B-180081, JUN 4, 1974, 53 COMP GEN 902

B-180081: Jun 4, 1974

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AGENCY TERMINATION IS VALID SINCE NOTICE PROVISION IS INTENDED TO GIVE PARTIES TIME TO PREPARE FOR TRANSITION NECESSITATED BY TERMINATION AND LESSEE'S CONTINUED OPERATION OF CONCESSION FOR DURATION OF NOTICE PERIOD DESPITE LAPSE CAUSED AGENCY'S ACTION TO HAVE THE PRACTICAL EFFECT OF PROVIDING NECESSARY TRANSITION TIME. THE RAILROAD INFORMED HOSPITALITY THAT IN ACCORDANCE WITH THE ABOVE-CITED PROVISION ITS LEASE WAS BEING TERMINATED EFFECTIVE DECEMBER 13. PROPOSALS WERE SOLICITED FOR A NEW LEASE AGREEMENT WHICH WAS AWARDED TO GEORGE NICKLAUS AND ASSOCIATES (NICKLAUS). HOSPITALITY PROTESTS THE AWARD OF ANY NEW LEASE BECAUSE IT CONTENDS THAT ITS INITIAL LEASE WAS IMPROPERLY TERMINATED. IT IS HOSPITALITY'S POSITION THAT SINCE THE RAILROAD HAS NOT ALLEGED THAT HOSPITALITY HAS VIOLATED ANY OF THE TERMS AND CONDITIONS OF THE LEASE.

B-180081, JUN 4, 1974, 53 COMP GEN 902

LEASES - TERMINATION - NOTICE - 90-DAY REQUIREMENT INITIAL TERM OF LEASE FOR OPERATION OF CONCESSION LAPSED MIDWAY THROUGH AGENCY'S 90-DAY TERMINATION NOTICE REQUIRED BY LEASE, WHICH ALSO GIVES AGENCY RIGHT TO EXTEND ON YEAR-TO-YEAR BASIS. ALTHOUGH LAPSE CAUSED CONTROVERSY CONCERNING NOTICE'S LEGAL EFFECT, AGENCY TERMINATION IS VALID SINCE NOTICE PROVISION IS INTENDED TO GIVE PARTIES TIME TO PREPARE FOR TRANSITION NECESSITATED BY TERMINATION AND LESSEE'S CONTINUED OPERATION OF CONCESSION FOR DURATION OF NOTICE PERIOD DESPITE LAPSE CAUSED AGENCY'S ACTION TO HAVE THE PRACTICAL EFFECT OF PROVIDING NECESSARY TRANSITION TIME.

IN THE MATTER OF RONALD K. BRADLEY D/B/A ALASKA HOSPITALITY, JUNE 4, 1974:

ON OCTOBER 27, 1972, THE ALASKA RAILROAD, FEDERAL RAILROAD ADMINISTRATION, DEPARTMENT OF TRANSPORTATION (RAILROAD), LEASED (CONTRACT NO. 69-25-0003-3984), ITS DINING AND CLUB CAR CONCESSIONS TO ALASKA HOSPITALITY (HOSPITALITY), FOR A PERIOD OF 1 YEAR EFFECTIVE NOVEMBER 1, 1972. THE LEASE PROVIDES THAT THE RAILROAD HAS THE RIGHT TO EXTEND THE LEASE TERM "FROM YEAR-TO-YEAR FOR A MAXIMUM TERM OF FIVE (5) YEARS."

THE LEASE ALSO PROVIDES IN PART AS FOLLOWS:

3. TERMINATION: THIS LEASE MAY BE TERMINATED AT ANY TIME BY EITHER PARTY ON NINETY (90) DAYS NOTICE IN WRITING TO THE OTHER PARTY *** PROVIDED, HOWEVER, THAT THIS LEASE MAY BE TERMINATED AT ANY TIME BY THE RAILROAD SHOULD THE LESSEE VIOLATE ANY OF THE TERMS AND/OR CONDITIONS OF THIS LEASE.

BY LETTER DATED SEPTEMBER 12, 1973, THE RAILROAD INFORMED HOSPITALITY THAT IN ACCORDANCE WITH THE ABOVE-CITED PROVISION ITS LEASE WAS BEING TERMINATED EFFECTIVE DECEMBER 13, 1973.

