B-22615, DECEMBER 27, 1941, 21 COMP. GEN. 617

B-22615: Dec 27, 1941

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1941: I HAVE YOUR LETTER OF DECEMBER 17. COPIES OF WHICH ARE ATTACHED. IT IS OUR JUDGMENT THAT SUCH A RENTAL RATE WOULD BE REASONABLE AND WOULD NOT BE IN EXCESS OF THE AMOUNT WHICH WOULD HAVE TO BE PAID FOR OTHER SUITABLE SPACE. WE ARE ANXIOUS THAT A NEW LEASE. THE EXECUTION OF SUCH A LEASE IS. WOULD INDICATE THAT THERE IS NO AUTHORITY FOR THE EXECUTION OF THE LEASE DESIRED. IT IS OUR VIEW THAT IT DOES NOT. IS APPARENT THAT THE DECISION REFERRED TO WAS A CLOSE ONE ON THE PROVISIONS OF THE LEASE THEREIN INVOLVED. A CONTRARY CONCLUSION WOULD HAVE GIVEN LITTLE OR NO EFFECT TO THE GOVERNMENT'S OPTION TO RENEW. IT IS EQUALLY TRUE THAT THE DECISION GIVES LITTLE EFFECT TO THE LESSOR'S RIGHT OF TERMINATION.

B-22615, DECEMBER 27, 1941, 21 COMP. GEN. 617

LEASES - TERMINATION AND EXECUTION OF NEW LEASE AT INCREASED RENTAL WHERE THE GOVERNMENT'S LESSOR HAS TERMINATED A LEASE BY GIVING PROPER NOTICE AS PROVIDED IN THE LEASE, AND THE GOVERNMENT'S INTEREST SO REQUIRES, A NEW LEASE MAY BE ENTERED INTO WITH THE LESSOR AT AN INCREASED RENTAL, EVEN THOUGH THE LEASE GAVE THE GOVERNMENT THE RIGHT OF RENEWAL FROM YEAR TO YEAR, AND THE PERIOD FOR WHICH THE LEASE HAD BEEN LAST RENEWED HAS NOT YET EXPIRED. DECISIONS INVOLVING AGREEMENTS TO PAY INCREASED RENTAL WHERE THE GOVERNMENT HAD A VESTED RIGHT TO CONTINUE OCCUPANCY AT THE SAME OR LOWER RENTAL, DISTINGUISHED.

COMPTROLLER GENERAL WARREN TO THE CHAIRMAN, RAILROAD RETIREMENT BOARD, DECEMBER 27, 1941:

I HAVE YOUR LETTER OF DECEMBER 17, 1941, AS FOLLOWS:

THE RAILROAD RETIREMENT BOARD OCCUPIES THE BUILDING KNOWN AS 1840 14TH STREET, NORTHWEST, CONTAINING APPROXIMATELY 30,500 SQUARE FEET OF NET FLOOR SPACE UNDER A LEASE AND RENEWAL THEREOF, COPIES OF WHICH ARE ATTACHED. ON NOVEMBER 27, 1941, THE LESSOR GAVE NOTICE TO THE COMMISSIONER OF PUBLIC BUILDINGS AS FOLLOWS:

"IN ACCORDANCE WITH PROVISION 12 OF LEASE NO. WA 6 PB 244 BEARING DATE OF JULY 1, 1940, COVERING THE BUILDING AT 1840 14TH STREET N.W., WASHINGTON, D.C., THE UNDERSIGNED, AS LESSOR, HEREBY GIVES NOTICE OF THE TERMINATION OF SAID LEASE, EFFECTIVE AT MIDNIGHT, FEBRUARY 28, 1942.'

