B-73028, FEBRUARY 4, 1948, 27 COMP. GEN. 426

B-73028: Feb 4, 1948

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LIMITATION PROVISIONS OF SECTION 322 OF THE ECONOMY ACT WAS OBTAINED. LIMITATION OF SECTION 322 OF THE ECONOMY ACT WITH RESPECT TO THE PARTICULAR PREMISES HAVE BEEN EXPENDED. THE EXPENDITURE OF FURTHER SUMS FOR ADDITIONAL ALTERATIONS AND IMPROVEMENTS IS NOT AUTHORIZED UNLESS THE CERTIFICATE BE DULY AMENDED TO PROVIDE FOR THE EXCESS EXPENDITURE. LIMITATION PROVISIONS OF SECTION 322 OF THE ECONOMY ACT IS OBTAINED UNDER THE ACT OF APRIL 28. OR IN CASES WHERE THE OCCUPYING AGENCY IS AUTHORIZED TO ENTER INTO LEASES WITHOUT REGARD TO THE LIMITATION REQUIREMENTS OF THE ECONOMY ACT. 1948: I HAVE YOUR LETTER OF JANUARY 20. IT IS STATED COULD NOT BE JUSTIFIED ON THE BASIS OF THE ASSESSED VALUATION OF THE PROPERTY.

B-73028, FEBRUARY 4, 1948, 27 COMP. GEN. 426

LEASES - RENTAL AND ALTERATION LIMITATIONS - CERTIFICATES OF NECESSITY WHERE, UNDER SECTION 3 OF THE ACT OF AUGUST 27, 1935, AS AMENDED, THE COMMISSIONER OF PUBLIC BUILDINGS ENTERED INTO A LEASE OF PREMISES FOR THE HOUSING OF AN AGENCY, AND A CERTIFICATE OF NECESSITY WAIVING THE RENTAL AND ALTERATION, ETC., LIMITATION PROVISIONS OF SECTION 322 OF THE ECONOMY ACT WAS OBTAINED, AS AUTHORIZED BY THE ACT OF APRIL 28, 1942, THE BENEFITS OF THE CERTIFICATE MAY NOT BE EXTENDED, UPON THE REASSIGNMENT OF THE PREMISES, TO A SUBSEQUENTLY OCCUPYING AGENCY FOR THE PURPOSE OF CHARGING ITS APPROPRIATION WITH AMOUNTS IN EXCESS OF THE LIMITATIONS PRESCRIBED BY SAID SECTION 322, THE REASSIGNMENT BEING TANTAMOUNT TO A NEW LEASE FOR ALTERATION, ETC., PURPOSES. WHERE ALL ALLOWABLE FUNDS FOR ORIGINAL IMPROVEMENTS TO LEASED PREMISES UNDER A RESTRICTIVE CERTIFICATE OF NECESSITY ISSUED PURSUANT TO THE ACT OF APRIL 28, 1942, WAIVING THE ALTERATION, IMPROVEMENT, ETC., LIMITATION OF SECTION 322 OF THE ECONOMY ACT WITH RESPECT TO THE PARTICULAR PREMISES HAVE BEEN EXPENDED, THE EXPENDITURE OF FURTHER SUMS FOR ADDITIONAL ALTERATIONS AND IMPROVEMENTS IS NOT AUTHORIZED UNLESS THE CERTIFICATE BE DULY AMENDED TO PROVIDE FOR THE EXCESS EXPENDITURE. EXCEPT WHERE A CERTIFICATE OF NECESSITY EXEMPTING A LEASE FROM THE ALTERATION, ETC., LIMITATION PROVISIONS OF SECTION 322 OF THE ECONOMY ACT IS OBTAINED UNDER THE ACT OF APRIL 28, 1942, OR IN CASES OF REASSIGNMENT OF SPACE BY THE COMMISSIONER OF PUBLIC BUILDINGS PURSUANT TO SECTION 3 OF THE ACT OF AUGUST 27, 1935, AS AMENDED, OR IN CASES WHERE THE OCCUPYING AGENCY IS AUTHORIZED TO ENTER INTO LEASES WITHOUT REGARD TO THE LIMITATION REQUIREMENTS OF THE ECONOMY ACT, ANY EXPENDITURE FOR REPAIRS, ALTERATIONS AND IMPROVEMENTS IN EXCESS OF SUCH LIMITATION WOULD NOT BE PERMISSIBLE.

