July 20, 1995
Appeal of
REAL PROPERTIES MLP
LIMITED PARTNERSHIP
Under Lease Agreement
PSBCA No. 3453
APPEARANCE FOR APPELLANT:
Charles S. Bronitsky, Esq.
APPEARANCE FOR RESPONDENT:
Karren M. Dickson, Esq.
OPINION OF THE BOARD
Real Properties MLP, Limited Partnership, Appellant, is the lessor, and the United States Postal Service, Respondent, is the lessee under two leases covering a building used as a postal station in Baltimore, Maryland. In 1987 for one of the leases and in 1988 for the other, Respondent began withholding the entire rent to cover the anticipated cost of repairs to the building that Respondent considered to be the lessor's obligation. Respondent replaced the roof in 1988 and performed substantial rehabilitation of the building in 1992. It applied rents previously withheld to the cost of the work. Respondent continues to withhold the full rent.
Appellant acquired the building in 1989 and subsequently asserted a claim for reimbursement of most of the withheld rent. Appellant admits the lessor was responsible for replacement of the roof. However, Appellant contends that 1982 amendments to the leases shifted responsibility for repairs to the building, other than roof and structural repairs, to Respondent, and that Appellant, therefore, is not liable for the cost of the repairs to the building done in 1992. Appellant seeks payment of the excess of the withheld rents over what it contends is the reasonable cost of the roof replacement. The contracting officer denied Appellant's claim, and Appellant filed this appeal.
We conclude that responsibility for non-structural maintenance has not shifted to Respondent and that deductions from rent were proper to pay for repairs performed by Respondent that were the lessor's responsibility. However, Respondent has also withheld and intends to continue withholding rent to recover the cost of additional work that was not the lessor's responsibility under the lease, and Appellant is entitled to recover those excess withholdings.
A hearing was held, and both parties have submitted briefs and reply briefs. The following findings of fact are based on the record of the hearing, documents received in evidence and a stipulation of the parties. Both entitlement and quantum are to be decided.
FINDINGS OF FACT
1. On December 27, 1968, Respondent entered into two leases covering a two-level building located in Baltimore, Maryland, for use as Respondent's Highlandtown Station. One lease (the "Station Lease") covered the upper floor and the other (the "Storage Lease") covered the lower level of the building. Each lease was for a twenty-year term expiring November 30, 1988, followed by four, five-year options available to Respondent. (Appeal File Tabs ("AF") 2, 4; Stipulation dated October 14, 1994, paragraphs ("Stip.") 1, 3, 4, 11, 13, 14).
2. The rent for the Station Lease was $36,000 per annum for the initial term and $30,000 per annum for each of the option periods (AF 2; Stip. 1, 4). The rent for the Storage Lease was $11,880 per annum for the initial and option periods (AF 4; Stip. 14).
3. The maintenance clause, paragraph 7, of each lease provided, in part:
"The lessor shall, unless herein specified to the contrary, maintain the demised premises, including the building and any and all equipment, fixtures, and appurtenances, whether severable or non-severable, furnished by the lessor under this lease in good repair and tenantable condition, except in case of damage arising from the act or the negligence of the Government's agents or employees. During the continuance of the lease, the interior of the building, including, but not limited to, the walls and ceilings, shall be repainted at least once every five (5) years unless required more often because of damage from fire or other casualty, or unless the five year period is specifically extended in writing by the Contracting Officer. . . ." (AF 2, 4).
4. Although the leases did not contain language specifically affording Respondent the right to perform at the lessor’s expense repairs that were the lessor’s responsibility, each lease provided that before Respondent could incur a cost reimbursable under the lease for the lessor's failure to perform its maintenance obligations, Respondent was required to give notice and an opportunity to perform the repair to the mortgagee and assignee of moneys due under the lease, provided the lessor had provided Respondent with the name and address of same (AF 2, 4, paragraph 10; Stip. 2, 12).
5. Respondent has exercised the first two options under each lease at the rentals stated in the lease. The leases currently extend to November 30, 1998. (AF 2A, 2B, 4A, 4C; Stip. 5, 6, 15, 16).
6. On July 23, 1982, Respondent and the then-lessor, Grayling, Ltd.,[1] entered into amendments to the two leases that would, provided stated conditions were met, transfer to Respondent the duty to keep the demised premises in good repair and tenantable condition, except for certain repairs, including the roof and other structural repairs, which would remain the responsibility of the lessor (AF 2C, 4C; Stip. 9, 19).
7. Paragraph 2 of the Station Lease Amendment provided, "The lessor agrees as a condition precedent to the Postal Service's assumption of obligation to pay for maintenance . . . as provided for in this amendment, to perform the following required maintenance items at the lessor's sole cost and expense: See Exhibit B, Attached." The attached Exhibit B listed 12 items of deferred maintenance:[2]
"1. Repair paved areas in both driveways, parking and maneuvering areas.