SUBSEQUENTLY, PROPOSALS WERE SOLICITED FOR A NEW LEASE AGREEMENT WHICH WAS AWARDED TO GEORGE NICKLAUS AND ASSOCIATES (NICKLAUS). THIS LEASE BECAME EFFECTIVE ON DECEMBER 15, 1973.

HOSPITALITY PROTESTS THE AWARD OF ANY NEW LEASE BECAUSE IT CONTENDS THAT ITS INITIAL LEASE WAS IMPROPERLY TERMINATED. IT IS HOSPITALITY'S POSITION THAT SINCE THE RAILROAD HAS NOT ALLEGED THAT HOSPITALITY HAS VIOLATED ANY OF THE TERMS AND CONDITIONS OF THE LEASE, ANY TERMINATION REQUIRES A 90- DAY WRITTEN NOTICE. HOSPITALITY ARGUES THAT THIS CONDITION HAS NOT BEEN MET BECAUSE, ALTHOUGH THE WRITTEN NOTICE DATED SEPTEMBER 12, 1973, TO BE EFFECTIVE DECEMBER 13, ENCOMPASSES A 90-DAY PERIOD, THE INITIAL 1-YEAR LEASE TERM EXPIRED ON OCTOBER 31. ACCORDINGLY, IT IS HOSPITALITY'S POSITION THAT AS A NEW LEASE TERM COMMENCED ON NOVEMBER 1, 1973, THE NOTICE WHICH WAS TO BE EFFECTIVE DECEMBER 13 DID NOT PROVIDE THE REQUIRED 90-DAY NOTICE FOR TERMINATION WITHIN THE SECOND LEASE TERM.

ALTHOUGH THE AGENCY STATES THAT HOSPITALITY'S LEASE WAS TERMINATED BECAUSE IT WISHED TO IMPROVE THE SERVICE OF THE CONCESSIONS, IT DOES NOT CONTEND THAT HOSPITALITY BREACHED ANY OF THE TERMS OF THE LEASE. IN THE ABSENCE OF A BREACH THE LEASE CLEARLY REQUIRES THAT A 90-DAY WRITTEN NOTICE BE PROVIDED PRIOR TO TERMINATION. THE LEASE ALSO PROVIDES THAT THE RAILROAD HAS THE RIGHT TO EXTEND THE LEASE FROM YEAR TO YEAR UP TO A MAXIMUM OF 5 YEARS. SINCE NO SPECIFIC METHOD OF EXERCISING THIS RIGHT IS SPECIFIED, IT APPEARS THAT BY MERELY FAILING TO EXTEND THE LEASE TERM ON OCTOBER 31, THE RAILROAD AT ITS OPTION COULD HAVE TERMINATED HOSPITALITY'S CONCESSION WITHOUT ADHERING TO THE 90-DAY NOTICE REQUIREMENT. HOWEVER, WE ARE INFORMED THAT THE RAILROAD FELT THAT THE 90-DAY PERIOD WAS NECESSARY FOR AN ORDERLY TRANSITION OF THE CONCESSION TO ANOTHER CONTRACTOR SO IT CHOSE TO INVOKE THE TERMINATION CLAUSE, DESPITE THE FACT THAT THE RAILROAD'S OPTION TO EXTEND AROSE IN THE MIDDLE OF THE 90-DAY NOTICE PERIOD.

CLEARLY, THE EFFECT OF THE SEPTEMBER 12 TERMINATION NOTICE ON THE GOVERNMENT'S OPTION TO EXTEND IS CRITICAL. HOSPITALITY DERIVES NO RIGHT WHATSOEVER FROM THE EXTENSION PROVISION WHICH IS SOLELY SUBJECT TO THE RAILROAD'S CHOICE. IF THE RAILROAD ELECTS TO EXERCISE ITS OPTION TO EXTEND, SUCH AN ELECTION MUST BE POSITIVE, UNAMBIGUOUS AND IN EXACT COMPLIANCE WITH THE PROVISIONS FOR EXTENSION AND ANY ELECTION DIFFERING FROM THE REQUIREMENTS OF THE EXTENSION PROVISION OPERATES AS A REJECTION. SEE GENERALLY, 51 COMP. GEN. 119, 122 (1971).

