B-68407, JANUARY 12, 1950, 29 COMP. GEN. 299

B-68407, JANUARY 12, 1950, 29 COMP. GEN. 299

LEASES - REPAIRS AND IMPROVEMENTS - LIMITATION IN VIEW OF THE LIMITATION IN SECTION 322 OF THE ECONOMY ACT UPON EXPENDITURES FOR REPAIRS, ETC., TO PROPERTY LEASED TO THE UNITED STATES, NOT MORE THAN 25 PERCENTUM OF THE NET RENTAL FOR THE ORIGINAL TERM OF A LEASE FOR LESS THAN ONE YEAR WHICH CONTAINS AN OPTION TO RENEW ON AN ANNUAL BASIS THEREAFTER MAY BE EXPENDED FOR ALTERATIONS, REPAIRS, OR IMPROVEMENTS UNTIL THE OPTION TO RENEW IS EXERCISED. THE TERM "RENT" AS USED IN THE PERCENTAGE LIMITATION IN SECTION 322 OF THE ECONOMY ACT UPON EXPENDITURES FOR REPAIRS, ETC., TO PROPERTY LEASED TO THE UNITED STATES MEANS THE NET RENT, EXCLUSIVE OF THE VALUE OF ANY SPECIAL SERVICES FURNISHED BY THE LESSOR AS PART OF THE RENTAL CONSIDERATION.

COMPTROLLER GENERAL WARREN TO M. D. LEWIS, NATIONAL MEDIATION BOARD, JANUARY 12, 1950:

REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 28, 1949, TRANSMITTING A VOUCHER WITH RELATED PAPERS STATED IN FAVOR OF 39 SOUTH LA SALLE BUILDING, L. J. SHERIDAN AND COMPANY, IN THE AMOUNT OF $3,747.97 AS THE PROPORTIONATE COST OF CERTAIN ALTERATIONS MADE BY THE LESSOR TO ROOMS 414- 425 INCLUSIVE AND ROOMS 1425 AND 1426 LEASED TO THE GOVERNMENT UNDER LEASE NO. MBRAB-119, DATED AUGUST 12, 1949, AND REQUESTING A DECISION AS TO WHETHER YOU PROPERLY MAY CERTIFY THE VOUCHER FOR PAYMENT IN VIEW OF THE TERMS OF SAID LEASE.

UNDER THE REFERRED-TO LEASE THE SODAK COMPANY LET THE ROOMS DESCRIBED ABOVE TO THE GOVERNMENT FOR THE TERM BEGINNING WITH DATE OF OCCUPANCY, OCTOBER 15, 1949, AND ENDING JUNE 30, 1950, AT AN ANNUAL RENTAL RATE OF $21,165, PAYABLE MONTHLY IN ARREARS IN THE AMOUNT OF $1,763.75, WITH RENEWAL OPTION TO THE GOVERNMENT NOT TO EXTEND THE OCCUPANCY BEYOND JUNE 30, 1951. PARAGRAPH 13 PROVIDES FOR CANCELLATION BY THE LESSOR ON THE LAST DAY OF ANY CALENDAR MONTH IN ANY YEAR UNDER THE CONDITIONS THEREIN PROVIDED. CERTAIN SPECIAL SERVICES LISTED IN PARAGRAPH 6 OF THE LEASE ARE REQUIRED TO BE FURNISHED BY THE LESSOR AS PART OF THE RENTAL CONSIDERATION. PARAGRAPH 12 PROVIDES IN EFFECT THAT IN ADDITION TO THE SPECIFIED RENTAL THE GOVERNMENT SHALL REIMBURSE THE LESSOR FOR ONE-HALF OF THE COST OF ALTERATIONS NECESSARY TO FIT THE SPACE FOR OCCUPANCY OF THE TENANT AS PER PLANS ATTACHED TO THE LEASE, SUCH COST, HOWEVER, NOT TO EXCEED 25 PERCENT OF THE AMOUNT OF THE RENT FOR THE RENTAL TERM. PARAGRAPH 12 FURTHER PROVIDES THAT REIMBURSEMENT FOR THE COST OF THE ALTERATIONS WILL BE MADE TO THE LESSOR UPON COMPLETION OF THE WORK AND UPON PRESENTATION OF ITEMIZED STATEMENTS OF TOTAL EXPENDITURES FOR SUCH ALTERATIONS SUPPORTED BY RECEIPTED BILLS FOR MATERIALS AND SERVICES SHOWING THE CHARACTER OF THE WORK DONE AND IDENTIFICATION THEREOF. THE SUPPORTING DATA ATTACHED TO THE VOUCHER SHOW EXPENDITURES BY THE LESSOR'S AGENT TOTALING $12,208.43 FOR MATERIALS AND LABOR INCIDENTAL TO ALTERATIONS TO THE LEASED SPACE MADE ON BEHALF OF THE LESSOR.