2. Repair/replace existing fence.
3. Repair inoperable lights on platform and as needed in other areas.
4. Repair mortar joints on exterior walls, waterproof east and south side walls.
5. Seal surface cracks on platform and apply a non-skid finish.
6. Repair/replace platform bumper.
7. Paint building exterior after correcting above Item #4.
8. Repair existing roof blisters, open seams of roof material on parapet walls, cracks in coping and loose and unsealed flashing.
9. Replace water damaged ceiling tiles.
10. Anchor loose threshold plates and door stop for mailing vestibule.
11. Repair water leak from air handler piping.
12. Replace all interior light ballasts as required." (AF 2C).
8. Paragraph 2 of the Storage Lease Amendment was identical in substance to paragraph 2 of the Station Lease Amendment, and the Exhibit B attached to the Storage Lease Amendment contained 9 items of deferred maintenance:
"1. Waterproof interior walls.
2. Replace missing suspended ceiling panels.
3. Repair interior water damage at head of steps.
4. Paint interior of building.
5. Replace deteriorated door, frame and locks.
6. Replace/repair broken fixtures and leaking piping in toilets.
7. Repair water leak from air handler piping.
8. Investigate and correct evidence of faulty wiring.
9. Replace/repair inoperable interior lights." (AF 4C; Stip. 19).
9. Paragraph 12 of both Lease Amendments provided, "The Postal Service's assumption of obligations to pay for maintenance . . . under this amendment shall be effective on the first day of the month following completion by the lessor and acceptance by the Postal Service" of the required work listed on Exhibit B (AF 2C, 4C; Stip. 21).
10. Both Lease Amendments provided that as consideration for Respondent's assumption of responsibility for non-structural maintenance, the lessor agreed to a reduction of the rent during the remaining term and the option terms. However, a subsequent amendment to each Lease Amendment (the "Supplemental Amendments") provided that Respondent would perform under the Lease Amendment and would, in lieu of reducing the rent it paid as provided in the Lease Amendments, accept monthly payments by the lessor of $209 during the remaining term and $174 during the option periods (the "rent rebates"). The agreement provided that the rent rebates would "begin at the end of the month in which the Postal Service accepts the responsibilities provided in the attached Lease Amendment, and will become due on the last day of each succeeding month of the lease term and all option periods." (AF 2C; 4C; Stip. 9, 10, 19, 20).
11. No rent rebate payments have been made to Respondent under either of the Supplemental Amendments (Transcript of Hearing ("Tr.") 27-30, 169; Appellant's Exhibit ("AX") 19).
12. On October 1, 1982, Grayling advised the contracting officer that all of the Exhibit B deferred maintenance items for the Station Lease Amendment had been completed. While recognizing that there was a dispute regarding completion of the Storage Lease work, Grayling asked that the Station Lease be entered into the Lease Amendment Program.[3] (AX 15; Stip. 23).
13. By letter dated January 19, 1983, Respondent provided Grayling a "list of maintenance items at Highlandtown Station, Baltimore, Maryland relative to the Lease Amendment Program." Among the 15 items listed were, in slightly different form, the following items from the Exhibit B for the Station Lease Amendment: 2, repair damaged fence and gate (item 15 on the new list), 4, repair mortar joints, waterproof east and south side walls, paint exterior basement cinderblock wall (item 8 on the new list) and 5, seal surface cracks on mailing platform (item 9 on the new list). None of the deferred maintenance from the Storage Lease Amendment Exhibit B appeared on the January 19 list. (AX 16).
14. In a January 28, 1983 letter, Grayling objected to a number of the items on Respondent's January 19 list, including repairing the fence and gate, which Grayling contended were damaged by Respondent’s vehicles. Respondent, on March 3, 1983, deleted the requirement to repair the fence and gate but pointed out that Grayling was still required to waterproof at least part of the east and south walls and repair cracks in the surface of the mailing platform. (AX 17, 18; Stip. 24).
15. On May 9, 1984, Respondent advised Grayling that the Highlandtown Station (without differentiation between the Station and Storage Leases) had not been accepted into the Lease Amendment Program because all of the required deferred maintenance had not been completed. The letter acknowledged that some of the maintenance items identified as part of the Lease Amendment Program had been completed, but stated that the cracks on the mailing platform had not been sealed, that the roof continued to leak and that water-stained and damaged ceiling tiles remained. (AF 7; Stip. 25).
16. On July 9, 1985, the contracting officer issued what is known as an estoppel letter to Citicorp Industrial Credit, Inc., in which he referred to the Highlandtown Station (without regard to the portion of the building or whether both of the leases were addressed) and stated, "To our best knowledge, there are no present defaults under our lease." (AF 9; Stip. 28).
