June 15, 1993

Appeal of

N.J. HASTETTER, Trustee for THOMAS AND JUDITH HASTETTER

Under Lease Agreement

PSBCA No. 3064

 

APPEARANCE FOR APPELLANT:

Richard A. Simonton, Esq.

 

APPEARANCE FOR RESPONDENT:

Robert E. O'Connell, Esq.

 

OPINION OF THE BOARD

 

            Appellant, N.J. Hastetter, has appealed from a contracting officer's decision denying his demand that his lease with Respondent, United States Postal Service, for the main post office in Needles, California, be terminated because of Respondent's alleged failure to keep the premises in good repair and tenantable condition, as required by the lease.  This appeal has previously been the subject of an opinion of the Board on Respondent's motion to dismiss or for summary judgment, N.J. Hastetter, PSBCA No. 3064, 92-3 BCA ¶ 25,189.

FINDINGS OF FACT

            1.  On August 9, 1967,  Appellant's predecessor in title leased the premises located at 628 Third Street, Needles, California to the Post Office Department, Respondent's predecessor, for use as the Needles Post Office for the term beginning August 1, 1967, and ending July 31, 1987, with six five-year renewal options.  Title to the property was conveyed to interim owners and ultimately to Appellant on or about August 5, 1979.  (Stipulation paragraph (Stip.) 1).  Two of the five-year options have been exercised, thereby extending the lease term to July 31, 1997 (Appeal File Tab (AF) 8; Transcript Page (Tr.) 5).

            2.  Under the original lease provisions, the lessor [Appellant] was required to maintain the premises "in good repair and tenantable condition."  The lease also provided that the lessor was to paint the interior of the building at least every five years.  The lessee [Respondent] had the option of cancelling the lease if the building became unfit for use for the purposes leased and the lessor failed to put the building in satisfactory condition with reasonable diligence.  (AF 1).

            3.  In April 1981, the parties executed an amendment to the lease pursuant to Respondent's "Lease Amendment Program" in which Respondent, in return for a reduction in rentals, agreed to assume maintenance responsibilities (with certain exceptions, including roof repairs) and "to keep the demised premises in good repair and tenantable condition"  (Stip. 2).  The amendment further provided:

"The Postal Service's responsibilities as stated herein shall be fulfilled at such time and in such manner as the Postal Service considers necessary to keep the demised premises ... in proper condition."  (AF 6)

 

The lease amendment became effective on July 1, 1982, after Appellant corrected a number of then-existing maintenance deficiencies required as a condition precedent to Respondent's assumption of maintenance responsibility (Stip. 3, 4).

            4.  On May 24, 1985, Respondent contracted with Landex Construction and Development Company for certain maintenance and repair work on the premises, including painting of the interior and exterior of the building, rafter repair, replacement of ceiling drywall and tile, asphalt paving, roof replacement, and plaster repair (Stip. 5).  Respondent contracted with Sverdrup & Parcell and Associates, Inc. (Sverdrup), to perform construction surveillance services for the project.  On December 17, 1985, an inspection was held at the site.  As a result, a punchlist of work to be completed was developed.  The punchlist included three items related to painting:

"6.       Finish installing coping and painting.

                        ***

9.         Repaint exterior @ flashing.

                        ***

15.       Repaint downspout & drip edge...."  (Respondent's Exhibit (REx.) C, p. 37).

 

In a letter dated December 20, 1985, which included the punchlist, the Sverdrup representative stated that he intended to conduct a "final check off" of the punchlist items in January [1986].  The record contains no direct evidence of an inspection in January, but on January 23, 1986, Landex certified that all work had been completed and on March 21, 1986, the Sverdrup representative who had developed the punchlist certified that all work had been completed and recommended payment of the final amount due.  (REx. C, pp.18-20, 37).

            5.  In October 1987, Respondent contracted with Extra Builders, Inc., to upgrade the lobby area (Stip. 6).  Included in the work, among other items, was replacement of the existing ceiling and flooring material, installation of new walls, and installation of lighting fixtures.  In December 1987, Extra Builders, Inc. certified that the work was complete, Respondent's Design/Construction Management Representative recommended final payment, and the Contracting Officer approved payment.  (REx. D).

            6.  In October 1988, Respondent contracted with River Valley Air Conditioning for replacement of the HVAC system.  In January 1989, the Contracting Officer approved payment for the project.  (Stip. 7; REx. E).