SINCE THE DATE OF THE NOTICE QUOTED, THE BOARD, WITH THE ASSISTANCE OF THE PUBLIC BUILDINGS ADMINISTRATION, HAS GIVEN ATTENTION TO THE PROBLEM OF FINDING SUITABLE SPACE FOR THE ACTIVITIES NOW CONDUCTED IN THIS BUILDING. IT HAS BEEN UNABLE TO FIND SUITABLE SPACE AVAILABLE OTHER THAN IN THE BUILDING NOW OCCUPIED. IT HAS BEEN ASCERTAINED THAT THE RECEIVER FOR THE 1840 14TH STREET, NORTHWEST, PREMISES WOULD BE WILLING TO ENTER INTO A NEW LEASE BEGINNING MARCH 1, 1942, ON TERMS IDENTICAL TO THOSE IN THE PRESENT LEASE, EXCEPT THAT NO RIGHT OF TERMINATION WOULD BE RESERVED TO THE LESSOR, AND THE RENTAL WOULD BE AT THE RATE OF $19,500 PER YEAR. IT IS OUR JUDGMENT THAT SUCH A RENTAL RATE WOULD BE REASONABLE AND WOULD NOT BE IN EXCESS OF THE AMOUNT WHICH WOULD HAVE TO BE PAID FOR OTHER SUITABLE SPACE, IF SUCH SPACE COULD BE FOUND. ACCORDINGLY, WE ARE ANXIOUS THAT A NEW LEASE, ON THE TERMS AND CONDITIONS INDICATED, BE EXECUTED AT THE EARLIEST FEASIBLE DATE. NOT ONLY WOULD SUCH AN ARRANGEMENT SECURE SPACE AT A REASONABLE AND ECONOMICAL RENTAL RATE, BUT IT WOULD ALSO AVOID SEVERE EXPENSES AND LOSS OF TIME ATTENDANT UPON VACATING THE PREMISES. THE EXECUTION OF SUCH A LEASE IS, THEREFORE, WHOLLY IN THE INTEREST OF THE GOVERNMENT.

QUESTION HAS BEEN RAISED, HOWEVER, WHETHER THE DECISION OF JULY 31, 1922, REPORTED IN 2 COMP. GEN. 66, WOULD INDICATE THAT THERE IS NO AUTHORITY FOR THE EXECUTION OF THE LEASE DESIRED. IT IS OUR VIEW THAT IT DOES NOT. IS APPARENT THAT THE DECISION REFERRED TO WAS A CLOSE ONE ON THE PROVISIONS OF THE LEASE THEREIN INVOLVED, FOR, ALTHOUGH AS POINTED OUT IN THE DECISION, A CONTRARY CONCLUSION WOULD HAVE GIVEN LITTLE OR NO EFFECT TO THE GOVERNMENT'S OPTION TO RENEW, IT IS EQUALLY TRUE THAT THE DECISION GIVES LITTLE EFFECT TO THE LESSOR'S RIGHT OF TERMINATION. IT IS RESPECTFULLY SUGGESTED THAT THE DECISION CANNOT TENABLY BE EXTENDED TO GOVERN RIGHTS UNDER LEASES IN WHICH THE GOVERNMENT'S RENEWAL OPTION IS EXPRESSED IN TERMS TO ANY DEGREE NARROWER THAN THOSE IN THE LEASE THERE UNDER CONSIDERATION. IT WILL BE NOTED THAT THE GOVERNMENT'S OPTION TO RENEW UNDER THAT LEASE WAS AVAILABLE "FOR SUCH PERIOD AND AS OFTEN AS SAID LESSEE MAY ELECT, SO AS TO GIVE SAID LESSEE CONTINUOUS POSSESSION OF SAID PROPERTY, NOT EXTENDING, HOWEVER,BEYOND AUGUST 31, 1924.' UNDER THIS PROVISION THE RIGHT OF RENEWAL WAS AVAILABLE WHENEVER THE TENANCY MIGHT OTHERWISE HAVE TERMINATED AND REGARDLESS OF THE CAUSE OF TERMINATION, WHETHER EXPIRATION OF THE INITIAL PERIOD OR EXERCISE OF THE LESSOR'S RIGHT OF TERMINATION. IT WILL BE NOTED THAT IN THE LEASE UNDER WHICH WE ARE OCCUPYING THE PREMISES AT 1840 14TH STREET, NORTHWEST, THE GOVERNMENT'S RIGHT OF RENEWAL, AS EXPRESSED IN PARAGRAPH 5, IS IN MATERIALLY NARROWER TERMS; IT IS SIMPLY A RIGHT TO RENEW FROM YEAR TO YEAR AND THUS IS NOT AVAILABLE WHEN TERMINATION IS EFFECTED BY EXERCISE OF THE RIGHT RESERVED TO THE LESSOR IN PARAGRAPH 12. ACCORDINGLY, IT IS OUR VIEW THAT THE NOTICE OF NOVEMBER 27, 1941, OPERATES EFFECTIVELY TO TERMINATE THE GOVERNMENT'S RIGHTS IN THE PREMISES AT MIDNIGHT, FEBRUARY 28, 1942, AND THAT A LEASE MAY BE EXECUTED FOR ANY SUBSEQUENT PERIOD UPON REASONABLE TERMS AND CONDITIONS WITHOUT REGARD TO THE FACT OF OCCUPANCY UNDER THE CURRENT LEASE.