17. On the following dates, the contracting officer also issued estoppel letters in which Respondent, as the lessee under the Station and Storage Leases, made representations to third parties about the status of the leases: February 15, 1985 (limited to Storage Lease)(AF 8; Stip. 27), September 16, 1985 (limited to Station Lease)(AF 10) and July 30, 1986 (AF 11; Stip. 29). On February 8, 1988, a similar letter, limited to the Storage Lease, was sent to Grayling (AF 18; Stip. 35). In each letter, Respondent represented that, as of the date of the letter, there were no offsets, credits or claims against the rents and that there were no unperformed obligations on the part of the lessor. The letter of February 15, 1985, also represented, "That the lease dated, for referenced facility, December 27, 1968, is in full force and effect. It has been modified by the Lease Amendment Program effective February 12, 1982." The estoppel letter of July 30, 1986, contained the same representation except the effective date of the modification was stated to be July 23, 1982. None of these estoppel letters were issued to Appellant.
18. On June 4, 1987, Respondent notified Grayling that there were significant maintenance deficiencies at the Highlandtown Station (Station and Storage) that required the lessor's attention. Grayling was asked to attend a joint inspection of the premises. (AF 12; Stip. 30). The maintenance deficiencies were addressed generally and the invitation to a joint inspection was repeated in letters of June 17 (AF 13) and July 10, 1987 (AF 14) from Respondent to Grayling. By letter dated October 20, 1987, Respondent advised Grayling that Respondent would arrange for the work to be done and would deduct the cost, including administrative costs, from future rents (AF 15; Stip. 31). None of the letters identified specific required maintenance items (Tr. 59-61).
19. Respondent suspended rents under the Station Lease effective November 1, 1987, and rents under the Storage Lease effective June 1, 1988, to accrue funds to pay for the repairs needed to the Highlandtown Station (AF 16, 23, 45A; Stip. 32, 40).
20. By letter dated November 16, 1987, Respondent provided Grayling a list of repairs and maintenance needed at Highlandtown Station. The list included replacement of the roof, replacement of water damaged ceiling tiles, replacement of the dock bumper, repointing crumbling mortar joints, waterproofing the east and south walls and repair of deteriorating concrete and asphalt in parking and maneuvering areas. Respondent also advised that the rents had been suspended effective November 1, 1987. (AF 16).
21. In early 1988, there was an exchange of correspondence between Respondent and Grayling regarding the needed repairs and maintenance at Highlandtown Station. On February 18, 1988, Grayling requested a copy of the local Yellow Pages and names of any repair companies used by Respondent in order to solicit bids for the repairs needed at the facility. By letter dated April 20, 1988, Respondent again advised Grayling that Respondent was arranging to have the work performed and that the cost, including administrative costs, would be deducted from future rent. Among the repair and maintenance items listed were the need to waterproof the exterior walls, inoperative lights and the need to replace ceiling tracks and tile where missing. A letter of May 9, 1988, was to the same effect. (AF 19-23; Stip. 36-39).
22. In June or July, 1988, Respondent issued a work order under an existing indefinite quantity construction contract ("IQC") for the replacement of the roof at the Highlandtown Station and so advised Grayling on July 8, 1988. The indefinite quantity contract was used because Respondent wanted to complete the work quickly, this contractor, obtained originally through competition, had provided reasonable prices on past projects, was experienced in this kind of work and was known by Respondent to do professional work and provide sound management of projects (Tr. 133-134, 149-150, 153-156; AF 24).
23. The roof replacement work was performed over the next few months by a subcontractor to the IQC contractor, and Respondent paid the contractor $92,716. (AF 24, 25, 26; AX 30-34; Stip. 42, 43).
24. During the course of the work, the need for additional repairs was discovered and, under an additional work order, the IQC contractor performed emergency repairs to the deck canopy and rear deck at the air conditioning units, for which Respondent paid $2,418 (AF 27; AX 32, 35; Stip. 55). Under another work order the contractor repaired the canopy, installed fascia on the main roof and reroofed the small back canopy for $5,878 (Tr. 100-101; AF 28; AX 33, 37; Stip. 57), bringing the total roof construction costs to $101,012. The work was completed in late 1988. The costs for the roof work were reasonable and in line with Respondent's architect's estimate for the work (Tr. 101-102, 153-156). Appellant conceded liability for replacement of the roof, repairs to the canopy and rear steel deck and for repair and reroofing of the back canopy, but maintained that the reasonable cost therefor was $90,008.24 (AF 33; Stip. 44).
25. Respondent also paid for work performed by a contract architect in the amounts of $716 and $358 for site visits to inspect the roof and prepare a roof report before the roof repairs began, $3,636 for administration of the roof replacement contract and $1,252 for preparation of as-built drawings after the roof replacement (Tr. 88-89, 126-127; 141; AF 27; AX 36, 45; Stip. 54, 56).
