B-96305, AUGUST 1, 1950, 30 COMP. GEN. 58

B-96305, AUGUST 1, 1950, 30 COMP. GEN. 58

LEAVES - RENTAL AND ALTERATION LIMITATIONS; MODIFICATIONS THE 25 PERCENT ALTERATION AND IMPROVEMENTS LIMITATION PROVISION OF SECTION 322 OF THE ECONOMY ACT OF JUNE 30, 1932, AS AMENDED, IS APPLICABLE ONLY WHERE THE GOVERNMENT IS TO PAY DIRECTLY FOR THE ALTERATIONS AND IMPROVEMENTS, SO THAT WHERE A LESSOR MAKES ALTERATIONS AND IMPROVEMENTS, INCLUDING INSTALLATION OF AIR CONDITIONING UNITS, NOT OTHERWISE REQUIRED TO BE MADE UNDER THE LEASE, SUCH LEASE MAY BE AMENDED TO PROVIDE FOR PAYMENT OF INCREASED RENTAL ON THE BASIS OF THE COST OF THE WORK PERFORMED, PROVIDED THE 15 PERCENT FAIR-MARKET-VALUE RENTAL LIMITATION OF SECTION 322 IS NOT EXCEEDED.

ACTING COMPTROLLER GENERAL YATES TO THE POSTMASTER GENERAL, AUGUST 1, 1950:

REFERENCE IS MADE TO YOUR LETTER OF JUNE 22, 1950, WITH ENCLOSURES, REQUESTING A DECISION CONCERNING THE APPLICATION OF THE 25 PERCENTUM AND 15 PERCENTUM LIMITATIONS OF SECTION 322 OF THE ECONOMY ACT OF JUNE 30, 1932, 47 STAT. 412, AS AMENDED BY THE ACT OF MARCH 3, 1933, 47 STAT. 1517 (40 U.S.C. 278A), TO CERTAIN ALTERATIONS AND IMPROVEMENTS AND CERTAIN PROPOSED ALTERATIONS AND IMPROVEMENTS TO BE MADE BY THE LESSORS IN FOUR BUILDINGS LEASED TO THE GOVERNMENT FOR POST OFFICE PURPOSES.

THE POST OFFICES AND ALTERATIONS AND IMPROVEMENTS INVOLVED ARE AS FOLLOWS:

1. FERRY ANNEX, SAN FRANCISCO, CALIFORNIA: CONVERSION OF LOFT-TYPE SPACE TO OFFICE SPACE AT A COST OF $46,255.

2. CLERMONT, FLORIDA: INSTALLATION OF IMPROVED MAILING PLATFORM FACILITIES IN ORDER TO ACCOMMODATE HIGHWAY POST OFFICE VEHICLES AND INSTALLATION OF ASPHALT TILE IN LOBBY AT A TOTAL COST OF $568 ($443 FOR PLATFORM AND $125 FOR TILE FLOOR).

3. BARTON STATION, FRESNO, CALIFORNIA: INSTALLATION OF REFRIGERATION-TYPE AIR CONDITIONING AT A COST OF $5,375.

4. TOWER STATION, FRESNO, CALIFORNIA: INSTALLATION OF REFRIGERATION-TYPE OF AIR CONDITIONING EQUIPMENT AT A COST OF $4,533.