WE WOULD APPRECIATE BEING ADVISED AS SOON AS POSSIBLE WHETHER WE ARE CORRECT IN THE VIEW THAT THERE IS AUTHORITY FOR THE EXECUTION OF A LEASE ON THE TERMS AND CONDITIONS INDICATED.

PARAGRAPH 8 (H) OF THE " INSTRUCTIONS TO BE OBSERVED IN EXECUTING LEASE" ( STANDARD FORM NO. 2 (REVISED) GOVERNMENT LEASE), PROVIDES AS FOLLOWS:

THERE SHALL BE NO DEVIATION FROM THIS FORM WITHOUT PRIOR AUTHORIZATION BY THE DIRECTOR OF PROCUREMENT, EXCEPT---

(H) ADDITIONAL PROVISIONS, RELATING TO PARTICULAR SUBJECT MATTER MUTUALLY AGREED UPON, MAY BE INSERTED, IF NOT IN CONFLICT WITH THE STANDARD PROVISIONS, INCLUDING A MUTUAL RIGHT TO TERMINATE THE LEASE UPON A STATED NUMBER OF DAYS' NOTICE, BUT TO PERMIT ONLY THE LESSOR SO TO TERMINATE WOULD BE A DEVIATION REQUIRING APPROVAL AS ABOVE PROVIDED.

THE LEASE HERE INVOLVED WAS ENTERED INTO ON BEHALF OF THE UNITED STATES BY THE ACTING COMMISSIONER OF PUBLIC BUILDINGS, PUBLIC BUILDINGS ADMINISTRATION, FEDERAL WORKS AGENCY, FOR THE BUILDING AT 1840 14TH STREET NW., WASHINGTON, D.C., TO BE USED AS A WAREHOUSE FOR STORAGE, FILES, AND ATTENDANT PERSONNEL. SAID LEASE PROVIDES FOR PAYMENT OF AN ANNUAL RENTAL OF $15,000 AND IS FOR THE "ENTIRE BUILDING, TOGETHER WITH ALL APPURTENANCES THEREUNTO BELONGING * * * SITUATED ON LOT 810 IN SQUARE 206 OF THE DISTRICT OF COLUMBIA," FOR "THE TERM BEGINNING JULY 1, 1940, AND ENDING WITH JUNE 30, 1941.' UNDER PARAGRAPH 5 OF THE LEASE THE GOVERNMENT IS GRANTED THE OPTION OF RENEWING THE LEASE FROM YEAR TO YEAR AT A RENTAL OF $15,000 PER ANNUM UPON WRITTEN NOTICE 30 DAYS BEFORE EXPIRATION OF SAID LEASE OR ANY RENEWAL THEREOF PROVIDED THAT NO RENEWAL SHALL EXTEND THE PERIOD OF OCCUPANCY BEYOND THE 30TH DAY OF JUNE 1943. AS EVIDENCE OF THE FAIR MARKET VALUE OF THE LEASED PREMISES IT IS STATED ON STANDARD FORM 1036, ATTACHED TO THE ORIGINAL LEASE ON FILE IN THIS OFFICE, THAT "THE LAND AND IMPROVEMENTS ARE ASSESSED AT $158,360" AND THAT "BASED ON THE ASSESSED VALUE, THE PROVISIONS OF THE ECONOMY ACT WOULD ALLOW AN ANNUAL RENTAL OF $23,754.'

PARAGRAPH 12 OF THE LEASE PROVIDES AS FOLLOWS:

THE GOVERNMENT MAY TERMINATE THIS LEASE BY GIVING THE LESSOR A WRITTEN NOTICE TO TAKE EFFECT AT THE END OF THE MONTH FOLLOWING THE MONTH IN WHICH THE NOTICE IS GIVEN. THE LESSOR MAY TERMINATE THIS LEASE BY GIVING THE GOVERNMENT NINETY DAYS' NOTICE IN WRITING.

THE ACCOUNTING OFFICERS HAVE HELD IN NUMEROUS CASES THAT AS A MATTER OF LAW A CONTRACTING OFFICER OF THE GOVERNMENT IS NOT AUTHORIZED TO EXECUTE A NEW LEASE OR OTHERWISE AGREE TO PAY INCREASED RENTAL FOR PREMISES AS TO WHICH THE UNITED STATES IS ENTITLED TO RENEW THE LEASE OR CONTINUE OCCUPANCY AT THE SAME OR A LOWER RENTAL, OR OTHERWISE TO MODIFY CONTRACTS IN WHICH THE UNITED STATES HAS VESTED RIGHTS, EXCEPT IN THE INTEREST OF THE GOVERNMENT. 1 COMP. GEN. 579; 2 ID. 66; ID. 812; 3 ID. 595; 4 ID. 339; ID. 403; 5 ID. 605; 6 ID. 255.