26. Except for the addition of the hatchway and ladder, Respondent considered all of the expenses (roof construction as well as architectural fees) associated with the roof replacement, a total of $106,974, to be the lessor's responsibility and offset them against the rent (AF 45 B-H, O, S; AX 37, 45).
27. Appellant acquired the Highlandtown Station in December, 1989 (Tr. 163; AF 39), and, by letter dated January 1, 1990, advised Respondent of its ownership (Tr. 66-67, 164-165; AF 29). The letter included a Power of Attorney to Receive Rents authorizing RRP Management Corp., Appellant's managing agent, to receive rents on Appellant's behalf (Tr. 160; Stip. 45). As part of the acquisition Appellant had access to Grayling’s records relating to the two leases for the facility (Tr. 164, 168-170, 174-175). There is no evidence Appellant ever advised Respondent of the existence of a mortgagee or assignee of rents.
28. From March 21, 1990, through August 5, 1991, Respondent worked with its contract architect to develop a list of repairs and associated work required at the Highlandtown Station. An architect was used because of the scope and complexity of the corrective work necessary (Tr. 126-127). The architect also prepared a construction cost estimate for the repairs. (Tr. 96-98; AX 41; Respondent's Exhibit ("RX") 5; Stip. 47).
29. In 1990 and 1991, there existed extensive, serious and obvious water damage to the interior of the Highlandtown Station building, including the basement, that resulted from prior leakage of the roof and moisture penetration through the walls because their waterproofing had not been maintained. Many ceiling tiles were stained and damaged, especially around the perimeter of the building where the leakage had been the worst. There were water stains on the walls, and the floors in the lunch room and locker room areas were seriously damaged from previous water leakage. The walls around the rear windows were deteriorated and rotting, allowing water to enter the building, and the windows themselves were heavily rusted and inoperable. Many of the lights throughout both levels of the building were not working. (Tr. 89-96, 107-108, 113-118, 120-121, 125, 145-146; AX 23, 41; RX 2, 4, 6).
30. Repairs to the exterior of the building and premises were also needed. An exterior side wall had open joints and missing mortar resulting from water penetration followed by freezing and thawing. The Eastern Avenue sidewalk had heaved and broken and was a trip hazard. An underground drain was clogged, causing water to pond to 6-8 inches in depth by the front entrance after rain. The underside (soffit) of the front canopy was damaged from roof leaks. The metal panels at the dock and below the storefront at the front of the building had deteriorated and were separating from the building. The platform bumper was severely deteriorated. The parking lots were deteriorated and cracked and contained potholes. The fence in the areas of employee parking and around the dock used by Postal Service vehicles was rusted, and many fence posts and bollards near the dock and maneuvering areas were bent. There was substantial unwanted vegetation growing along the rear of the building and debris and trash around the premises. (Tr. 89-96, 108, 125, 130-131; AX 23, 41; RX 2, 4, 6).
31. At some time before 1991, Respondent had replaced the door to the Storage area, which had deteriorated to such a condition that it was unusable (Tr. 94; RX 2, photograph 15).
32. On May 21, 1990, the contracting officer sent Appellant an estoppel letter in which he represented that the lease had been modified by the Lease Amendment Program effective July 23, 1982, and that there were "major maintenance obligations on the part of the lessor which have necessitated the rental being placed in suspension since November 1, 1987." (Tr. 67-68; AF 30; Stip. 46).
33. In December, 1991, Respondent arranged for emergency repairs to the water main serving the Highlandtown Station at a cost of $7,790. By letter of January 22, 1992, Appellant was advised that that amount would be deducted from its rents. (AF 45 P; AX 46; Stip. 61). There is no evidence of any contemporaneous complaint from Appellant regarding its liability for this repair.
34. In an August 31, 1991 letter, Respondent advised Appellant's managing agent that deductions from rent in excess of $126,000 had been made for earlier performance of maintenance work that was the lessor's responsibility. The letter included copies of Respondent's November 16, 1987 and May 9, 1988 letters to Grayling (Findings 20 and 21). In those letters, Respondent had conveyed a lengthy list of needed repairs that went far beyond roof-related repairs. The letters notified the lessor that the rent was suspended and advised that Respondent was proceeding to have all maintenance performed and would reimburse itself from the suspended rent payments for the cost of the repairs, including administrative costs. (AF 16, 23, 31).
35. In 1991, Respondent solicited offers for performance of substantial rehabilitation of the Highlandtown Station premises. The scope of work for the solicitation was based on the list of repairs prepared by the architect in consultation with Respondent's employees (Tr. 102; RX 4). The solicitation itself and the contract incorporated the architect's drawings depicting the scope of work, but those drawings were not included in the record (Tr. 102). The architect also prepared a construction estimate in which he itemized the work to be done and assigned an estimated value to each item (AX 41; RX 5).
