B-155316, JUN. 21, 1965, 44 COMP. GEN. 805

B-155316: Jun 21, 1965

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1965: FURTHER REFERENCE IS MADE TO THE REQUEST OF YOUR FORMER EXECUTIVE DIRECTOR. WAS ESTABLISHED BY THE DISTRICT OF COLUMBIA REDEVELOPMENT ACT OF 1945 (60 STAT. 790. ACHIEVE THE OBJECTIVES OF THE ACT THE AGENCY WAS EMPOWERED "TO ACQUIRE AND ASSEMBLE REAL PROPERTY BY PURCHASE. THE FLAGSHIP RESTAURANT IS LOCATED ON MAINE AVENUE. THE PREMISES PRESENTLY OCCUPIED BY THE RESTAURANT WERE ORIGINALLY THREE ATTACHED STRUCTURES WHICH. WERE PURCHASED BY THE REDEVELOPMENT LAND AGENCY ON DECEMBER 27. UNDER THE URBAN RENEWAL PLAN THE ENTIRE BUILDING IS TO BE DEMOLISHED AND THE LAND REDEVELOPED. ONE STRUCTURE WAS OCCUPIED BY THE FLAGSHIP RESTAURANT. THE OCCUPANTS WERE PERMITTED TO REMAIN ON A MONTH- TO-MONTH BASIS.

B-155316, JUN. 21, 1965, 44 COMP. GEN. 805

PROPERTY - PUBLIC - PRIVATE USE - LEASES - IMPROVEMENTS BY LESSEE THE RESTRICTION IN SECTION 6 (D) OF THE DISTRICT OF COLUMBIA REDEVELOPMENT ACT OF 1945 (D.C. CODE 5-705 (D) (, PROHIBITING NEW CONSTRUCTION OR SUBSTANTIAL REMODELING OF EXISTING BUILDINGS HAVING ONLY A LIMITED ROLE, THE AVOIDANCE OF INCREASING ACQUISITION COSTS TO THE DISTRICT OF COLUMBIA REDEVELOPMENT LAND AGENCY DURING THE PERIOD FROM CERTIFICATION OF THE REDEVELOPMENT PLAN TO ACQUISITION OF THE REAL PROPERTY, THE AGENCY MAY AFTER ACQUIRING PROPERTY INCREASE RENTAL CHARGES TO REFLECT THE INCREASED RENTAL VALUE OF THE PROPERTY DUE TO THE IMPROVEMENTS MADE BY A TENANT AND ALLOW A RENTAL DEDUCTION FOR THE AMORTIZATION OF THE LEASEHOLD IMPROVEMENTS MADE BY THE TENANT.

TO THE CHAIRMAN, DISTRICT OF COLUMBIA REDEVELOPMENT LAND AGENCY, JUNE 21, 1965:

FURTHER REFERENCE IS MADE TO THE REQUEST OF YOUR FORMER EXECUTIVE DIRECTOR, MR. PHIL A. DOYLE, FOR OUR OPINION ON THE PROPRIETY OF A RENTAL CHARGE TO THE FLAGSHIP RESTAURANT WHILE OCCUPYING PREMISES BELONGING TO THE DISTRICT OF COLUMBIA REDEVELOPMENT LAND AGENCY, WHICH CHARGE REFLECTED AN ALLOWANCE FOR THE AMORTIZATION OF LEASEHOLD IMPROVEMENTS MADE BY THE TENANT.

THE DISTRICT OF COLUMBIA REDEVELOPMENT LAND AGENCY, A BODY CORPORATE OF PERPETUAL DURATION, WAS ESTABLISHED BY THE DISTRICT OF COLUMBIA REDEVELOPMENT ACT OF 1945 (60 STAT. 790; D.C. CODE SECTION 5-701 ET SEQ), FOR THE REDEVELOPMENT OF BLIGHTED AREAS IN THE DISTRICT OF COLUMBIA AND THE PREVENTION, REDUCTION, OR ELIMINATION OF BLIGHTING FACTORS. ACHIEVE THE OBJECTIVES OF THE ACT THE AGENCY WAS EMPOWERED "TO ACQUIRE AND ASSEMBLE REAL PROPERTY BY PURCHASE, EXCHANGE, GIFT, DEDICATION, OR EMINENT DOMAIN, AND INCLUDING THE POWER TO RENT, MAINTAIN, MANAGE, OPERATE, REPAIR, CLEAR, TRANSFER, LEASE, AND SELL SUCH REAL PROPERTY * * *.' D.C. REDEVELOPMENT ACT, SECTION 5 A); D.C. CODE, SECTION 5-704 (A).