IN THE FIRST TWO OF THE ABOVE CASES, IT APPEARS THAT THE ALTERATIONS AND IMPROVEMENTS EITHER HAVE BEEN COMPLETED OR ALMOST ARE COMPLETED BY THE LESSOR AND THAT THE RESPECTIVE LEASES HAVE BEEN AMENDED BY SUPPLEMENTAL AGREEMENTS TO PROVIDE FOR INCREASED RENTALS BASED UPON THE COST OF THE ALTERATIONS AND IMPROVEMENTS. IN THE OTHER TWO CASES YOU STATE THAT THE LESSORS HAVE AGREED TO FURNISH, INSTALL, AND MAINTAIN THE PROPOSED IMPROVEMENTS FOR THE RESPECTIVE ADDITIONAL RENTAL RATES SPECIFIED IN YOUR LETTER FOR THE REMAINDER OF THE LEASED TERMS. AS TO THE FIRST TWO CASES, YOU REQUEST TO BE ADVISED WHETHER THE RESPECTIVE AMENDMENTS TO THE LEASES BY THE SUPPLEMENTAL AGREEMENTS WILL BE APPROVED BY THIS OFFICE AND WHETHER THE LESSORS MAY BE PAID THE INCREASED RENTALS THEREIN PROVIDED UPON THE SATISFACTORY COMPLETION OF THE ALTERATIONS AND IMPROVEMENTS. WITH RESPECT TO THE OTHER TWO CASES, YOU REQUEST TO BE ADVISED WHETHER THE PROPOSED SUPPLEMENTAL AGREEMENTS, EMBODYING THE GENERAL TERMS OUTLINED IN YOUR LETTER, MAY BE EXECUTED WITH THE RESPECTIVE LESSORS AND WHETHER, UPON COMPLETION OF THE WORK, THE LESSORS MAY BE PAID THE INCREASED RENTAL RATES AS SET FORTH IN YOUR SAID LETTER.

SECTION 322 OF THE ECONOMY ACT OF JUNE 30, 1932, SUPRA, PROVIDES, IN PERTINENT PART, AS FOLLOWS:

AFTER JUNE 30, 1932, 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 OF LESS THAN ONE YEAR * * * PROVIDED FURTHER, THAT THE PROVISIONS OF THIS SECTION AS APPLICABLE TO RENTALS, SHALL APPLY ONLY WHERE THE RENTAL TO BE PAID SHALL EXCEED $2,000 PER ANNUM.

THE 25 PERCENTUM LIMITATION ON ALTERATIONS, IMPROVEMENTS, AND REPAIRS CONTAINED IN THE SAID ACT REASONABLY MAY BE CONSIDERED TO BE FOR APPLICATION ONLY WHERE THE GOVERNMENT IS TO PAY DIRECTLY FOR ALTERATIONS, IMPROVEMENTS, AND REPAIRS OF LEASED PREMISES. ACCORDINGLY, AND AS THE INSTANT CASES DO NOT INVOLVE ANY DIRECT PAYMENT BY THE GOVERNMENT FOR ALTERATIONS, IMPROVEMENTS, AND REPAIRS, I HOLD THAT SUCH LIMITATION IS NOT FOR APPLICATION HERE.

HOWEVER, SINCE EACH CASE INVOLVES AN INCREASE OR PROPOSED INCREASE IN THE RENTAL, THERE NECESSARILY IS FOR CONSIDERATION THE PROVISION OF THE SAID ACT LIMITING RENTAL TO "15 PERCENTUM OF THE FAIR MARKET VALUE OF THE RENTED PREMISES AT DATE OF THE LEASE.' ALSO, IN THE FIRST TWO CASES ( FERRY AND CLERMONT STATIONS), THERE IS FOR CONSIDERATION THE QUESTION AS TO WHETHER THE LESSORS ARE OBLIGATED TO EFFECT THE ALTERATIONS AND IMPROVEMENTS AS PART OF THE RENTAL CONSIDERATIONS UNDER THE TERMS OF THE ORIGINAL LEASES.

