November 7, 1994

Appeal of

WANNA M. MILLER

Under Lease Agreement

PSBCA No. 3314

 

APPEARANCE FOR APPELLANT:

Richard S. Ombres, Esq.

 

APPEARANCE FOR RESPONDENT:

Robert L. Sawicki, Esq.

 

OPINION OF THE BOARD

 

            In this appeal, the Board is to determine the term of the lease between Appellant, Wanna M. Miller, and Respondent, United States Postal Service, for the post office in Champion, Pennsylvania.  The Contracting Officer issued a final decision in which he concluded that the total term of the lease, including option periods, is twenty-five years and will expire on November 30, 1994.  Appellant contends the total term was twenty years and that, accordingly, the lease expired in 1989.  If the Board concludes that the lease expired on November 30, 1989, it is to determine a fair market rental value for the property between that date and the present.  Therefore, both entitlement and quantum are at issue.

FINDINGS OF FACT

Lease Term

            1.  On or about December 4, 1968, Respondent[1] issued an "Advertisement For Bids for Space" seeking approximately 864 square feet of enclosed space, with parking and a loading dock in the business area of Westmoreland County, Pennsylvania.  The advertisement required bidders to specify the rental "for a basic lease term of 5 years, with separate and consecutive renewal options as follows:  Four (4) Consecutive Five (5) year renewal options."  (Appeal File Tab (AF) 44).  Prior to issuing the advertisement, Respondent's personnel had filled out a POD Form 1457, entitled "Postal Facility Information - Regional" notifying the Assistant to the Regional Director of the intent to advertise for the space.  That form also indicated that the term of the lease was to be a five-year base term plus four five-year options.  (AF 45).

            2.  In response to the advertisement, Appellant and her husband, who was then the Champion, Pennsylvania, postmaster, proposed to build a post office on their property and to lease it to Respondent (Transcript page (Tr.) 9, 11).

            3.  By letter dated January 30, 1969, a Real Estate Officer from Respondent's Pittsburgh office forwarded a proposed rental agreement for signature by Appellant and her husband.  The letter stated, in part,

"Please note that there are no dates inserted in paragraph 2B.  This is covered under paragraph 5 in that the starting date shall be the first of the month following completion of the building and acceptance by the Post Office Department."

 

Paragraph 2B of the rental agreement read as follows:[2]

"Fixed Term.  To have and to hold said premises with their appurtenances for a term of sixty  (60) months beginning December 1, 1969 and ending November 30, 1974

***

(2)  This Agreement may be renewed, at the option of the Government providing that 30 days' written notice is given before the end of the fixed term, for the following separate and consecutive terms and at the following monthly rentals: Sixty (60) months at $183.33 per month plus (a), (b) and (c)."

 

 

The phrase "(a), (b) and (c)" referred to three typewritten entries in a table in the rental agreement, each of which provided for an additional 60-month option at a monthly rental of $183.33.

Paragraph 5 of the rental agreement read:

"This agreement to become effective on the first of the month following completion of the building and acceptance by the Post Office Dept.  Completion date to be 240 days from the date of acceptance...."

 

Appellant and her husband executed the agreement on January 31, 1969.  It was executed on behalf of the Government by the Acting Chief, Real Estate Branch on February 19, 1970.  (AF 41, 42).

            4.  The record contains a Post Office Department Form 1457 related to this property, dated March 7, 1969, and addressed to the Deputy Regional Director from the Director, Engineering & Facilities Division.  The boxes on that form were filled in to indicate a base term of five years and rental options consisting of three options of five years each.  (AF 39).

            5.  In a letter dated March 19, 1969, addressed to Appellant and her husband, the Chief, Real Estate Branch notified them that Respondent had accepted their "proposal of January 31, 1969."  The letter went on to recite some of the terms of the rental agreement related to the monthly rental charges, effective date, and utilities.  The letter further stated that, "The agreement is for a term of five years and includes three additional five year renewal options."  (emphasis added).  (AF 38).

            6.  In February 1974, approximately nine months before the end of the base term, Respondent's General Manager, Area Real Estate and Buildings office in Columbia, Maryland, issued a PS Form 7462, entitled "Exercise of Renewal Option" addressed to Appellant and her husband and purporting to exercise "the first of the four (4), five (5) year renewal options.  Three (3), five (5) year options remain."  (emphasis added).  This extended the lease term to November 30, 1979.  An internal document, "Lease or Rental Payment Authorization" (PS Form 125), issued at the same time, also noted that three option periods remained.  (AF 36, 37).

            7.  In February 1978, the Manager, Field Real Estate and Buildings Office sent a letter to Respondent's Pittsburgh office notifying that office of the leases that would be expiring during 1979.  Included in the list of post offices was Champion, Pennsylvania, which was listed as having two five-year options remaining.[3]  (AF 35).