THE FLAGSHIP RESTAURANT IS LOCATED ON MAINE AVENUE, S.W., IN AN URBAN RENEWAL PROJECT AREA. THE PREMISES PRESENTLY OCCUPIED BY THE RESTAURANT WERE ORIGINALLY THREE ATTACHED STRUCTURES WHICH, TOGETHER WITH THE LAND, WERE PURCHASED BY THE REDEVELOPMENT LAND AGENCY ON DECEMBER 27, 1957, FOR $188,500. UNDER THE URBAN RENEWAL PLAN THE ENTIRE BUILDING IS TO BE DEMOLISHED AND THE LAND REDEVELOPED.

AT THE TIME OF THE REDEVELOPMENT LAND AGENCY'S ACQUISITION OF THE PROPERTY, DECEMBER 1957, ONE STRUCTURE WAS OCCUPIED BY THE FLAGSHIP RESTAURANT, ANOTHER BY MCCRAY REFRIGERATION DISTRIBUTORS, AND THE THIRD BY MIRACLE CAR WASH, INC. THE OCCUPANTS WERE PERMITTED TO REMAIN ON A MONTH- TO-MONTH BASIS, EACH PAYING $300 A MONTH RENT EXCEPT THE CAR WASH CONCERN WHICH PAID $50 A MONTH. SIX MONTHS LATER, JUNE 1958, THE RENT OF MCCRAY REFRIGERATION DISTRIBUTORS WAS REDUCED TO $200 A MONTH; A YEAR AND A HALF LATER, JULY 1959, THE RENT OF MIRACLE CAR WASH, INC., WAS LOWERED TO $15 A MONTH. THE MIRACLE CAR WASH RELINQUISHED OCCUPANCY JANUARY 1960; THE MCCRAY REFRIGERATION DISTRIBUTORS VACATED ON APRIL 20, 1960.

EFFECTIVE APRIL 30, 1960, THE PREMISES FORMERLY OCCUPIED BY THE MCCRAY REFRIGERATION DISTRIBUTORS WERE LEASED TO THE FLAGSHIP RESTAURANT ON A MONTH-TO-MONTH TENANCY, AT $15 A MONTH ,TO CONTROL VANDALISM ON ADJOINING BUSINESS AND FOR NO OTHER PURPOSE WHATSOEVER.' ON AUGUST 2, 1960, THE REDEVELOPMENT LAND AGENCY ENTERED INTO AN AGREEMENT WITH THE FLAGSHIP RESTAURANT FOR THE RESTAURANT'S OCCUPANCY OF ALL THREE PREMISES FOR BUSINESS USE AT THE RENTAL OF $533.50 PER MONTH, THE PERIOD OF OCCUPANCY TO BE FROM AUGUST 2, 1960, TO JULY 31, 1961. UPON EXPIRATION OF THE OCCUPANCY AGREEMENT OF AUGUST 2, 1960, A NEW AGREEMENT WAS EXECUTED CONTINUING THE FLAGSHIP'S OCCUPANCY ON A MONTH-TO-MONTH BASIS AT THE RATE OF $533.50 A MONTH.

WHILE A LESSEE OF THE REDEVELOPMENT LAND AGENCY, THE FLAGSHIP RESTAURANT IMPROVED THE LEASED PROPERTY FOR UTILIZATION AS A RESTAURANT. IMPROVEMENTS TOTALING $110,286.81 WERE CHARGED ON THE BOOKS OF THE RESTAURANT DURING THE YEARS 1959, 1960, AND 1961. THE AGENCY'S APPROVAL OF THE IMPROVEMENTS WAS WITH THE STIPULATION THAT THEY WERE TO BE MADE AT THE EXPENSE OF THE TENANT.

