERVISORY REALTY OFFICER AND HIS PREDECESSOR, IT IS STATED THAT MR. MORT D. GOLDBERG WHO SIGNED THE LEASE ON BEHALF OF THE LESSOR AND MR. EUGENE HOFELLER, THE FORMER SUPERVISORY REALTY OFFICER, WHO SIGNED THE LEASE ON BEHALF OF THE GOVERNMENT, ARE NOW DECEASED. HE STATES IN EFFECT, HOWEVER, THAT HE IS GENERALLY FAMILIAR WITH ALL THE FACETS OF THE TRANSACTION; THAT THE STATEMENT OF FACT REGARDING AMENDMENT NO. 2 WAS PREPARED BY HIM AND THAT THE STATEMENT OF FACT REGARDING AMENDMENT NO. 3 WAS PREPARED BY MR. WILLIAM H. HOFFMAN, WHO SUCCEEDED MR. HOFELLER AND SIGNED AMENDMENT NO. 3.

AS TO AMENDMENT NO. 2 IT IS STATED IN THE FINDINGS OF FACT THAT WHILE THIS AMENDMENT FAILED TO PROVIDE FOR AN INCREASE IN THE RENTAL PAYMENTS FOR THE RENEWAL PERIOD THE INTENT OF THE PARTIES IN THIS REGARD IS CLEARLY INDICATED IN THE PROPOSAL OF OCTOBER 9, 1953, SIGNED BY MR. GOLDBERG WHEREIN IT IS STATED---

"/25) REQUIREMENTS OF THE GOVERNMENT BEYOND THE FACILITIES OFFERED AND WHICH MAY BE NECESSARY TO ADAPT THE PREMISES FULLY TO THE NEEDS OF THE ISSUING AGENCY, WILL BE SUPPLIED BY THE LESSOR IN AN AMOUNT TO COST NOT OVER $25,000. IN CONSIDERATION THEREFOR, THE GOVERNMENT WILL PAY ADDITIONAL RENTAL ON THE BASIS OF 1 PERCENT OF THE ACTUAL COST OF SUCH ADDITIONS. SUCH ADDED RENTAL TO BE PAID DURING THE INITIAL TERM AND ANY RENEWAL PERIOD OR PERIODS.'

IN REFERRING TO THE FOREGOING PROVISION IT IS STATED THAT AS A RESULT OF A STENOGRAPHIC OMISSION THE WORDS "PER MONTH" WERE OMITTED AFTER "1 PERCENT.' ALSO, IT IS STATED THAT THERE WAS NOTHING IN THE REALTY OFFICER'S LETTER OF DECEMBER 21, 1953, ACCEPTING MR. GOLDBERG'S OFFER MODIFYING THE FOREGOING PART OF THE PROPOSAL OF OCTOBER 9, 1953, CONCERNING THE PAYMENT OF ADDITIONAL RENTAL AND THAT THE LAST PARAGRAPH OF THE LETTER OF ACCEPTANCE CONTAINED THE FOLLOWING:

"UPON RECEIPT OF YOUR ACCEPTANCE OF THE ABOVE TERMS AND CONDITIONS TO BE INDICATED BY YOUR SIGNATURE ON THE ENCLOSED COPIES OF THIS LETTER, A FORMAL LEASE EMBODYING THE TERMS AS SET OUT IN YOUR OFFER, AS MODIFIED HEREIN INCLUDING STANDARD GOVERNMENT TERMS, WILL BE PREPARED IN THIS OFFICE ON U.S. STANDARD FORM, AND WILL BE FORWARDED TO YOU FOR SIGNATURE AT AN EARLY DATE.'