36. The architect's list of the work needed at the facility and the estimated cost included the following items: exterior painting, $8,094; replace sealed joints, $1,183; remove debris and vegetation around the grounds, $1,500; repair fence posts and replace fence fabric, $27,935; repair, replace and paint bollards near the parking lots, $3,459; replace bent bollards at fuel pad, $500; paint curb, $200; refurbish existing soffit lighting, $4,200; remove abandoned chiller pipe, $4,300; install signage, $1,647; install new fuel oil pipe, $900; demolish existing and install new suspended ceiling, $38,270; demolish existing and install new lighting and wiring, $27,858 (upper level) and $9,548 (lower level); clean and deodorize lookout gallery, $400; service exhaust fans, $1,490; service air handling units, $16,025; install new intake louver, $2,622; install new cover on electrical panel, $100; anchor shelves and lockers, $2,250. The estimate total was $263,785 (Tr. 137-138, 151; AX 41). All of the above figures are exclusive of overhead and profit. (RX 1, 4, 5).
37. On December 4, 1991, Respondent entered into a contract with the lowest of 18 offerors for performance of the work at Highlandtown Station at a price of $231,000 (RX 1; Stip. 50). Respondent actually paid $216,000 for the completed work (Tr. 140; AX 59; Stip. 62-68).
38. Before soliciting bids for the work and awarding the contract, Respondent did not advise Appellant directly that it was taking steps to have the repair work performed by a third party contractor, and it did not offer Appellant an opportunity to perform the repairs (Stip. 49).
39. As part of the project, Respondent replaced the entire ceiling grid system and all the ceiling tiles, concluding that full replacement would probably be just as economical as replacing only the damaged tiles and grid and that replacement of only part of the tiles would result in an aesthetically unsatisfactory mixing of old and new tiles. There is no evidence of estimates or other cost comparisons to support Respondent's view that total replacement would cost about the same as partial replacement, and the photographs show, at least in the center area of the workroom, that the number of stained and damaged tiles was only in the 10-20% range. (Tr. 107-108, 113-114, 118, 120-121, 186-187; AX 52 p. 16; RX 2).
40. Appellant’s expert estimated the cost to replace only the damaged tiles and track to be $14,529, and the reasonable cost to replace the entire ceiling to be $26,789 (Tr. 194; AX 66). His testimony regarding the cost to replace only the damaged tiles was based mainly on the photographs and reports as he did not visit the site until after completion of the 1992 repair work, and the photographs did not represent the worst sections of the ceiling around the perimeter of the building (Tr. 187, 192).
41. Respondent replaced the surface mounted lighting system, which contained a large number of lights that did not work, with a recessed lighting system, at a cost estimated by the architect to be $27,858 (Station) and $9,548 (Storage) (RX 5). Respondent asserted, but did not offer corroborating evidence, that total replacement of the system was as economical as replacing in kind or repairing only the lights that were not working (Tr. 113, 121, 188; AX 52, p. 16). Appellant's expert calculated the reasonable cost to repair and relamp the lighting fixtures in two thirds of the space, which he judged to be the likely maximum work needed to make the lighting operational, to be $10,000 (Tr. 189-191).
42. In a 1988 analysis of the repairs and maintenance required at the facility, Respondent acknowledged responsibility for cleaning the grounds, cleaning air vents, replacing the cover from the electrical panel, and anchoring shelving and lockers (RX 6).
43. Respondent paid its contract architect a total of $56,658 for preparation of as-built drawings and the subsequent design of the repair work (AX 45; Stip. 58-60). Included in the architect's $19,631 fee to prepare the as-built drawings was much more than just preparing the drawings themselves. Much of the work under this category involved taking measurements and confirming existing conditions. Plans of the building were not available and, in part due to the deteriorated conditions, creation of the as-built drawings first was necessary to establish a base or point of reference for the construction estimate and to develop the precise scope of work and construction specifications and plans. (Tr. 102-105, 112-113, 135-137, 140; contra Tr. 182-183).
44. By letter dated September 8, 1992, Appellant advised Respondent of its disagreement with Respondent's continued withholding of rent. It pointed out, apparently for the first time, that it believed that the Highlandtown Station was in the Lease Amendment Program and that Appellant was, therefore, not liable for any repairs except those to the roof and structure as provided in the Lease Amendments. (AF 33).
45. Respondent replied on October 26, 1992, stating that the lessor had never completed the Exhibit B work, that the rent had not been reduced, and that the facility was not in the Lease Amendment Program. The letter noted that the representations in the estoppel letters to the effect that the lease had been modified by the Lease Amendment Program were erroneous. (AF 34).
46. On December 22, 1992, Appellant filed a certified claim seeking resumption of lease payments, reimbursement of all rent previously withheld that exceeded the reasonable cost of replacing the roof and Respondent's acknowledgment that the facility was in the Lease Amendment Program (AF 5).
