B-191888, MAY 26, 1978

B-191888: May 26, 1978

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EVEN THOUGH THE LEASE AGREEMENT WAS EXECUTED 2.5 YEARS PRIOR TO CONSTRUCTION AND OCCUPATION OF BUILDING. NEW JERSEY: WE HAVE BEEN ASKED TO RENDER A DECISION ON WHETHER A PROPOSED LEASE AGREEMENT BETWEEN THE FEDERAL AVIATION ADMINISTRATION (FAA) AND THE ATLANTIC COUNTY IMPROVEMENT AUTHORITY (AUTHORITY) VIOLATES SECTION 210(H)(1) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949 AMENDED. THE FAA WOULD BE OBLIGATED TO TAKE OCCUPANCY AND PAY RENT FOR A 20 -YEAR TERM ONLY IF THE BUILDING IS COMPLETED. IT IS ESTIMATED THAT CONSTRUCTION LEAD TIME MAY BE AS MUCH AS 2.5 YEARS. WE WERE REQUESTED BY FAA AND THE ATTORNEYS TO PROVIDE OUR OPINION ON THE VALIDITY OF THE REPRESENTATION AND WARRANTY MADE BY FAA.

B-191888, MAY 26, 1978

PROPOSED LEASE DOES NOT VIOLATE SECTION 210(H)(1) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, AS AMENDED, 40 U.S.C. SEC. 490(H)(1) (1970), WHICH AUTHORIZES THE RENTAL OF BUILDINGS FOR UP TO 20 YEARS, EVEN THOUGH THE LEASE AGREEMENT WAS EXECUTED 2.5 YEARS PRIOR TO CONSTRUCTION AND OCCUPATION OF BUILDING, SINCE THE ACTUAL TERM OF THE RENTAL AGREEMENT DOES NOT EXCEED 20 YEARS.

PROPOSED LEASE AT NATIONAL AVIATION FACILITIES EXPERIMENTAL CENTER, ATLANTIC CITY, NEW JERSEY:

WE HAVE BEEN ASKED TO RENDER A DECISION ON WHETHER A PROPOSED LEASE AGREEMENT BETWEEN THE FEDERAL AVIATION ADMINISTRATION (FAA) AND THE ATLANTIC COUNTY IMPROVEMENT AUTHORITY (AUTHORITY) VIOLATES SECTION 210(H)(1) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949 AMENDED, 40 U.S.C. SEC. 490(H)(1) (1970) (THE ACT), WHICH AUTHORIZES LEASES FOR PERIODS NOT TO EXCEED 20 YEARS.

UNDER THE PROPOSED LEASE, THE FAA WOULD AGREE TO LEASE A BUILDING NOT YET BUILT. THE FAA WOULD BE OBLIGATED TO TAKE OCCUPANCY AND PAY RENT FOR A 20 -YEAR TERM ONLY IF THE BUILDING IS COMPLETED. IT IS ESTIMATED THAT CONSTRUCTION LEAD TIME MAY BE AS MUCH AS 2.5 YEARS. THE ATTORNEYS FOR A POTENTIAL PURCHASER OF BONDS TO BE ISSUED BY THE AUTHORITY EXPRESSED CONCERN THAT THE PROPOSED ARRANGEMENT MIGHT VIOLATE THE ACT SINCE IT INVOLVES A COMMITMENT BY A GOVERNMENT OF 22.5 YEARS. IN ORDER TO ELIMINATE ANY DOUBT AS TO THE PERMISSIBILITY OF THIS ARRANGEMENT UNDER 40 U.S.C. SEC. 490(H)(1), SUPRA, WE WERE REQUESTED BY FAA AND THE ATTORNEYS TO PROVIDE OUR OPINION ON THE VALIDITY OF THE REPRESENTATION AND WARRANTY MADE BY FAA. FOR REASONS DISCUSSED BELOW, WE CONCLUDE THAT THE PROPOSED LEASE AGREEMENT DOES NOT VIOLATE THE ACT.

SECTION 490(H)(1) PROVIDES:

"THE ADMINISTRATOR (OF THE GENERAL SERVICES ADMINISTRATION) IS AUTHORIZED TO ENTER INTO LEASE AGREEMENTS WITH ANY PERSON, COPARTNERSHIP, CORPORATION, OR OTHER PUBLIC OR PRIVATE ENTITY, WHICH DO NOT BIND THE GOVERNMENT FOR PERIODS IN EXCESS OF TWENTY YEARS FOR EACH SUCH LEASE AGREEMENT, ON SUCH TERMS AS HE DEEMS TO BE IN THE INTEREST OF THE UNITED STATES AND NECESSARY FOR THE ACCOMMODATION OF FEDERAL AGENCIES IN BUILDINGS AND IMPROVEMENTS WHICH ARE IN EXISTENCE OR TO BE ERECTED BY THE LESSOR FOR SUCH PURPOSES AND TO ASSIGN AND REASSIGN SPACE THEREIN TO FEDERAL AGENCIES." (EMPHASIS (SUPPLIED.)