            7.  In February 1990, Respondent's maintenance personnel removed and replaced eight light fixtures.  (REx. G).

            8.  In the Spring of 1991, Appellant made an unannounced visit to the Needles Post Office  to inspect the property[1].  At that time he was able to inspect the exterior of the building and enter the public portions of the interior but was not able to gain access to the work areas, although he could see into the work areas.  Appellant noted "water running down"[2] in the lobby and also concluded that the walls in the work area had not been painted in many years.  As to the exterior, Appellant saw paint peeling from the underside of the loading dock roof, stains on the rear wall and the side wall containing the loading dock, and graffiti (including words and a drawing) on the rear wall.  (Tr. 34-41, 65, 77; Appellant's Exhibits (AEx.) 14-18[3]).

            9.  In March 1991, Appellant contacted the Postal Service's Los Angeles Facilities Service Office, complained about the condition of the post office and specifically demanded that the building be painted (AEx. 9, 10).  Appellant was dissatisfied with the response from the Postal Service personnel, who he believed were ignoring his request (Tr. 33, 44).  On or about June 18, 1991, Appellant sent a letter to the Facilities Service Office.  Attached thereto was a second letter, addressed to this Board, which stated that it was an appeal "for termination of the lease on the Post Office building in Needles, California."  In the appeal letter, Appellant stated that the Postal Service had breached the terms of the lease by failing to paint the post office in the ten years since assuming maintenance responsibility.  Appellant also filed a copy of the appeal letter directly with the Board. (Stip. 8).

            10.  By final decision dated July 9, 1991, the Contracting Officer advised Appellant that his June 18, 1991, request for termination of the lease was denied.  The Contracting Officer stated that the building was being considered for painting and that a painting estimate had been obtained.  The Contracting Officer also noted the language in the lease regarding the Postal Service's right to determine the time and manner of performing maintenance.  In an August 7, 1991, letter to the Board,  Appellant specifically took issue with the July 9, 1991, contracting officer's decision.  (Stip. 9).

            11.  In July 1991, Respondent authorized an "unplanned project" to paint the exterior of the Needles Post Office.  The evidence submitted by Respondent included a document entitled "Statement of Justification" in which it is stated that "[t]his facility has been identified as not having been painted within the last 10 years."  However, the record does not contain evidence concerning the identity of the author of the document or the document's function in the process leading up to the contract to paint the post office, or the basis for the statement that the building had not been painted within the last ten years.  In September 1991, Respondent contracted with ABC Construction, Inc., to paint the exterior of the building.  Final payment for the work was also made in September 1991.  (AF 11-14; REx. F).

            12.  In December 1991, Respondent's maintenance personnel performed repairs on the swinging doors at the loading dock.  (REx. G).

            13.  On December 26, 1991, Kermit Erickson, a friend of Appellant's who was considering purchasing the post office from Appellant, visited Needles.  Mr. Erickson was the owner of four other post offices, all of which were considerably newer than the Needles post office.  During his visit, Mr. Erickson was able to examine the exterior and lobby areas of the post office, but was unable to inspect the work area, rest rooms, offices, or lookout gallery.  He concluded that the exterior seemed "in pretty good condition" and looked like it had been painted in the previous five years.  As to the interior, Mr. Erickson concluded that it looked rundown and in need of repair.  In particular, he noted scratches or scars on wood paneling in the lobby, water stains and damage on "quite a few" ceiling panels, and some water spots on the interior walls.  The interior paint, however, "looked fairly good" and also looked as though it had been painted in the last 4 or 5 years.  After his inspection Mr. Erickson decided that he no longer wished to purchase the post office from Appellant, primarily because of the condition of the building's interior.  (Tr. 10-24).

            14.  Sometime prior to May 15, 1992, a representative of State Farm Insurance, Appellant's insurance carrier, inspected the post office at Appellant's request.  In a letter dated May 15, 1992, the representative reported finding badly scratched areas around the mail boxes, ceiling damage from a leak in the roof, walls in need of cleaning and painting, and paint peeling from the canopy roof at the loading dock.  (AEx. 8).

            15.  Appellant again inspected the post office in June 1992.  While there, he saw scratches on the inside and numerous stains on the roof [ceiling], and concluded that the condition of the building was worse than it had been during his previous visit.  (Tr. 46-47, 66-67, 77).