47. The contracting officer denied the claim in a final decision of February 2, 1992 (AF 6), and this appeal followed.
DECISION
Appellant argues that pursuant to the 1982 Lease Amendments, Respondent assumed liability for all repairs to Highlandtown Station except for roof and structural repairs. It contends, therefore, that while its predecessor was liable under the leases, as amended, for replacement of the roof, Appellant is liable for none of the repairs performed in 1992 because they were not roof or structural repairs. It argues that the representations Respondent made in letters from 1985 through 1990 that the leases had been modified by the Lease Amendment Program and that there were no unperformed obligations of the lessor outstanding estop Respondent to deny that the shift in maintenance responsibility contemplated by the Lease Amendments occurred. As a fall-back position, Appellant argues that even if the maintenance obligations as established under the leases governed, it is not liable for the cost of performing the 1992 work because it was not given notice of the deficiencies and an opportunity to perform the work itself. Further, it argues that certain of the work performed in 1992 constituted improvements or was to repair damage caused by Respondent’s employees, and that Appellant would not be responsible under the leases for such work.
Respondent argues that the maintenance responsibility never shifted because, although the parties executed the Lease Amendments, Appellant’s predecessor never performed the repairs that were conditions precedent to Respondent’s acceptance of maintenance responsibility or began the rent rebate payments contemplated by the Lease Amendments. Respondent contends the notice given to Appellant’s predecessor regarding the need for repairs and Respondent’s intention to perform them at the lessor’s expense satisfied its duty under the lease. Respondent argues that all of the costs it incurred in repairing the building were necessary and reasonable, and were the lessor’s responsibility.
I. Respondent Did Not Assume Responsibility for Non-Structural Maintenance at Highlandtown Station.
A. The Deferred Maintenance Listed on the Lease Amendment Exhibit Bs Was Not Completed by the Lessor.
The evidence in the record demonstrates that neither lessor (Grayling or Appellant) ever completed the deferred maintenance identified on the Exhibit Bs to the Lease Amendments. Although treatment of the conditions in the correspondence was somewhat inconsistent (not every unfinished repair was listed in each of Respondent's letters regarding the need for repairs and maintenance at the facility), the record establishes that not all of the Exhibit B work (Findings 7, 8) was completed by the lessors (Grayling and Appellant). From the testimony at the hearing of Respondent’s architect and construction manager regarding the conditions they observed and the photographs of the conditions existing before the repair project of 1992 (Findings 29-31), it is evident that conditions listed on the Exhibit Bs still existed in 1988 and thereafter. Review of the communications between the parties (Findings 12-15, 20, 21), the scope of the work performed under the roof replacement contract (Findings 22, 24) and the list of deficiencies identified by the architect in preparation for the 1992 rehabilitation (Finding 36) also reveals that deferred maintenance from the Exhibit Bs remained unperformed.
While the record does not establish exactly what work was performed by the building’s owner before 1992, it is clear that the lessors never replaced the damaged ceiling tiles or stopped serious water penetrations into the facility. They never repointed and waterproofed the south and east walls, replaced the platform bumper, replaced the deteriorated door or repaired the parking and maneuvering areas, all items listed on the Exhibit Bs. (Findings 7, 8, 13-15, 20, 21, 29-31, 36). The door was replaced by Respondent earlier (Finding 31), but the other items were not corrected until the 1992 repair project. Therefore, neither Appellant’s predecessor nor Appellant ever satisfied the condition stated in the Lease Amendments (Findings 6-9) as precedent to Respondent's assumption of non-structural maintenance responsibility, correction of all of the Exhibit B conditions. See Kaplan, 88-3 BCA ¶ 20,827 at 105,317.
B. The Conduct of the Parties Was Consistent with an Understanding That Maintenance Responsibilities Had Not Shifted.
Neither party to the lease acted as if Respondent had become liable for performance of non-structural maintenance. Respondent made it clear in its correspondence that the lessor was still responsible for all maintenance at the facility. In the exchange of correspondence in 1987, Grayling did not raise the Lease Amendments as a basis for challenging its responsibility to perform repairs and maintenance even though the repairs being demanded by Respondent would not have been the lessor's responsibility if the maintenance provisions of the Lease Amendments were in effect (Findings 13-15, 20, 21). Instead, Grayling requested Respondent's help in identifying contractors it could contact to perform the work (Finding 21). Grayling never began making the rent rebate payments called for by the Supplemental Amendments in the event Respondent assumed non-structural maintenance responsibility (Findings 10, 11).