ACTING COMPTROLLER GENERAL YATES TO THE FEDERAL WORKS ADMINISTRATOR, FEBRUARY 4, 1948:

I HAVE YOUR LETTER OF JANUARY 20, 1948, PRESENTING FACTS SUBSTANTIALLY AS FOLLOWS:

IT APPEARS THAT ON SEPTEMBER 6, 1946, THE WAR ASSETS ADMINISTRATION REQUESTED THE PUBLIC BUILDINGS ADMINISTRATION, FEDERAL WORKS AGENCY, TO LEASE 110,000 SQUARE FEET OF SPACE IN THE MODE O-DAY BUILDING AND AN ADJOINING BUILDING LOCATED IN LOS ANGELES, CALIFORNIA, FOR THE PURPOSE OF CONSOLIDATING THE LOCAL ACTIVITIES OF THE REQUISITIONING AGENCY; THAT THE OWNER OF THE BUILDING IN QUESTION INSISTED UPON A FIRM FIVE YEAR LEASE AND OFFERED THE DESIRED SPACE AT AN ANNUAL RENTAL RATE OF $1.03 PER SQUARE FOOT, WHICH RENTAL RATE, IT IS STATED COULD NOT BE JUSTIFIED ON THE BASIS OF THE ASSESSED VALUATION OF THE PROPERTY; AND THAT AS EXTENSIVE ALTERATIONS WERE NECESSARY TO ADAPT THE SPACE FOR THE USE OF THE ACTIVITIES INVOLVED, THE COST OF WHICH WOULD GREATLY EXCEED THE 25 PERCENT LIMITATION UNDER SECTION 322 OF THE ECONOMY ACT OF JUNE 30, 1932, 47 STAT. 412, AS AMENDED, A CERTIFICATE OF NECESSITY AS AUTHORIZED BY THE ACT OF APRIL 28, 1942, 56 STAT. 247, WAIVING THE PROVISIONS OF SAID SECTION 322 OF THE ECONOMY ACT OF JUNE 30, 1932, WAS OBTAINED FROM THE NAVY DEPARTMENT. THE CERTIFICATE EXECUTED ON SEPTEMBER 25, 1946, BY DIRECTION OF THE SECRETARY OF THE NAVY, EXPRESSLY STATES THAT THE SPACE IN THE TWO BUILDINGS IN QUESTION WAS "FOR USE AND OCCUPANCY OF THE WAR ASSETS ADMINISTRATION" AND THAT THE PROPOSED LEASE "COVERS PREMISES NECESSARY FOR THE PROSECUTION OF THE WAR AND VITAL IN THE NATIONAL EMERGENCY.' FURTHER APPEARS THAT BY LEASE NO. WA6PB-6705, DATED OCTOBER 1, 1946, THE MODE O-DAY CORPORATION LET 110,450 SQUARE FEET OF SPACE IN THE BUILDINGS IN QUESTION TO THE GOVERNMENT FOR THE TERM BEGINNING OCTOBER 1, 1946, AND ENDING SEPTEMBER 30, 1951, AT THE FOLLOWING RENTAL RATES:

FOR THE SPACE IN THE MODE O-DAY BUILDING, $1,250 PER MONTH PER FLOOR FOR THE SECOND, SEVENTH, EIGHTH AND NINTH FLOORS; $1,002.13 PER MONTH FOR THE THIRD FLOOR SPACE; AND $1,400 PER MONTH, FOR THE FIRST FLOOR WITH MEZZANINE; AND FOR THE BUILDING AT 1834 SOUTH HILL STREET, $750 PER MONTH.