BY LETTER DATED OCTOBER 23, 1976, THE GENERAL SERVICES ADMINISTRATION (GSA) DELEGATED AUTHORITY TO THE SECRETARY OF THE DEPARTMENT OF TRANSPORTATION (DOT) TO PERFORM ALL FUNCTIONS WITH RESPECT TO LEASING SPACE AT THE NATIONAL AVIATION FACILITIES EXPERIMENTAL CENTER (NAFEC), ATLANTIC CITY, NEW JERSEY. (WE HAVE BEEN INFORMALLY ADVISED THAT THE PROPOSED LEASE AGREEMENT CONCERNS AN AVIATION RESEARCH FACILITY WHICH IS TO BE BUILT BY THE AUTHORITY AT NAFEC AND LEASED BY IT TO THE UNITED STATES.) THIS DELEGATION EXTENDS TO LEASING SPACE UNDER AUTHORITY CONTAINED IN 40 U.S.C. SEC. 490(H)(1), SUPRA, "FOR FIRM LEASE TERM PERIOD NOT TO EXCEED 20 YEARS AND WITH RENEWAL OPTIONS FOR FIRM LEASE PERIODS NOT TO EXCEED 20 YEARS AS DEEMED APPROPRIATE BY THE SECRETARY OF TRANSPORTATION." THIS AUTHORITY WAS SUBSEQUENTLY REDELEGATED TO THE ADMINISTRATOR OF THE FAA.

PURSUANT TO THIS AUTHORITY, THE FAA PROPOSES TO ENTER INTO A LEASE CONSTRUCTION AGREEMENT WITH THE AUTHORITY FOR A 20-YEAR TERM COMMENCING SOME 2 YEARS AFTER THE EXECUTION OF THE LEASE. WITH REGARD TO THE REQUIREMENTS OF 40 U.S.C. SEC. 490(H)(1), SUPRA, THE FAA HAS AGREED TO REPRESENT AND WARRANT AS FOLLOWS:

"(C) THE TERM OF THIS LEASE, AS PROVIDED IN ARTICLE II HEREOF, WILL COMMENCE ON THE COMPLETION DATE OF STAGE A OF THE FACILITY AND WILL TERMINATE NOT LATER THAN THE LAST DAY OF THE MONTH PRECEDING THE MONTH IN WHICH THE TWENTIETH ANNIVERSARY OF SUCH COMPLETION DATE SHALL OCCUR. THIS LEASE FURTHER PROVIDES THAT NO FUNDS SHALL BE PAYABLE BY THE UNITED STATES AND THE TERM OF THIS LEASE SHALL NOT COMMENCE UNLESS AND UNTIL STAGE A OF THE FACILITY IS COMPLETED. IT IS PRESENTLY CONTEMPLATED THAT SUCH COMPLETION DATE WILL OCCUR ON OR ABOUT JUNE 1, 1980. THE EXECUTION AND DELIVERY OF THIS LEASE BY THE LESSEE WILL ALSO ENCOMPASS A SUPPLEMENT TO AGREEMENT OF LEASE UNDER WHICH THE LESSEE WILL BE REQUIRED OR PERMITTED TO PERFORM FUNCTIONS RELATED TO THE DESIGN AND ADMINISTRATION OF THE CONSTRUCTION OF THE FACILITY DURING THE CONSTRUCTION PERIOD PRIOR TO COMMENCEMENT OF RENT PAYMENTS UNDER THIS LEASE. ACCORDINGLY, WHILE THE TERM OF LEASE AS DEFINED HEREIN FOR PURPOSES OF THIS PAYMENT OF RENT WILL NOT EXCEED 20 YEARS, THE PERIOD OF TIME BETWEEN THE EXECUTION OF THIS LEASE AND THE EXPIRATION OF SUCH RENT TERM IS ANTICIPATED TO BE APPROXIMATELY 22 YEARS. EXECUTION AND DELIVERY OF THIS LEASE BY THE LESSEE IN THE MANNER DESCRIBED ABOVE WILL NOT CONTRAVENE 40 U.S.C. SEC. 490(H)(1)."