IN MARCH 1963, THE MONTHLY RENTAL CHARGE OF $533.50 FOR THE FLAGSHIP PREMISES, APPRECIABLY LOWER THAN THAT FOR THE HOGATE RESTAURANT, ALSO WITHIN THE REDEVELOPMENT AREA, WAS CRITICIZED DURING A HEARING BEFORE SUBCOMMITTEE 4 OF THE HOUSE COMMITTEE ON THE DISTRICT OF COLUMBIA. AS A RESULT THE REDEVELOPMENT LAND AGENCY REDETERMINED THE RENT OF THE FLAGSHIP RESTAURANT. IN A LETTER DATED AUGUST 15, 1963, TO THE RESTAURANT, THE EXECUTIVE DIRECTOR OF THE REDEVELOPMENT LAND AGENCY EXPLAINED THAT AFTER THOROUGH STUDY THE CONCLUSION HAD BEEN REACHED THAT AN EQUITABLE RENTAL WAS $25,000 A YEAR, OR $2,083.33 A MONTH, AND THAT ON THE BASIS OF THAT CHARGE THE RENT OF THE FLAGSHIP WOULD BE RECOMPUTED FROM AUGUST 2, 1960, THE DATE OF THE FLAGSHIP'S EXPANSION TO ALL THREE PREMISES. HOWEVER, AMORTIZATION OF THE COST OF THE LEASEHOLD IMPROVEMENTS WAS TO BE PERMITTED OVER A PERIOD OF SEVEN YEARS, FROM JANUARY 1, 1958, WHEN THE REDEVELOPMENT LAND AGENCY ACQUIRED THE PROPERTY, TO DECEMBER 31, 1964, THE END OF THE SEVEN YEAR PERIOD. THE FLAGSHIP RESTAURANT HAVING APPARENTLY AGREED TO THIS ARRANGEMENT PAID THE REDEVELOPMENT LAND AGENCY AN ADDITIONAL SUM OF $8,891.47 FOR THE PERIOD AUGUST 1960 THROUGH AUGUST 1963, ENTERED INTO A MONTH-TO-MONTH LEASE, EFFECTIVE SEPTEMBER 1, 1963, FOR THE PAYMENT OF $773.81 A MONTH ($2,083.33 LESS $1,309.52, LEASEHOLD IMPROVEMENT AMORTIZATION ALLOWANCE), AND SUBSEQUENTLY ACCEPTED ITS CURRENT MONTH TO- MONTH LEASE, EFFECTIVE JANUARY 1, 1965, FOR THE PAYMENT OF $2,083.33 A MONTH.

THE SUBMISSION OF THE EXECUTIVE DIRECTOR, AS HE POINTED OUT IN AN ENCLOSURE, INVOLVED AN UNDERLYING QUESTION OF WHETHER SUBSECTION 6 (D) OF THE DISTRICT OF COLUMBIA REDEVELOPMENT ACT OF 1945 (D.C. CODE 5-705 (D) ( WAS APPLICABLE TO PRECLUDE SUBSTANTIAL REMODELING BY A TENANT AFTER ACQUISITION OF THE PROPERTY BY THE REDEVELOPMENT LAND AGENCY. THE SUBSECTION PROVIDES AS FOLLOWS:

"AFTER A PROJECT AREA REDEVELOPMENT PLAN SHALL HAVE BEEN ADOPTED BY THE PLANNING COMMISSION AND APPROVED BY THE DISTRICT COMMISSIONERS, THE PLANNING COMMISSION SHALL FORTHWITH CERTIFY SAID PLAN TO THE AGENCY, WHEREUPON SAID AGENCY SHALL PROCEED TO THE EXERCISE OF THE POWERS GRANTED TO IT IN THIS ACT FOR THE ACQUISITION AND ASSEMBLY OF THE REAL PROPERTY OF THE AREA. FOLLOWING SUCH CERTIFICATION, NO NEW CONSTRUCTION SHALL BE AUTHORIZED BY THE DISTRICT COMMISSIONERS IN SUCH AREA, INCLUDING SUBSTANTIAL REMODELING OR CONVERSION OR REBUILDING, ENLARGEMENT OR EXTENSION OR MAJOR STRUCTURAL IMPROVEMENTS ON EXISTING BUILDINGS, BUT NOT INCLUDING ORDINARY MAINTENANCE OR REMODELING OR CHANGES NECESSARY TO CONTINUE THE OCCUPANCY.'

THE QUESTION OF THE APPLICABILITY OF SUBSECTION 6 (D) AFTER PROPERTY IS ACQUIRED BY THE REDEVELOPMENT LAND AGENCY HAS BEEN CONSIDERED BY THE DISTRICT OF COLUMBIA. IN A RECENT OPINION OF THE CORPORATION COUNSEL OF THE DISTRICT OF COLUMBIA, SUBMITTED TO THE BOARD OF COMMISSIONERS ON JUNE 3, 1965, IT WAS CONCLUDED THAT THE RESTRICTION CONTAINED IN SUBSECTION 6 (D) WITH RESPECT TO NEW CONSTRUCTION OR SUBSTANTIAL REMODELING OF EXISTING BUILDINGS WAS NOT APPLICABLE AFTER ACQUISITION OF THE PROPERTY BY THE REDEVELOPMENT LAND AGENCY, THAT IT APPLIED ONLY FOR THE PERIOD FROM CERTIFICATION OF THE REDEVELOPMENT PLAN TO ACQUISITION OF THE REAL PROPERTY BY THE REDEVELOPMENT LAND AGENCY. THE OPINION STATES:

"IT IS OBVIOUS THAT A LITERAL APPLICATION OF THIS LANGUAGE (REFERRING TO THE RESTRICTION IN SUBSECTION 6 (D); D.C. CODE, SECTION 5-705 (D) ( WOULD PRODUCE AN ABSURD RESULT. AS WRITTEN, THE PROHIBITION IS WITHOUT LIMITATION IN TIME AND WOULD THEREFORE TOTALLY DEFEAT THE PURPOSE OF THE ACT. * * *

"WHEN THE SCHEME OF THE ACT IS CONSIDERED, THE PURPOSE OF SECTION 5 705 (D) IS CLEAR. A PLAN FOR REDEVELOPMENT OF AN AREA IS APPROVED, AFTER WHICH THE REDEVELOPMENT LAND AGENCY ACQUIRES PROPERTY THEREIN WHICH IT LATER SELLS OR LEASES FOR DEVELOPMENT IN ACCORDANCE WITH THE PLAN. OBVIOUSLY, IF PROPERTY OWNERS WERE PERMITTED TO MAKE SUBSTANTIAL IMPROVEMENTS TO THEIR PROPERTY BETWEEN THE TIME A PLAN IS APPROVED AND THE TIME THE PROPERTY IS ACQUIRED BY THE AGENCY, ACQUISITION COSTS WOULD BE INCREASED. SECTION 5-705 (D) WAS DESIGNED TO PRECLUDE SUCH A RESULT. APPEARS EQUALLY OBVIOUS THAT, AFTER THE AGENCY HAS ACQUIRED THE LAND, THIS SECTION SERVES NO PURPOSE. IF IT REMAINED IN EFFECT, THE AGENCY WOULD NEVER BE ABLE TO DISPOSE OF ACQUIRED PROPERTY BECAUSE NO PURCHASER OR LESSEE COULD IMPROVE IT. ACCORDINGLY, IT IS MY VIEW THAT THE RESTRICTIONS CONTAINED IN SECTION 5-705 (D) DO NOT APPLY TO LAND WHICH HAS BEEN ACQUIRED BY THE REDEVELOPMENT LAND AGENCY.'

YOU ARE ADVISED WE CONCUR IN THE FOREGOING CONSTRUCTION OF SUBSECTION 6 (D) WHICH VIEWS THE RESTRICTION THEREIN AS HAVING A LIMITED ROLE, THE AVOIDANCE OF INCREASED ACQUISITION COSTS, AND THUS INAPPLICABLE AFTER ACQUISITION OF THE PROPERTY BY THE REDEVELOPMENT LAND AGENCY. OUR REVIEW OF THE DISTRICT OF COLUMBIA REDEVELOPMENT ACT AND ITS LEGISLATIVE HISTORY DOES NOT DISCLOSE A BROADER LEGISLATIVE PURPOSE.

THE QUESTION PRIMARILY SUBMITTED TO US BY THE FORMER EXECUTIVE DIRECTOR IS THE PROPRIETY OF ALLOWING, AS IN THE CASE OF THE FLAGSHIP RESTAURANT, A RENTAL DEDUCTION IN AMORTIZATION OF THE COSTS INCURRED BY A TENANT FOR SUBSTANTIAL IMPROVEMENTS WHICH INCREASE THE RENTAL VALUE OF THE PROPERTY. WE UNDERSTAND THE QUESTION WAS SUBMITTED FOR FUTURE GUIDANCE IN THE EVENT SUBSECTION 6 (D) OF THE DISTRICT OF COLUMBIA REDEVELOPMENT ACT IS DETERMINED NOT TO PRECLUDE SUBSTANTIAL IMPROVEMENTS BY A TENANT AFTER ACQUISITION OF PROPERTY BY THE REDEVELOPMENT LAND AGENCY. THE LIKELIHOOD, HOWEVER, OF SIMILAR CASES OF SUBSTANTIAL REMODELING BY A TENANT APPEARS REMOTE.

THE DETERMINATION OF A REASONABLE RENTAL CHARGE FOR USE OF PROPERTY ACQUIRED BY THE REDEVELOPMENT LAND AGENCY IS ESSENTIALLY AN ADMINISTRATIVE MATTER. THE SPECIFIC QUESTION PRESENTED IS ONE OF ADMINISTRATIVE DISCRETION, WHETHER THE AGENCY IN TAKING COGNIZANCE OF INCREASED RENTAL VALUE DUE TO IMPROVEMENTS BY A TENANT MAY ALLOW FOR THE COSTS INCURRED. WE ARE OF THE OPINION THAT TO THE EXTENT TENANT IMPROVEMENTS INCREASE PROPERTY VALUE AND ARE REFLECTED IN RENTAL CHARGES, AMORTIZATION OF THE COSTS OF THE IMPROVEMENTS WOULD BE A PROPER EXERCISE OF ADMINISTRATIVE DISCRETION.