AS TO AMENDMENT NO. 3 THERE IS QUOTED AN EXCERPT FROM LETTER OF APRIL 5, 1956, FROM GSA DESCRIBING THE AIR CONDITIONING SYSTEM TO BE INSTALLED WHEREIN IT IS STATED THAT AN AMENDMENT PROVIDING FOR AN ADDITIONAL RENTAL OF 25 CENTS PER SQUARE FOOT PER ANNUM FOR THE 40,000 SQUARE FEET OF SPACE OR $833.33 PER MONTH WOULD BE PREPARED BEGINNING WITH THE COMPLETION AND OPERATION OF THIS INSTALLATION, ANTICIPATED TO BE JUNE 1, 1956, AND FORWARDED TO THE LESSOR FOR SIGNATURE. IT IS STATED THAT THIS LETTER BY MR. HOFFMAN AS SUCCESSOR TO THE ORIGINAL CONTRACTING OFFICER WAS ACCEPTED ON BEHALF OF THE LESSOR BY ITS FORMER PRESIDENT, MR. GOLDBERG; THAT THE RENTAL DIFFERENTIAL FOR AIR CONDITIONED SPACE NORMALLY RUNS FROM THIRTY TO FIFTY CENTS PER SQUARE FOOT PER ANNUM OR MORE, IN EXCESS OF NON-AIR CONDITIONED SPACE; THAT IT WAS WITHOUT QUESTION THE INTENTION OF BOTH PARTIES THAT THE RENTAL INCREASE FOR THE AIR CONDITIONING WAS TO BE A CONTINUING THING; AND THAT THIS IS NORMAL PROCEDURE, DUE TO THE RECURRING COSTS OF OPERATION, MAINTENANCE AND REPLACEMENT.

THE RECORD SUFFICIENTLY ESTABLISHES THAT THE NEGOTIATIONS LEADING UP TO THE EXECUTION OF SUPPLEMENTAL AGREEMENTS NOS. 2 AND 3 WERE ON THE BASIS THAT THE ADDITIONAL RENTALS PROVIDED FOR THEREIN FOR THE INSTALLATION OF THE ADDITIONAL FACILITIES AND IMPROVEMENTS AND FOR THE INSTALLATION AND FURNISHING OF REFRIGERATED AIR CONDITIONING FOR THE OFFICE SPACE, RESPECTIVELY, WERE INTENDED TO APPLY TO THE BALANCE OF THE ORIGINAL TERM AND TO EACH RENEWAL TERM. THUS, SUPPLEMENTAL AGREEMENTS NOS. 2 AND 3 AS EXECUTED WERE CONTRARY TO THE INTENTION OF THE PARTIES.

ACCORDINGLY, SUBJECT TO SATISFYING THE REQUIREMENTS OF THE 15 PERCENT LIMITATION OF 40 U.S.C. 278A, OUR OFFICE WILL NOT OBJECT TO THE EXECUTION OF THE PROPOSED AMENDMENT OF PARAGRAPH 5 OF THE LEASE TO REFLECT THE RENTAL PAYMENTS SET FORTH ON PAGE 4 OF THE STATEMENT OF FINDINGS AND RECOMMENDATIONS REGARDING REFORMATION OF LEASE, AS FOLLOWS:

FOR THE RENEWAL TERM MARCH 7, 1960, THROUGH MARCH 6, 1965:

TABLE

RENTAL AS PROVIDED IN PARAGRAPH 5 OF THE

ORIGINAL LEASE ------------------------- $134,079.00 PER ANNUM

PLUS ADDITIONAL RENTAL FOR THE

ADDITIONAL IMPROVEMENTS PROVIDED UNDER

AMENDMENT NO. 2 ------------------------ 2,392.08 PER ANNUM

PLUS ADDITIONAL RENTAL FOR AIR

CONDITIONING AS PROVIDED UNDER

AMENDMENT NO. 3 ------------------------ 9,999.96 PER ANNUM

TOTAL REVISED RENTAL FOR THE FIRST

RENEWAL TERM --------------------------- $146,470.04 PER ANNUM

FOR THE TWO RENEWAL TERMS MARCH 7, 1965, THROUGH MARCH 6,

1975: RENTAL AS PROVIDED IN PARAGRAPH 5 OF

THE ORIGINAL LEASE --------------------- $130,079.00 PER ANNUM

PLUS ADDITIONAL RENTAL FOR THE

ADDITIONAL IMPROVEMENTS PROVIDED UNDER

AMENDMENT NO. 2 ------------------------ 2,392.08 PER ANNUM

PLUS ADDITIONAL RENTAL FOR AIR

CONDITIONING AS PROVIDED UNDER

AMENDMENT NO. 3 ------------------------ 9,999.96 PER ANNUM

TOTAL REVISED RENTAL FOR THE SECOND

AND THIRD RENEWAL TERMS ---------------- $142,471.04 PER ANNUM

A REFERENCE TO THIS DECISION SHOULD BE MADE ON THE AMENDMENT TO BE ATTACHED TO THE LEASE.

THE ENCLOSURES WITH THE EXCEPTION OF THE STATEMENT OF FINDINGS AND RECOMMENDATIONS REGARDING REFORMATION OF LEASE ARE RETURNED.