THE LEASE FOR THE FERRY STATION IS DATED MAY 29, 1947, AND THE PURPOSE FOR WHICH THE PREMISES ARE LEASED IS STATED TO BE "AS AND FOR A POST OFFICE STATION TO BE KNOWN AS " FERRY STATION" IN SAN FRANCISCO, SAN FRANCISCO COUNTY, CALIFORNIA.' CONCERNING THE CIRCUMSTANCES NECESSITATING THE ALTERATIONS AND IMPROVEMENTS MADE BY THE LESSOR AT THAT STATION, IT IS STATED IN LETTER OF MAY 31, 1950, FROM THE ACTING ASSISTANT POSTMASTER GENERAL TO THE POSTAL ACCOUNTS DIVISION OF THIS OFFICE, THAT, DUE TO THE SERVICES NECESSITY OF TRANSFERRING THE OFFICE OF THE DIVISION SUPERINTENDENT AND THE DISTRICT SUPERINTENDENTS OF DISTRICTS NOS. 3 AND 4, RAILWAY MAIL SERVICE, FROM SPACE IN THE GOVERNMENT-OWNED BUILDING AT SAN FRANCISCO, IT WAS ADMINISTRATIVELY DETERMINED TO MOVE THOSE ACTIVITIES TO THE FOURTH FLOOR OF THE FERRY STATION. THUS, SINCE THE SPACE ALTERED IS TO BE USED FOR OFFICE SPACE FOR THE ABOVE REFERRED-TO ACTIVITIES INSTEAD OF FOR A POST OFFICE STATION, IT WOULD APPEAR THAT THE LESSOR LEGALLY MAY NOT BE REQUIRED TO PERFORM THE INVOLVED WORK AS PART OF THE RENTAL STIPULATED IN THE LEASE.

WITH RESPECT TO THE FAIR MARKET VALUE OF THE BUILDING OCCUPIED BY THE FERRY STATION, THE SUPPORTING DATA ATTACHED TO THE LEASE INDICATE A FAIR MARKET VALUE OF $658,041.76 FOR THE ENTIRE BUILDING AT DATE OF THE LEASE. THE LEASE, AS AMENDED BY THE PROPOSAL AND ACCEPTANCE AGREEMENT OF FEBRUARY 6, 1950, PROVIDES, IN EFFECT, FOR 60 MONTHLY PAYMENTS OF $890.02 EACH BY THE GOVERNMENT IN ADDITION TO THE RENTAL PAYMENTS STIPULATED IN THE LEASE, NAMELY, $70,000 FOR THE FIRST FIVE YEARS AND $67,500 FOR THE REMAINING FIVE YEARS. THUS, THE RENTAL RATES ARE INCREASED TO $80,680.24 AND $78,180.24, RESPECTIVELY. BY THE TERMS OF THE REFERRED-TO AMENDMENTS THE ADDITIONAL RENTAL PAYMENTS ARE TO BECOME EFFECTIVE UPON COMPLETION OF THE WORK BUT NOT LESS THAN 90 DAYS FROM NOTIFICATION OF ACCEPTANCE BY THE GOVERNMENT OF THE LESSOR'S PROPOSAL, OR, IN OTHER WORDS, 90 DAYS FROM FEBRUARY 6, 1950. TO JUSTIFY AN ANNUAL RENTAL OF $80,680.24 REQUIRES A FAIR MARKET VALUE OF APPROXIMATELY $538,000 WHICH IS CONSIDERABLY LESS THAN THE ADMINISTRATIVE APPRAISAL SHOWN ABOVE. ACCORDINGLY, THIS OFFICE IS NOT REQUIRED TO OBJECT TO THE SUPPLEMENTAL AGREEMENT TO THE LEASE FOR THE FERRY STATION OR TO THE ADDITIONAL RENTAL PAYMENTS AS PROVIDED THEREIN.