HOWEVER, IN THE CASE HERE PRESENTED THE WRITTEN LEASE FIXES THE OBLIGATIONS AND RIGHTS OF THE PARTIES AND THE TERMS AND CONDITIONS OF THE TENANCY. THERE IS NO AMBIGUITY IN THE PROVISIONS OF THE LEASE. IT IS TRUE THAT THE LEASE PROVIDES FOR A RENEWAL FROM YEAR TO YEAR AT THE OPTION OF THE GOVERNMENT WITH THE FURTHER PROVISO THAT NO RENEWAL SHALL EXTEND THE OCCUPANCY BEYOND JUNE 30, 1943, AND THAT SAID LEASE WAS RENEWED FOR THE FISCAL YEAR 1942 BY WRITTEN NOTICE TO THE LESSOR FROM THE CONTRACTING OFFICER, THEREBY MAKING IT BINDING ON THE GOVERNMENT FOR THE FISCAL YEAR 1942 UNDER THE PRINCIPLES STATED IN LEITER V. UNITED STATES, 271 U.S. 204, AND GOODYEAR V. UNITED STATES, 276 U.S. 287. ON THE OTHER HAND, IT IS CLEAR THAT, NOTWITHSTANDING THE RENEWAL, THE LEASE REMAINED SUBJECT TO THE EXERCISE OF THE RIGHT OF TERMINATION BY EITHER PARTY IN THE MANNER SET FORTH IN PARAGRAPH 12 OF THE LEASE. THE INCLUSION OF SUCH PROVISION IS SPECIFICALLY AUTHORIZED UNDER PARAGRAPH 8 (H) OF THE " INSTRUCTIONS TO BE OBSERVED IN EXECUTING LEASE," QUOTED ABOVE. IT CONFERS SUBSTANTIAL ENFORCEABLE RIGHTS ON BOTH OF THE LEASING PARTIES AND, UPON EXERCISE OF THE TERMINATION OPTION BY EITHER PARTY IN THE MANNER PRESCRIBED IN PARAGRAPH 12 OF THE LEASE, THE GOVERNMENT'S RIGHT OF OCCUPANCY THEREUNDER TERMINATES AT THE EXPIRATION OF THE PERIOD SPECIFIED IN THE NOTICE NOTWITHSTANDING THAT THE ORIGINAL TERM OR ANY RENEWAL THEREOF MAY NOT HAVE EXPIRED AND, UPON SUCH TERMINATION OF THE LEASE, THE LESSOR IS UNDER NO OBLIGATION TO ENTER INTO A NEW LEASE OR PERMIT THE GOVERNMENT TO CONTINUE OCCUPANCY OF THE BUILDING AT THE RENTAL STIPULATED IN THE CURRENT LEASE. IN THIS CONNECTION, IT HAS BEEN HELD THAT WHERE THE RIGHT TO EXERCISE AN OPTION TO TERMINATE IS FIXED, AS IN THE INSTANT LEASE, THE MOTIVE ACTUATING ITS EXERCISE IS NOT MATERIAL. 35 C.J. 1053. SEE ALSO, MINAMAX GAS CO. V. STATE EX REL. MCCURDY, 170 N.E. 33, 36, WHERE THE COURT SAID:

THE DEFENDANT, HOWEVER, BY THE FOURTH DEFENSE OF ITS ANSWER, ATTEMPTED TO SET UP AN EQUITABLE DEFENSE AGAINST THE PLAINTIFF'S TECHNICAL LEGAL RIGHT TO EJECT. THIS APPEARS TO BE IN THE NATURE OF AN ESTOPPEL HAVING TWO PHASES: THE FIRST IS THAT THE COMMISSIONERS TERMINATED THE LEASE BECAUSE THEY THOUGHT IT WAS ILLEGAL, WHEN IT IN FACT WAS LEGAL; AND THE SECOND IS BECAUSE THE LESSEE, RELYING ON ITS LEASE, HAS MADE LARGE EXPENDITURES IN IMPROVING THE PROPERTY, AND THE COUNTY AUTHORITIES HAVE PERMITTED IT TO DO SO WITHOUT ADVISING IT THAT THE LEASE WOULD BE CANCELED. THE FIRST DEFENSE IS UNSOUND, BECAUSE ONE EXERCISING A LEGAL RIGHT IS NOT BOUND TO HAVE A SOUND REASON THEREFOR; NOR ANY REASON AT ALL. ONE'S MOTIVES, IN DOING WHAT ONE HAS A RIGHT TO DO ARE NOT OPEN TO JUDICIAL INQUIRY. HAMILTON, G. AND C. TRACTION CO. V. PARISH, 67 OHIO ST. 181, 189, 65 N.E. 1011, 60 L.R.A. 531; NICHOLSON V. FRANKLIN BREWING CO., 82 OHIO ST. 94, 91 N.E. 991, 137 AM. ST. REP. 764, 19 ANN. CAS. 699. THE OTHER DEFENSE LIKEWISE AND FOR LIKE REASON FAILS. THE COMMISSIONERS HAVE ELECTED TO TERMINATE THE LEASE, AND THAT POWER HAVING BEEN GIVEN THEM BY THE CONTRACT UNDER WHICH THE LESSEE CLAIMS, THE LESSEE CANNOT INQUIRE INTO THE MOTIVES LEADING TO THE TERMINATION OF THEIR TENURE. THEY CONTRACTED WITH THAT POSSIBILITY IN MIND AND EQUITY CANNOT INTERPOSE TO PREVENT A PARTY TO A CONTRACT FROM PURSUING HIS RIGHTS THEREUNDER. THE EDITOR SAYS IN A NOTE IN ANN.1CAS. 1916B, 307:

"IT IS SELF-EVIDENT THAT WHEN A PARTY TO A LEASE IS GIVEN AN OPTION WITHOUT RESTRICTION TO TERMINATE THE LEASE OR A RIGHT TO TERMINATE IT ON THE HAPPENING OF A CONTINGENCY, HE MAY EXERCISE THE OPTION WITHOUT RESTRICTION IN THE ONE CASE, OR IN THE OTHER ON THE HAPPENING OF THE CONTINGENCY. * * * IT SEEMS THAT THE MOTIVE INDUCING A PARTY TO A LEASE TO EXERCISE AN OPTION TO TERMINATE IT CANNOT BE INQUIRED INTO.'

UNDER THE LESSOR'S NOTICE OF NOVEMBER 27, 1941, QUOTED IN YOUR LETTER, IT APPEARS THAT THE LEASE WILL TERMINATE AT MIDNIGHT, FEBRUARY 28, 1942, AND ALL RIGHTS OF THE GOVERNMENT ARISING UNDER THE LEASE EXPIRE AS OF THAT DATE EXCEPT THOSE INCIDENTAL TO THE RIGHT TO REMOVE ITS PROPERTY. IN SUCH CIRCUMSTANCES, IT IS MANIFEST THAT THE GOVERNMENT HAS NO LEGAL RIGHT TO CONTINUE OCCUPANCY OF THE PREMISES THEREAFTER EXCEPT UNDER SUCH TERMS AND CONDITIONS AS OTHERWISE MAY BE AGREED UPON BETWEEN THE LEASING PARTIES.

ACCORDINGLY, YOU ARE ADVISED THAT IF THE SPACE IN THE BUILDING IS REQUIRED FOR THE ACTIVITIES OF THE RAILROAD RETIREMENT BOARD OR ANY OTHER GOVERNMENTAL DEPARTMENT OR AGENCY AFTER THE TERMINATION OF THE CURRENT LEASE PURSUANT TO THE RIGHT VESTED IN THE LESSOR UNDER PARAGRAPH 12 AND IT IS FOUND TO BE IN THE INTEREST OF GOVERNMENT TO ENTER INTO A NEW LEASE FOR SAID BUILDING AT THE INCREASED RENTAL INSTEAD OF LEASING ANY OTHER SPACE AVAILABLE IN THE DISTRICT OF COLUMBIA OR NEARBY VICINITY THERE WOULD APPEAR TO BE NO LEGAL OBJECTION TO THE COMMISSIONER OF PUBLIC BUILDINGS, PUBLIC BUILDINGS ADMINISTRATION, FEDERAL WORKS AGENCY, ENTERING INTO A NEW LEASE FOR THE BUILDING AT AN ANNUAL RENTAL OF $19,500, AND OTHERWISE UPON THE TERMS AND CONDITIONS AS STATED IN THE SECOND PARAGRAPH OF/YOUR LETTER.