            16.  In October 1992, Respondent arranged for inspection visits to the post office by an architect and a real estate appraiser.  The architect concluded that the overall condition of the property was "good to excellent" and that the building  showed no signs of structural deterioration, although he noted a number of interior items requiring repairs -- e.g., stained ceiling tiles, some missing or damaged floor tiles, and an area of efflorescence on one wall.  He estimated the approximate cost to perform the repairs at $1500 plus the cost of approximately two hours of work to repair scratches in the paneling near the post office boxes.  (REx. H; Tr. 143-152).

            17.  The appraiser rated the overall condition of the property as average to good, noting the presence of stained ceiling tiles and some missing or damaged floor tiles (Tr. 188).  Taking into account the Postal Service lease, he estimated the value of the property to be $120,000 (REx. I).

DECISION

            In this appeal, Appellant seeks termination of the lease between the parties, alleging that Respondent has breached the agreement by failing to maintain the premises in "good repair and tenantable condition" as required by the lease.  Appellant argues that, whatever the current condition of the Needles Post Office, at the time he filed his appeal with this Board in June 1991, Respondent had not met its obligation to "keep" the premises in good repair and tenantable condition.  As a result, Appellant argues that he is entitled to have the lease terminated, or in the alternative, that he should have the right to renegotiate the lease to insert provisions which more clearly spell out Respondent's maintenance obligations.

            Appellant argues that for considerable periods of time since Respondent took over maintenance responsibilities in 1982, the post office was not in the condition required by the lease and that, therefore, Respondent had not met its primary maintenance responsibility under the lease.  As evidence in support of this contention, Appellant cites his 1990 [1991 - see Fn. 1] visit during which he argues he found graffiti on the outside of the building, the building generally in need of painting (both inside and outside), and damage in the form of scrapes on the wall near the post office boxes.  Appellant also cites the December 1991 visit by Kermit Erickson, during which, Appellant argues, Mr. Erickson found the building in bad shape and in need of repairs and painting, and because of which Mr. Erickson decided not to purchase the building from Appellant.  Appellant also relies on the May 1992 letter from his insurance company, in which the insurance company representative reported the scratches around the post office boxes, ceiling damage from a roof leak, walls in need of cleaning and painting, and paint peeling from the loading dock canopy.  Finally, Appellant cites language in the "Statement of Justification," related to the September 1991 contract for exterior painting, stating that the building had been identified as not having been painted "within the last ten years" (Finding 11).

            Respondent argues that it has complied with its responsibility to keep the premises in good repair and tenantable condition.  Respondent also contends that even if it failed to comply with its maintenance obligations, under federal law Appellant would not be entitled to termination of the lease.  Further, Respondent argues that even if it failed to maintain the property as required by the lease, Appellant has not shown that it suffered monetary damage because of that failure.  Finally, Respondent argues that this Board lacks jurisdiction to consider a claim for monetary damage because Appellant has not filed such a claim with the Contracting Officer.

            In support of its argument that it complied with the maintenance provisions of the lease, Respondent notes the extensive work performed in 1985, including painting the exterior and interior of the building (Finding 4), remodeling the lobby in 1987 (Finding 5), installation of a new heating and air conditioning system in 1988 (Finding 6), and painting of the exterior done in 1991 (Finding 11), plus other miscellaneous repairs.  Respondent also relies on the testimony of Kermit Erickson, who stated that the exterior of the building was in "pretty good condition" and that the exterior paint "looked pretty good" when he visited in December 1991.

            As Appellant argues, under the amended lease, Respondent is obligated to "keep the demised premises in good repair and tenantable condition."  However, through the provision stating that the maintenance "responsibilities ... shall be fulfilled at such time and in such manner as the Postal Service considers necessary to keep the demised premises ... in proper condition," the lease gives Respondent considerable discretion in deciding how to meet its obligation.  That discretion must be reasonably exercised and may not be exercised in a manner which allows Respondent to avoid its basic responsibility.  N.J. Hastetter, PSBCA No. 3064, 92-3 BCA ¶ 25,189.  As the party seeking termination of the lease, Appellant has the burden of showing, by a preponderance of the evidence, that Respondent had failed to meet its maintenance obligations, and that termination of the lease is the appropriate remedy for such failure.