IT IS STATED IN YOUR LETTER THAT THE WAR ASSETS ADMINISTRATION HAS RELINQUISHED TWO FLOORS OF THE SPACE IN QUESTION SURPLUS TO ITS NEEDS, TO THE PUBLIC BUILDINGS ADMINISTRATION; THAT VARIOUS FEDERAL AGENCIES SUITABLY ALTERED TO MEET THEIR PARTICULAR NEEDS; AND THAT IF FURTHER EXPENDITURES FOR ALTERATION THEREUNDER ARE NOT AUTHORIZED BY LAW THE GOVERNMENT WILL BE CONFRONTED WITH THE ALTERNATIVE OF ARRANGING A COSTLY CANCELLATION AGREEMENT WITH THE LESSOR AND ACQUIRING SUITABLE SUBSTITUTE SPACE ELSEWHERE ON A HIGHLY INFLATED REAL ESTATE MARKET. IT IS STATED FURTHER THAT THE PUBLIC BUILDINGS ADMINISTRATION HAS MANY UNEXPIRED LEASES FOR FIRM TERMS PROVIDING FOR RENTAL RATES MODERATE IN COMPARISON TO ADVERSELY HIGH RENTAL RATES IN THE PRESENT MARKET FROM WHICH MUCH ADDITIONAL BENEFIT COULD BE DERIVED IF ADDITIONAL EXPENDITURES COULD BE MADE TO COVER FURTHER ALTERATIONS AND IMPROVEMENTS.

UPON THE BASIS OF THE FOREGOING REPORTED FACTS YOU PRESENT FOR DECISION THE FOLLOWING QUESTIONS:

1. IN THE EVENT OF A CHANGE OF OCCUPANCY UNDER A LEASE EXEMPT OF THE LIMITATIONS PRESCRIBED BY THE ECONOMY ACT, 40 U.S.C. 278B, IS THERE ANY LIMITATION UPON A SUCCESSOR AGENCY'S FUNDS FOR RENT OF THE PREMISES AND FURTHER ALTERATIONS THERETO IN ORDER TO ADAPT IT TO THE AGENCY'S PARTICULAR SPACE REQUIREMENTS? IF THE SUM EXPRESSLY RECITED FOR ALTERATIONS AND IMPROVEMENTS IN THE PUBLIC BUILDINGS ADMINISTRATION REQUEST OF WAIVER TO THE NAVY DEPARTMENT HAS NOT BEEN EXPENDED, WOULD ANY AMOUNTS REMAINING THEREUNDER BE AVAILABLE FOR EXPENDITURE OUT OF A SUCCESSOR AGENCY'S FUNDS TO ADAPT THE PREMISES TO ITS NEEDS? THE SUBJECT LEASE HAS AN UNEXPIRED FIRM TERM OF 3 3/4 YEARS, AND IN ORDER TO REALIZE THE GREATEST VALUE THEREFROM, IT BEHOOVES PUBLIC BUILDINGS ADMINISTRATION TO EXPEND FURTHER SUMS TO FURTHER ADAPT IT TO REPLACING AGENCIES NEEDS.

2. IN THE EVENT OF THE EXPENDITURE OF ALL ALLOWABLE FUNDS FOR ORIGINAL IMPROVEMENTS UNDER A CERTIFICATE OF NECESSITY RESTRICTIVE AS TO AMOUNT, AND IT BECOMES IN NECESSARY TO EXPEND FURTHER SUMS FOR ADDITIONAL ALTERATIONS AND IMPROVEMENTS IN ORDER TO ENHANCE THE ORIGINAL FEDERAL OCCUPANT'S OPERATIONAL EFFICIENCY, WHAT LIMITATIONS, IF ANY, WOULD APPLY TO THESE EXPENDITURES?

3. IN THE EVENT OF EXPENDITURE OF THE SUMS ALLOWABLE UNDER THE 25 PERCENT LIMITATION OF THE ECONOMY ACT, WOULD A FURTHER EXPENDITURE IN A REASONABLE AMOUNT BE PERMITTED IF CONVINCING EVIDENCE WERE ADDUCED THAT THE GOVERNMENT'S BEST INTEREST WERE SUBSERVED THEREBY? THE COST OF ACQUIRING AND IMPROVING REPLACEMENT SPACE ON THE PRESENTLY INFLATED MARKET WOULD FAR EXCEED THE COST OF RETAINING AND IMPROVING SPACE ACQUIRED WHEN THE MARKET WAS AT A REASONABLY NORMAL LEVEL.