THE LEASE DOES NOT PROVIDE FOR AN EXTENSION FOR A TERM OF LESS THAN 1 YEAR. ACCORDINGLY, WHEN THE RAILROAD PROVIDED HOSPITALITY WITH THE TERMINATION NOTICE TO BE EFFECTIVE LESS THAN 2 MONTHS AFTER THE LAPSE OF THE INITIAL LEASE TERM, IT DEVIATED FROM THE EXPRESS TERMS OF THE RENEWAL PROVISION. SUCH ACTION DID NOT CONSTITUTE A PROPER EXERCISE OF THE GOVERNMENT'S OPTION TO EXTEND, RATHER IT WAS A COUNTEROFFER WHICH HOSPITALITY WAS EITHER FREE TO REJECT OR ACCEPT INDEPENDENTLY OF ANY REFERENCE TO THE EXTENSION PROVISIONS OF THE LEASE.

ALTHOUGH IT MAY BE ARGUED THAT HOSPITALITY'S PROTEST FILED WITH THIS OFFICE AND THE RAILROAD IN MID-NOVEMBER CONSTITUTED A REJECTION OF THE COUNTEROFFER, WE ARE INFORMED THAT IT CONTINUED TO OPERATE THE CONCESSION AND PAY RENT UNTIL THE DECEMBER 13 TERMINATION DATE.

IT IS PLAIN THAT THE 90-DAY NOTICE PROVISION IN THE TERMINATION CLAUSE IS INTENDED TO ALLOW THE PARTIES AMPLE TIME IN WHICH TO PREPARE FOR THE TRANSITIONS NECESSITATED BY TERMINATION. ALTHOUGH THE LAPSE OF THE INITIAL LEASE TERM MIDWAY THROUGH THE NOTICE PERIOD HAS SPAWNED CONTROVERSY CONCERNING THE LAPSE'S PRECISE LEGAL EFFECT ON THE NOTICE REQUIREMENT, THE PRACTICAL EFFECT OF THE RAILROAD'S ACTION WAS THAT BOTH IT AND HOSPITALITY DID, IN FACT, HAVE THE REQUIRED 90 DAYS WITHIN WHICH TO PHASE OUT THE ORIGINAL OPERATION. IN VIEW OF THE FACT THE RAILROAD COULD HAVE ELECTED TO TERMINATE HOSPITALITY'S CONCESSION WITHOUT PROVIDING A 90- DAY NOTICE BY NOT EXTENDING THE LEASE TERM AFTER OCTOBER 31 AND CONSIDERING THAT HOSPITALITY OPERATED THE CONCESSION UNTIL DECEMBER 13, WE ARE UNCONVINCED THAT ANY TECHNICAL IRREGULARITY IN THE NOTICE PROCEDURE WAS PREJUDICIAL TO HOSPITALITY.

IN ADDITION, WE DO NOT BELIEVE THAT HOSPITALITY MAY BE HEARD TO COMPLAIN OF ECONOMIC HARDSHIPS CAUSED BY TERMINATION WHEN THE LEASE WHICH IT SIGNED ALREADY PROVIDES FOR TERMINATION BY EITHER PARTY UPON NOTICE AND GIVES THE RAILROAD THE RIGHT AFTER OCTOBER 31, 1973, TO EXTEND THE TERM OR NOT AT ITS OPTION.

HOSPITALITY CONTENDS THAT IT WAS GIVEN VERBAL ASSURANCES BY RAILROAD REPRESENTATIVES THAT THE LEASE WOULD BE EXTENDED FOR 10 YEARS. THE RAILROAD DOES NOT ADMIT THAT ANY SUCH ASSURANCES WERE GIVEN IN CONNECTION WITH THE CONCESSION LEASE. IN ANY EVENT, SINCE THE EXTENSION PROVISIONS OF THE LEASE HAVE NOT BEEN MODIFIED IN WRITING, ANY ORAL STATEMENT PROPORTING TO ALTER THOSE PROVISIONS WOULD BE INEFFECTIVE. CORBIN ON CONTRACTS, SECTION 573.

IN VIEW OF THE ABOVE, WE DO NOT BELIEVE THAT THE RAILROAD'S TERMINATION OF ITS LEASE WITH HOSPITALITY WAS INVALID, AND THEREFORE, WE HAVE NO BASIS UPON WHICH TO QUESTION THE SUBSEQUENT AWARD TO NICKLAUS.