            8.  In April 1978, Respondent exercised the second five-year option under the contract, extending the lease term to November 30, 1984.  The PS Form 7462 sent to Appellant and her husband stated that, "This is to exercise the second of four (4), five (5) year renewal options.  Two (2) five (5) year options remain"[4] (emphasis added).  An internal "Lease or Rental Payment Authorization" (PS Form 125) also noted that two option periods remained.  (AF 32, 33).

            9.  In February 1981, Appellant[5] filed an application in connection with Respondent's Lease Amendment Program, seeking an amendment covering maintenance, taxes, and utilities.[6]  (AF 29).  In October 1981 Respondent forwarded to Appellant a proposed lease amendment, asking that Appellant execute the amendment if it was acceptable.  The terms of the proposed amendment recited that there were two remaining options under the contract, the last of which would extend the lease to November 30, 1994.  (AF 26).  An attorney representing Appellant replied to Respondent's offer by proposing different terms, including "some provisions for future adjustments in the two remaining option periods ...."  (AF 25).[7]

            10.  In June 1983, Respondent exercised another option extending the lease term to November 30, 1989.  Information typed on both the PS Form 7462, "Exercise of Renewal Option," and the internal PS Form 125 stated that there remained no further options.  However, on the copy of the documents in the record that information was changed by hand to indicate that one more option period remained to be exercised.  (AF 16, 17).  The record contains no evidence explaining the circumstances of the handwritten changes to these documents.  However, the copy of the Form 7462 received by Appellant did not have the handwritten change (Tr. 27).

            11.  The record contains an internal Postal Service document issued in May 1989, advising Respondent's Pittsburgh Support Services Office that the lease on the Champion Post Office would expire on November 30, 1989, and requesting that a new lease be negotiated (AF 15).  The record also contains a "Real Estate Project Assignment Order," dated June 7, 1989, that indicated the assignment relative to the Champion Post Office had been changed from negotiating a new lease agreement to exercising a renewal option, because the lease showed one option still remaining (AF 14).  The record contains no further evidence concerning the circumstances under which these documents were issued.

            12.  Through an "Exercise of Renewal Option," Form 7462, on August 31, 1989, Respondent purported to exercise the fourth renewal option and extend the term of the lease to November 1994 (Appellant's Exhibit 2).  Appellant objected to the attempted exercise of the option and stated that she considered the lease to have a termination date of November 30, 1989.  By letter dated November 13, 1989, Appellant advised Respondent that if a new lease could not be negotiated, Respondent would have to vacate the premises by December 31, 1989, or be liable for rent in the amount of $500.00 per month thereafter.  In January 1990, Respondent answered, stating that its position remained that the lease originally contained four renewal options (and, therefore, would not expire until 1994).  (AF 8-11).

            13.  In January 1992, Appellant, through her current attorney, renewed her argument concerning the length of the lease term and demanded that the question be resolved.  After several exchanges of correspondence, the Contracting Officer issued a final decision determining that the lease contained four renewal options and Appellant filed a timely appeal.  (AF 2-5).

Fair Market Rental

            14.   A market rental study conducted by William B. Ragan, a Real Estate Appraiser and Broker from Pittsburgh, Pennsylvania, concluded that the fair market rental for the Champion Post Office as of October 1, 1993, would have been $12.50 per square foot (Appellant's Exhibit 1; Tr. 48-62).[8]  Mr. Ragan also concluded that the $12.50 amount would have been the fair market rental from 1989 to the time of his study (Tr. 59).  The data for the study were derived from examining leases and photographs of 17 post offices considered comparable to the Champion Post Office and in the same general part of Pennsylvania (Tr. 52).  Mr. Ragan placed the greatest weight on the rental being paid at the Melcroft, Pennsylvania Post Office, located about one mile from the Champion Post Office, which rental was $12.78 per square foot (Tr. 54).

            15.  An appraisal conducted by John Joseph Sullivan, a Real Estate Specialist employed by Respondent in Columbia, Maryland, who holds licenses as an Appraiser and Broker in the Commonwealth of Massachusetts, concluded that the fair market rental for the Champion Post Office as of April 1993 was $6.81 per square foot.  The appraisal was based primarily on an analysis of commercial properties in the Champion area, with adjustments made for such items as location, building quality, and parking.  Mr. Sullivan also calculated the average rental being paid on all Postal facilities in the Champion and adjacent areas of Pennsylvania, with leases negotiated between January 1992 and April 1993 and with a size within 20 percent of the size of the Champion Post Office.  The average rental rate of those facilities was $6.76 per square foot.  (Respondent's Exhibit 1; Tr. 105-114).

DECISION

Lease Term

            Appellant argues that the lease term she understood was agreed to between the parties was five years with three five-year options, for a total of twenty years.  Appellant contends that the rental agreement she and her husband executed and forwarded to the Postal Service for signature did not state a term or contain dates, and that the rental agreement form, when completed and executed by the Postal Service, did not reflect the understanding of the parties, but contained, instead, a twenty-five year term.  Appellant relies primarily on information in the March 19, 1969, letter informing her and her husband that their proposal had been accepted and in the March 7, 1969, Postal Facility Information form, both of which recite that the lease term contained only three five-year renewal periods (Findings 4 & 5).