SECTION 322 OF THE ECONOMY ACT OF JUNE 30, 1932, 47 STAT. 412, PROVIDES AS FOLLOWS:

HEREAFTER NO APPROPRIATION SHALL BE OBLIGATED OR EXPENDED FOR THE RENT OF ANY BUILDING OR PART OF A BUILDING TO BE OCCUPIED FOR GOVERNMENT PURPOSES AT A RENTAL IN EXCESS OF THE PER ANNUM RATE OF 15 PERCENTUM OF THE FAIR MARKET VALUE OF THE RENTED PREMISES AT DATE OF THE LEASE UNDER WHICH THE PREMISES ARE TO BE OCCUPIED BY THE GOVERNMENT NOR FOR ALTERATIONS, IMPROVEMENTS, AND REPAIRS OF THE RENTED PREMISES IN EXCESS OF 25 PERCENTUM OF THE AMOUNT OF THE RENT FOR THE FIRST YEAR OF THE RENTAL TERM, OR FOR THE RENTAL TERM IF LESS THAN ONE YEAR: PROVIDED, THAT THE PROVISIONS OF THIS SECTION SHALL NOT APPLY TO LEASES HERETOFORE MADE, EXCEPT WHEN RENEWALS THEREOF ARE MADE HEREAFTER, NOR TO LEASES OF PREMISES IN FOREIGN COUNTRIES FOR THE SERVICES OF THE UNITED STATES.

SAID SECTION WAS AMENDED BY THE ACT OF MARCH 3, 1933, 47 STAT. 1517, RESTRICTING APPLICATION OF ITS PROVISION TO LEASES "WHERE THE RENTAL TO BE PAID SHALL EXCEED $2,000 PER ANNUM.'

THE ACT OF APRIL 28, 1942, SUPRA, PROVIDES THAT THE PROVISIONS OF SECTION 322 OF THE ECONOMY ACT OF JUNE 30, 1932, QUOTED ABOVE, AS AMENDED "SHALL NOT APPLY DURING WAR OR A NATIONAL EMERGENCY DECLARED BY CONGRESS OR BY THE PRESIDENT TO SUCH LEASES OR RENEWALS OF EXISTING LEASES OF PRIVATELY OR PUBLICLY OWNED PROPERTY AS ARE CERTIFIED BY THE SECRETARY OF WAR OR THE SECRETARY OF THE NAVY, OR BY SUCH PERSON OR PERSONS AS HE MAY DESIGNATE, AS COVERING PREMISES FOR MILITARY, NAVAL, OR CIVILIAN PURPOSES NECESSARY FOR THE PROSECUTION OF THE WAR OR VITAL IN THE NATIONAL EMERGENCY.'

THE FOREGOING STATUTORY PROVISION WAS NOT INCLUDED IN THE STATUTES REPEALED BY THE JOINT RESOLUTION OF JULY 25, 1947, 61 STAT. 449.

SECTION 3 OF THE ACT OF AUGUST 27, 1935, 49 STAT. 886, AS AMENDED BY THE ACT OF JUNE 14, 1946, 60 STAT. 257 (40 U.S.C. 304C), PROVIDES AS FOLLOWS:

SECTION 3 OF THE ACT OF AUGUST 27, 1935, AS AMENDED (40 U.S.C. 304C), IS HEREBY AMENDED TO READ AS FOLLOWS:

"THE COMMISSIONER OF PUBLIC BUILDINGS IS AUTHORIZED TO PROCURE SPACE BY LEASE, ON SUCH TERMS AND FOR SUCH PERIOD NOT IN EXCESS OF FIVE YEARS AS HE MAY DEEM IN THE PUBLIC INTEREST, FOR THE HOUSING OF ANY FEDERAL AGENCY OR AGENCIES OUTSIDE OF THE DISTRICT OF COLUMBIA, EXCEPT THE POST OFFICE DEPARTMENT, AND TO ASSIGN AND REASSIGN SUCH SPACE. TO THE EXTENT THAT THE APPROPRIATIONS OF THE PUBLIC BUILDINGS ADMINISTRATION NOT OTHERWISE REQUIRED ARE INADEQUATE THEREFOR, THE COMMISSIONER OF PUBLIC BUILDINGS MAY REQUIRE EACH FEDERAL AGENCY TO WHICH LEASED SPACE HAS BEEN ASSIGNED TO PAY PROMPTLY BY CHECK TO THE PUBLIC BUILDINGS ADMINISTRATION OUT OF ITS AVAILABLE APPROPRIATIONS, EITHER IN ADVANCE OR DURING OCCUPANCY OF SUCH SPACE, ALL OR PART OF THE ESTIMATED COST OF RENT, REPAIRS, ALTERATIONS, MAINTENANCE, OPERATION AND MOVING: PROVIDED, THAT WHEN SPACE IN A BUILDING IS OCCUPIED BY TWO OR MORE AGENCIES, THE COMMISSIONER OF PUBLIC BUILDINGS SHALL DETERMINE AND EQUITABLY APPORTION RENTAL, OPERATION, AND OTHER CHARGES ON THE BASIS OF THE TOTAL AMOUNT OF SPACE SO LEASED.'