In January 1992 when Respondent notified Appellant that Respondent had performed an emergency repair to the water main and that the repair cost would be deducted from rent (Finding 33), Appellant did not complain that it was not obliged under the leases, as amended, for the cost of the repair, which would have been Respondent’s responsibility had the maintenance provisions of the Lease Amendments been in effect. In fact, it was not until almost three years after Appellant acquired the property that it for the first time, in September, 1992, asserted that the facility was in the Lease Amendment Program and that Respondent was responsible for non-structural maintenance (Finding 44). The parties' interpretation before the dispute arose is accorded special deference in interpreting contract terms, Julius Goldman's Egg City v. United States, 697 F.2d 1051, 1058 (Fed. Cir. 1983) cert. denied, 464 U.S. 814; Morningside Investments, PSBCA No. 3124, 93-1 BCA ¶ 25,492; Maynard L. Kressin, PSBCA No. 1588, 87-3 BCA ¶ 20,080, and we conclude that before Appellant raised the issue in September of 1992, the parties to the leases, Respondent and Grayling and then Respondent and Appellant, were in agreement that the transfer of maintenance responsibility under the Lease Amendments had not occurred.
C. Respondent Is Not Estopped to Deny That It Assumed Responsibility for Non-Structural Maintenance.
Appellant argues that Respondent's written representations that there remained no unperformed obligations of the lessor and that the leases had been modified by the Lease Amendment Program (Findings 16, 17, 32) estop Respondent to deny that it assumed responsibility for non-structural maintenance. For Respondent to be estopped on this issue, however, Appellant must demonstrate that it relied to its detriment on the representations. See F&B Realty, PSBCA No. 2529, 91‑2 BCA ¶ 23,788 at 119,142; E. Patti & Sons, Inc., PSBCA Nos. 1024, 1100, 85-2 BCA ¶ 18,144 at 91,078; P.J. Dick Contracting, Inc., PSBCA No. 992, 84‑1 BCA ¶ 16,992, recon. denied 84‑1 BCA ¶ 17,218.
Appellant has not demonstrated that it relied on any of the representations Respondent made in the estoppel letters. None of the estoppel letters written before Appellant acquired the property were issued to Appellant (Findings 16, 17), and Appellant did not present evidence that it was aware of them or relied on them before it purchased the property. The only estoppel letter issued to Appellant, that of May 21, 1990, was after Appellant had acquired the property (Findings 27, 32), and Appellant has not shown that it took any action to its detriment based on Respondent's representation in that letter that the lease had been modified by the Lease Amendment Program. Additionally, the May 21 letter also pointed out that there were substantial unperformed maintenance obligations, and Appellant had available to it Grayling's records (Finding 27) which would have made perfectly clear Respondent's position that it had not assumed maintenance responsibilities.
II. Respondent May Recover from Rent Its Cost of Performing Repairs and Maintenance That Were the Lessor's Responsibility Under the Lease.
Respondent has a common law right to withhold from rent the cost of repairs it performed that were the responsibility of the lessor. M.R. Kaplan (Penner Financial Group), M.B.F. Corp. etc. (Penner Financial Group), PSBCA Nos. 1147, 1293, 1294, 1296, 1298-1310, 1331, 87-3 BCA ¶ 19,969 and Kaplan, 88-3 BCA ¶ 20,827 at 105,313, and cases cited therein; see L.A. Construction, Inc., PSBCA Nos. 3338 & 3372, 95-1 BCA ¶ 27,291. In order to recover by offset against the rent it would otherwise pay, Respondent must show that the repairs were needed, that the lessor breached the lease terms by failing to perform the repairs and that Respondent's cost of performing the work was reasonable. Kaplan, 88-3 BCA ¶ 20,827 at 105,318; cf. McDaniel Bros. Constr. Co., PSBCA No. 1429, 86-2 BCA ¶ 19,002; Lou's Industrial Supplies, PSBCA No. 1355, 86-2 BCA ¶ 18,829.
Neither Grayling nor Appellant contended that the deferred maintenance items listed in the Exhibit Bs and in the subsequent correspondence and work statements for the repair contracts did not exist or were not necessary. The correspondence reflects that Grayling investigated the conditions at Highlandtown Station that Respondent claimed were in need of repair, and, although Grayling questioned whether certain of the repairs were its responsibility, it never suggested that the deficiencies did not exist or that the repairs were not necessary. Furthermore, Respondent presented ample evidence to demonstrate that the conditions were as described in the correspondence and addressed in the repair contracts and, except as noted below, that the repairs were necessary. See William Fehn, PSBCA No. 3072, 93-1 BCA ¶ 25,496.
A. Roof Replacement in 1988.
1. Construction Costs.
Appellant does not dispute that replacement of the roof was necessary or that it was the lessor's responsibility. Although Appellant questioned whether it was responsible for certain of the reroofing costs, it did not challenge at the hearing or in its briefs the reasonableness of the costs incurred by Respondent, i.e., that the costs were reasonable for the work done. Respondent obtained the repairs from its indefinite quantity contractor hired originally through the competitive process (Finding 22), and Respondent has demonstrated that the costs for the roof replacement and associated repairs, $101,012 (Findings 23, 24), were reasonable and necessary. See Kaplan, 88-3 BCA ¶ 20,827 at 105,318. Therefore, Respondent is entitled to $101,012 for the reroofing construction costs it incurred.