WITH REFERENCE TO THE ALTERATIONS AND IMPROVEMENTS TO THE CLERMONT STATION, IT HAS BEEN REPORTED INFORMALLY THAT THE EXISTING PLATFORM, WHICH WAS CONSTRUCTED BY THE LESSOR AFTER EXECUTION OF THE ORIGINAL LEASE AT NO EXPENSE TO THE GOVERNMENT, WAS ADEQUATE AS LONG AS MAIL WAS HANDLED BY MESSENGER IN A SMALL PICK-UP TRUCK BUT THAT THE PLATFORM AS ORIGINALLY CONSTRUCTED IS NO LONGER ADEQUATE SINCE LARGE BUSSES AND TRUCKS NOW PICK UP THE MAIL. AS TO THE INSTALLATION OF THE TILE FLOOR, IT IS REPORTED THAT ORIGINALLY THERE WAS A CEMENT FLOOR IN THE LOBBY. ON THE BASIS OF SUCH REPORTED FACTS AND IN THE ABSENCE OF ANY SHOWING THAT THE LESSOR FAILED TO MAINTAIN THE ORIGINAL FLOOR AS REQUIRED UNDER PARAGRAPH 7 OF THE LEASE, THERE WOULD APPEAR TO BE NO LEGAL OBLIGATION ON THE PART OF THE LESSOR TO PERFORM THE WORK AS A PART OF THE ORIGINAL RENTAL CONSIDERATION.

THE ORIGINAL LEASE FOR THE CLERMONT STATION PROVIDES FOR AN ANNUAL RENTAL OF $900 PAYABLE MONTHLY IN ARREARS. THE LEASE WAS AMENDED BY SUPPLEMENTAL AGREEMENT OF JUNE 1, 1950 (PROPOSAL AND ACCEPTANCE AGREEMENT), TO PROVIDE FOR AN ADDITIONAL ANNUAL RENTAL PAYMENT OF $305.47 EFFECTIVE FOR A PERIOD OF 24 MONTHS ONLY IN CONSIDERATION OF THE INSTALLATION OF THE PLATFORM FACILITIES AND THE TILE FLOOR. THUS, THE ANNUAL RENTAL FOR THE 24-MONTH PERIOD DURING WHICH THE INCREASED RENTAL RATE WILL BE IN EFFECT TOTALS ONLY $1,205.47. ACCORDINGLY, SINCE THE 15 PERCENTUM LIMITATION OF SECTION 322 OF THE ECONOMY ACT, AS AMENDED, IS ONLY APPLICABLE WHERE THE RENTAL EXCEEDS $2,000 PER ANNUM, THIS OFFICE IS NOT REQUIRED TO QUESTION THE LEGALITY OF THE SUPPLEMENTAL AGREEMENT OR TO THE INCREASED RENTAL PAYMENTS AS PROVIDED THEREUNDER.

AS TO THE PROPOSED INSTALLATION OF REFRIGERATION-TYPE AIR CONDITIONING EQUIPMENT AT THE BARTON AND TOWER STATIONS, YOU STATE THAT THE LESSORS HAVE AGREED TO INSTALL AND TO MAINTAIN SUCH EQUIPMENT FOR ADDITIONAL ANNUAL RENTAL PAYMENTS OF $809.11 AND $715.27, RESPECTIVELY. EXAMINATION OF THE SUPPORTING DATA WITH RESPECT TO THE FAIR MARKET VALUE OF SAID PREMISES ATTACHED TO THE TWO LEASES SATISFACTORILY ESTABLISHES THAT THE PROPOSED ADDITIONAL PAYMENTS, WHEN ADDED TO THE RENTAL RATES STIPULATED IN THE ORIGINAL LEASES, WILL NOT EXCEED THE STATUTORY 15 PERCENTUM LIMITATION. ACCORDINGLY, YOU ARE ADVISED THAT, IF YOU SHOULD ADMINISTRATIVELY DETERMINE THAT THE INSTALLATION OF SUCH EQUIPMENT IS NECESSARY FOR THE OPERATION OF THE TWO STATIONS, THIS OFFICE WOULD NOT BE REQUIRED TO OBJECT TO THE EXECUTION OF SUPPLEMENTAL AGREEMENTS WITH THE LESSORS FOR SUCH INSTALLATIONS NOR TO THE PAYMENTS TO THE LESSORS OF ANNUAL RENTAL RATES INCREASED BY THE SUMS OF $809.11 AND $715.27, RESPECTIVELY, AS PROPOSED IN YOUR LETTER.