IN A LEGAL MEMORANDUM ACCOMPANYING THE FAA ADMINISTRATOR'S LETTER TO US, IT IS STATED THAT THE LEASE UNDER CONSIDERATION "IS FULLY IN ACCORDANCE WITH THE PRACTICE OF" THE GSA. WE WERE INFORMALLY ADVISED BY GSA THAT IT HAS NO OBJECTION TO THE PROPOSED LEASE AGREEMENT WHICH CONTEMPLATES A LEASE COMMITMENT 2 TO 3 YEARS PRIOR TO THE COMMENCEMENT OF THE LEASE TERM SINCE THE TERM ITSELF DOES NOT EXCEED 20 YEARS AND SINCE THE SENATE AND HOUSE COMMITTEES ON PUBLIC WORKS APPROVED THE PROSPECTUS FOR THE BUILDING IN 1976, PURSUANT TO SECTION 7 OF THE PUBLIC BUILDINGS ACT OF 1959, AS AMENDED, 40 U.S.C. SEC. 606 (SUPP. V. 1975).

UNDER THE AUTHORITY DELEGATED, THE FAA IS AUTHORIZED TO ENTER INTO LEASE AGREEMENTS, FOR PERIODS NOT IN EXCESS OF 20 YEARS, FOR THE ACCOMMODATION OF FEDERAL AGENCIES IN BUILDINGS AT NAFEC WHICH ARE IN EXISTENCE OR TO BE ERECTED BY THE LESSOR FOR SUCH PURPOSES. THE LEGISLATIVE HISTORY OF SECTION 490(H)(1) INDICATES THAT THE PHRASE, "LEASE AGREEMENTS *** WHICH DO NOT BIND THE GOVERNMENT FOR PERIODS IN EXCESS OF TWENTY YEARS" REFERS TO A LIMITATION ON THE TERM OF THE LEASE TO A PERIOD NOT EXCEEDING 20 YEARS. H. REP. NO. 1814, 85TH CONG., 2D SESS. 3, 4 (1958). THE TERM OF THE SUBJECT LEASE WOULD NOT COMMENCE UNTIL THE "COMPLETION DATE OF STATE A OF THE FACILITY AND WILL TERMINATE NOT LATER THAN THE LAST DAY OF THE MONTH PRECEDING THE MONTH IN WHICH THE TWENTIETH ANNIVERSARY OF SUCH COMPLETION DATE SHALL OCCUR."

WITH REGARD TO THE EXECUTION OF THE LEASE AGREEMENT 2 TO 3 YEARS PRIOR TO THE COMMENCEMENT OF THE LEASE TERM, WE NOTE THAT THE PLAIN LANGUAGE OF THE STATUTE PROVIDES AUTHORITY FOR "LEASE AGREEMENTS *** NECESSARY FOR THE ACCOMMODATION OF FEDERAL AGENCIES IN BUILDINGS *** TO BE ERECTED BY THE LESSOR FOR SUCH PURPOSES." THIS OBVIOUSLY REFERS TO A BUILDING THAT WILL BE CONSTRUCTED SUBSEQUENT TO THE EXECUTION OF THE LEASE AGREEMENT. THEREFORE, IT APPEARS THE STATUTORY PROVISION IS NOT VIOLATED AS LONG AS THE LEASE TERM ITSELF DOES NOT EXCEED 20 YEARS, REGARDLESS OF WHETHER THE EXECUTION OF THE LEASE CONSTRUCTION AGREEMENT PRECEDES THE COMMENCEMENT OF THE LEASE TERM.

WE AGREE WITH THE FAA POSITION. THE LEGISLATIVE HISTORY OF SECTION 490(H)(1) OF THE ACT MAKES IT CLEAR THAT THE CONGRESS WAS CONCERNED WITH THE LENGTH OF THE LEASE TERM - I.E., THE LENGTH OF TIME THAT THE FEDERAL GOVERNMENT WOULD BE OBLIGATED TO PAY RENT. THE AGREEMENT IN QUESTION DOES NOT REQUIRE ANY PAYMENT OF RENT AT ALL UNLESS OR UNTIL THE BUILDING IS COMPLETED. THEREAFTER, THE RENTAL PAYMENT OBLIGATION IS TO RUN FOR A PERIOD OF 20 YEARS ONLY. IN OUR VIEW, THIS ARRANGEMENT FULLY COMPLIES WITH THE PROVISIONS OF 40 U.S.C. SEC. 490(H)(1). WE THEREFORE HAVE NO OBJECTION TO THE PROPOSED LEASE AND THE FAA WARRANTY.