IN DETERMINING THE PROPRIETY OF THE PROPOSED PAYMENT, IT IS NECESSARY TO CONSIDER THE PROVISIONS OF SECTION 322 OF THE ECONOMY ACT OF JUNE 30, 1932, 47 STAT. 412, WHICH LIMIT PAYMENTS "FOR ALTERATIONS, IMPROVEMENTS, AND REPAIRS OF THE RENTED PREMISES" TO "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.' IN THAT CONNECTION, THERE ARE ATTACHED TO THE LEASE SUPPORTING DATA INDICATING THAT AT THE DATE OF THE AFORESAID LEASE THE FAIR MARKET VALUE OF THE BUILDING IN QUESTION WAS $3,000,000; THAT THE FAIR MARKET VALUE OF THE LEASED SPACE (SHOWN AS REPRESENTING 1/29 OF THE ENTIRE RENTAL AREA OF THE BUILDING) WAS $103,482.76; THAT THE COST OF SPECIAL SERVICES, GENERAL REPAIRS, AND MAINTENANCE FOR THE ENTIRE BUILDING AND THE LEASED SPACE AGGREGATED $263,372.61 AND $9,080.26, RESPECTIVELY, AND THAT AT THE DATE OF SAID LEASE THE NET ANNUAL RENTAL WAS $12,084.74. THE SUPPORTING DATA ATTACHED TO THE VOUCHER SHOW THAT THE AMOUNT CLAIMED, $3,747.97, WAS COMPUTED BY TAKING 25 PERCENT OF THE GROSS RENTAL FOR THE ORIGINAL TERM -- OCTOBER 15, 1949, TO JUNE 30, 1950--- THAT IS TO SAY, 25 PERCENT OF $14,991.87.

THE TERM "RENT" AS USED IN SECTION 322 OF THE ECONOMY ACT OF JUNE 30, 1932, SUPRA, HAS BEEN CONSTRUED TO MEAN THE NET RENT EXCLUSIVE OF THE VALUE OF ANY SPECIAL SERVICES FURNISHED BY THE LESSOR AS PART OF THE RENTAL CONSIDERATION. SEE 12 COMP. GEN. 546. ACCORDINGLY, THE APPLICABLE APPROPRIATION IN THIS INSTANCE MAY NOT BE OBLIGATED FOR ALTERATIONS, IMPROVEMENTS, AND REPAIRS IN EXCESS OF 25 PERCENT OF THE AMOUNT OF THE BASIC OR NET RENT FOR THE ORIGINAL TERM--- THAT IS TO SAY, 25 PERCENT OF $8,543.83, OR $2,135.96. TO THE EXTENT THAT PARAGRAPH 12 IS INCONSISTENT WITH THE FOREGOING IT IS WITHOUT LEGAL EFFECT. 16 COMP. GEN. 644 AS MODIFIED BY 20 COMP. GEN. 30. WHILE IT IS TRUE THAT THE LEASE MAY BE RENEWED AT THE OPTION OF THE GOVERNMENT FOR THE FISCAL YEAR BEGINNING JULY 1, 1950, SUCH RIGHT OF RENEWAL IS INCHOATE AND MAY NEVER BE EXERCISED AND, THEREFORE, UNLESS AND UNTIL SUCH RENEWAL SHALL HAVE BEEN EXERCISED THERE IS NO AUTHORITY OF LAW FOR PAYMENT FOR ALTERATIONS, IMPROVEMENTS, AND REPAIRS IN EXCESS OF 25 PERCENT OF THE NET RENTAL FOR THE ORIGINAL TERM, OR IN EXCESS OF $2,135.96. 20 COMP. GEN. 30.

ACCORDINGLY, THE VOUCHER MAY NOT BE CERTIFIED FOR PAYMENT IN EXCESS OF $2,135.96.