            In the Spring of 1991, when Appellant inspected the post office, there were stains and/or graffiti on two exterior walls, and the paint on the underside of the loading dock canopy was peeling in some areas.  The interior of the post office appeared to Appellant to be in need of painting and there was some evidence of water or, perhaps, water damage in the lobby (see Fn. 2)[4].  In December 1991, however, Mr. Erickson inspected the post office and found that the interior paint "looked fairly good" and that the interior appeared to have been painted in the past four or five years.

            Therefore, based on the evidence, we conclude that the one item of maintenance clearly in need of performance in the Spring of 1991 was exterior painting.  As indicated above, the evidence concerning the need for interior painting and the existence of water or water damage is inconclusive.

            Although Appellant contends that the post office had not been painted at all since Respondent took over maintenance in 1982, the record persuades us that both the interior and exterior were painted in 1985.  The contract with Landex Construction required, among other work, painting of the entire interior and exterior of the building (Finding 4).  The record shows that the work, including painting, was inspected by Respondent's representative in December 1985.  The punchlist created following the inspection noted the need to paint or repaint only minor areas - i.e., coping (install and paint), and flashing and downspouts (repaint).  From this we conclude that the remainder of the interior and exterior painting was complete and satisfactory at that time.  In March 1986, the same inspector certified that all work had been completed.  Although, as noted by Appellant, the record does not contain a Project Completion Report form for the Landex work, the absence of such a form, with nothing more, does not persuade us that the work was not completed as explicitly certified by the inspector.  In the face of this direct evidence that painting was done in 1985, we also give little weight to the otherwise unidentified "Statement of Justification" which, apparently in connection with the September 1991 contract to paint the exterior, stated that the building had not been painted in the previous ten years (Finding 11).

            Although exterior painting was needed as of the Spring of 1991, we are not persuaded that Respondent breached the lease requirement to keep the premises in good repair and tenantable condition, especially in view of the discretion granted Respondent under the lease language to determine the time and manner of performing maintenance actions.  It is not unreasonable under the lease provisions for Respondent to wait until the building is in need of painting before having it painted.  The entire building had been painted in 1985 and the evidence does not indicate that not having painted the building since then was unreasonable.  The record does not show that the stains and graffiti, which concerned Appellant, had been allowed to exist for an extended period of time as of the Spring of 1991.  In addition, the evidence does not show that the exterior painting was needed for other than cosmetic purposes -- i.e., the evidence does not show that the need for exterior painting had affected or was in imminent danger of affecting the structural integrity of the building, a matter which would properly be of great concern to Appellant.  Although this Board has recognized that failure to paint, even solely for cosmetic purposes, might constitute failure to keep premises in tenantable condition, see Edward R. and Lorraine Ester, et al., PSBCA No. 1559, 88-2 BCA ¶ 20,573 at p. 104,000, we do not conclude that the facts of this appeal evidence such a failure.  Therefore, we conclude that Appellant has not shown that Respondent failed to keep the premises in good repair and tenantable condition.

            The appeal is denied.

David I. Brochstein

Administrative Judge

Board Member

 

I concur:

James A. Cohen

Administrative Judge

Chairman

 

I concur:

James D. Finn, Jr.

Administrative Judge

Vice Chairman


[1]  There was conflicting testimony from Appellant as to whether his initial visit took place at the end of 1990 or in the Spring of 1991. A document written at a time close to the actual visit appears to indicate that the visit took place in the Spring of 1991, but resolution of this conflict is not necessary to a decision in this appeal.

[2]  Appellant did not elaborate on his statement that water was "running down" in the lobby, and the meaning of the statement is unclear.

[3]  The Board notes Appellant's testimony that the photographs which are Appellant's Exhibits 14-18 were taken in 1992, but reflected the condition of the exterior of the property when he saw it in the spring of 1991.  Since it is undisputed (see Appellant's brief, pp. 8, 13; Respondent's brief, p. 8) that the exterior of the building was painted after Appellant filed his appeal in June 1991, we conclude that the photographs in question were actually taken before that time, rather than in 1992.

[4]  Notwithstanding Appellant's argument to the contrary, the scratches on the paneling noted by Mr. Erickson in December 1991 (and which could be seen in the architect's photographs taken in 1992 (REx. G)) were not reported by Appellant in the Spring of 1991.  There is no evidence the scratches existed at that time.