READING THE FOREGOING STATUTORY PROVISIONS TOGETHER, NO SOUND BASIS IS PERCEIVED FOR CONCLUDING THAT THE BENEFITS OF A CERTIFICATE OF NECESSITY MAY BE EXTENDED TO OTHER THAN THE AGENCY OR ACTIVITY FOR WHICH IT WAS OBTAINED OR FOR CHARGING THE APPROPRIATION OF ANY OTHER AGENCY ANY AMOUNT FOR RENTAL IN EXCESS OF THE 15 PERCENTUM LIMITATION IMPOSED BY SECTION 322 OF THE ECONOMY ACT UPON THE FAIR MARKET VALUE OF THAT PART OF THE SPACE ACTUALLY OCCUPIED BY SUCH AGENCY. HOWEVER, IN VIEW OF THE BROAD PROVISIONS OF SECTION 3 OF THE 1935 ACT, AS AMENDED, SUPRA, AND THE PURPOSE TO BE ACCOMPLISHED THEREBY, I THINK THE CONCLUSION IS WARRANTED THAT, UPON THE REASSIGNMENT OF SPACE UNDER A LEASE MADE BY THE PUBLIC BUILDINGS ADMINISTRATION PURSUANT TO THAT ACT, SUCH REASSIGNMENT MAY BE VIEWED AS TANTAMOUNT TO A NEW LEASE INSOFAR AS THE APPROPRIATION OF SUCH AGENCY IS CONCERNED, AND NOT TO EXCEED 25 PERCENT OF THE NET RENTAL FOR THE FIRST YEAR'S OCCUPANCY MAY BE EXPENDED FOR REPAIRS, ALTERATIONS AND IMPROVEMENTS NECESSARY TO ADAPT THE REASSIGNED SPACE TO THE AGENCY'S PARTICULAR REQUIREMENTS. YOUR QUESTION NUMBER (1) IS ANSWERED ACCORDINGLY.

RESPECTING QUESTION NUMBER (2) YOU ARE ADVISED THAT LIMITATIONS IN A CERTIFICATE OF NECESSITY ON THE AMOUNT SPECIFICALLY STATED IN THE REQUEST FOR SUCH CERTIFICATE FOR REPAIRS, ALTERATIONS AND IMPROVEMENTS MAY NOT BE EXCEEDED UNLESS THE CERTIFICATE BE DULY AMENDED TO AUTHORIZE THE EXCESS EXPENDITURE.

IN VIEW OF THE UNQUALIFIED STATUTORY LIMITATION OF 25 PERCENTUM CONTAINED IN SECTION 322 OF THE ECONOMY ACT, SUPRA, YOUR QUESTION NUMBER (3) IS ANSWERED IN THE NEGATIVE EXCEPT AS TO CASES WHERE A CERTIFICATE OF NECESSITY IS DULY OBTAINED PURSUANT TO THE SAID ACT OF APRIL 28, 1942; OR CASES OF REASSIGNMENT OF SPACE UNDER SAID SECTION 3 OF THE ACT OF AUGUST 27, 1935, AS AMENDED, AS DISCUSSED IN ANSWER TO YOUR QUESTION NUMBER (1) ABOVE; OR CASES WHERE THE AGENCY OCCUPYING THE SPACE IS AUTHORIZED TO ENTER INTO LEASES WITHOUT REGARD TO THE STATUTORY REQUIREMENTS IN SECTION 322 OF THE ECONOMY ACT. CF. 18 COMP. GEN. 675.