            Appellant also relies on the deposition testimony of Joseph Ferace, the postmaster of Greensburg, Pennsylvania, who had administrative charge of the Champion Post Office, and argues that Mr. Ferace agreed that the lease term was twenty years.

            Respondent argues that under the parol evidence rule, "oral or extraneous written evidence" is not permitted to contradict the unambiguous language of a written contract.  Respondent further argues that the weight of the evidence regarding formation of the contract supports the conclusion that the parties intended to enter into a lease with four option periods.

            Having considered the record in this appeal, we conclude that the parties intended to enter into a lease containing four renewal options and that, therefore, the lease term extends to November 30, 1994.

            The advertisement seeking bids for space, to which Appellant and her husband responded, unambiguously requested bids on a lease with four renewal options and a potential term of twenty-five years.  Further, the internal document prepared by Respondent before the advertisement was issued confirms that Respondent intended to seek a lease with that term.

            On January 30, 1969, Respondent forwarded a proposed rental agreement to Appellant and her husband for their signatures.  The transmittal letter noted that there were no "dates" inserted in "Block 2B" but that, as "covered under paragraph 5" of the agreement, the starting date would be the first day of the month following completion of the building and acceptance by the Post Office Department.  At the hearing, Appellant could not recall what portions of Block 2B were blank when she signed the agreement.  In the absence of any evidence to the contrary from participants in the negotiations, based on the transmittal letter we have concluded that the only information that was blank when Appellant and her husband executed the agreement were the actual starting and ending dates of the base term.  Therefore, we conclude that the portions of Block 2B that specified the four renewal options were in the rental agreement when it was executed by Appellant and her husband.  This was consistent with the desired lease term contained in the advertisement to which Appellant and her husband had responded.  Appellant's general testimony that it was her understanding that the lease term was to be twenty years was unsupported by any specific testimony regarding the negotiations between the parties that might have led to a change in the lease term sought by the advertisement, and does not overcome the evidence contained in the documents explained above.

            Contrary to Appellant's argument, she did not testify that the term of the lease was missing from Block 2B when she executed the agreement.  Rather, as noted above, she had no specific recollection concerning what parts of Block 2B were blank.[9]  Further, contrary to Appellant's argument, the Greensburg Postmaster did not testify that the term of the Champion lease was twenty years.  Instead, he stated he had no specific knowledge of that lease.[10]

            We acknowledge that the record contains documents, including the acceptance letter from Respondent, that are inconsistent with a twenty-five year term for the lease.  However, as explained above, we are giving most weight to those documents closest in time to the actual negotiations between the parties.  We conclude that Respondent has shown by a preponderance of the evidence that the lease executed by the parties had a potential term of twenty-five years, that Respondent has exercised all four options under the lease, and that the lease will not expire until November 30, 1994.

            Based on this conclusion, we need not decide the issue of the fair market rental of the property.

            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]  Respondent was then the Post Office Department.  Pursuant to the Postal Reorganization Act, P.L. 91-375, 84 Stat. 719 (1970), all the functions, powers, and duties of the Post Office Department were transferred to the United States Postal Service and the Post Office Department was abolished.

[2]  With the exception of the words "Fixed Term," the text shown as underscored represents text that was inserted with a typewriter (but was not underscored in the original document).  The remainder of the text was in the  preprinted form.  The copy of the rental agreement in the record contains the beginning and ending dates (December 1, 1969, and November 30, 1974, respectively) of the base term of the lease.  However, from the text of the January 30, 1969, letter (AF 42) stating that dates initially had been omitted from Block 2B, we conclude that the rental agreement sent to Appellant and her husband did not contain the beginning and ending dates when they executed it.  In the absence of evidence to the contrary, we conclude that except for those dates, the balance of the text was as shown.

[3]  Two five-year options beginning with the renewal in 1979 would, if exercised, extend the lease term through 1989, for a total lease term of twenty years.

[4]  The stated number of options would, if exercised, extend the lease term through 1994, for a total of twenty-five years.

[5]  In July 1978 Appellant became the sole owner of the property following the death of her husband (Tr. 24; AF 29, 31).

[6]  The Lease Amendment Program was a program adopted by Respondent in 1980 through which certain Postal Service lessors were offered amendments to their leases under which the Postal Service would take over responsibility for maintenance and/or property taxes and/or utilities in return for reduced rent and an option to purchase the property at fair market value.  See M.R. Kaplan, et al., PSBCA Nos. 1147, 1298, 1303, 1310, 88-2 BCA ¶ 20,827 at p. 105,285-86.

[7]    Ultimately, the parties were unable to agree on the terms of an amendment and Appellant, through her attorney, declined to participate in the program.  (AF 19-24).

[8]    The monthly rental of $183.33 stated in Appellant's lease was the equivalent of an annual rental of $2.55 per square foot -- i.e., $183.33 per month times 12 months divided by 864 square feet.

[9]   See Tr. 42-43

[10]  See Ferace deposition, p.16