2. Architect's Fees for the Reroofing Project.
Recoverable costs of performing work the lessor was obliged to perform under the lease include administrative costs such as necessary and reasonable architect expenses. Kaplan, 88-3 BCA ¶ 20,827 at 105,319. Therefore, insofar as necessary to performance of the roof replacement and reasonable, Respondent's payments to its architect are also recoverable from the rent. The only part of the architect's fee for the roof project that Appellant challenged at the hearing and in its brief was the amount paid the architect for preparation of as-built drawings of the roof after the replacement was completed. We agree that Respondent has not demonstrated that as-built drawings were required to perform the roof replacement work, and, therefore, the cost of preparing them, $1,252 (Finding 25), is not chargeable to the lessor and recoverable from rent. The other amounts paid the architect, $4,710 (Finding 25), were shown to have been necessary to the work and reasonable. Therefore, Respondent is entitled to recover $4,710.
B. 1992 Rehabilitation Project.
1. Respondent Provided Adequate Notice of the Need for Repairs and of Its Intention to Repair and Deduct from Rent if the Lessor Failed To Perform.
Appellant argues that Respondent may not recover any of the costs it incurred on the 1992 rehabilitation project because Respondent failed to give Appellant notice of the impending work and an opportunity to perform it (Finding 38). The notice given to Grayling before Appellant acquired the property was sufficient to satisfy any duty Respondent had to inform the lessor of the repairs needed. There were repeated notices to Grayling and return correspondence to Respondent demonstrating that Grayling was fully aware of the maintenance needed at Highlandtown Station and of the Postal Service's intention to procure the repairs from others and withhold from rent the cost of the repairs (Findings 18-22). When Appellant acquired the property, it obtained Grayling's files (Finding 27), and a review of those files would have disclosed this correspondence and revealed the condition of the facility and Respondent’s intention to obtain the repairs from others at the lessor’s expense.
Furthermore, Respondent's letter of May 21, 1990 (Finding 32), put Appellant on specific notice that serious maintenance deficiencies existed at the facility, that Respondent considered them to be the lessor's responsibility and that rents had been suspended since November 1, 1987 (Finding 19). On August 13, 1991, Respondent provided Appellant copies of correspondence previously sent to Grayling indicating that there were substantial repairs needed at the facility, that they were the lessor's responsibility and that Respondent intended to perform them and reimburse its costs from the rents, which it had suspended (Findings 19-21, 34). Moreover, a visit to Highlandtown Station, which Appellant by then owned, would have disclosed its state of disrepair.
Nevertheless, Appellant did not come forward to assess the conditions and to offer to perform the needed repairs. Appellant has not shown that it suffered any damage or prejudice attributable to Respondent's method of providing notice to Grayling and to Appellant. See Kaplan, 88-3 BCA ¶ 20,827 at 105,314. Respondent provided adequate notice and opportunity for the lessor to perform the needed repairs and maintenance before making other arrangements to correct the deficiencies.
Finally, Appellant has not shown that it provided Respondent with the name and address of any mortgagee or assignee of rents (Findings 4, 27) as required by the lease. Therefore, there was no duty on the part of Respondent to notify a mortgagee or assignee of rents of the need for repairs. See N. J. Hastetter, PSBCA No. 2160, 89-1 BCA ¶ 21,295.
2. The Cost of the 1992 Rehabilitation Work Was Reasonable.
Appellant argued that certain of the building rehabilitation work done in 1992 was not its responsibility, but it did not argue that the price paid, i.e., the cost of the work done, was unreasonable. Respondent let the contract through a competitive procurement process, received a large number of offers and selected the lowest offer, which was well below the architect's estimate (Findings 35-37). Respondent has demonstrated that the overall cost of the 1992 repair work, $216,000 (Finding 37), was reasonable and that it properly mitigated damages. See Kaplan, 88-3 BCA ¶ 20,827 at 105,318.
3. Certain of the Repairs Performed in 1992 Were Not the Responsibility of the Lessor Under the Lease.
Although Respondent has demonstrated that the Highlandtown Station facility was in need of substantial repairs, some of the work performed in 1992 was beyond the scope of the lessor's duty to maintain the premises in good repair and tenantable condition. The maintenance clause excepts from the lessor's responsibility an obligation to repair damage arising from the act or negligence of Respondent's employees (Finding 3). Additionally, the duty to maintain the premises generally does not require the lessor to be responsible for the cost of improving, as opposed to repairing or restoring, the facility, N. J. Hastetter, PSBCA No. 2160, 89-1 BCA ¶ 21,295; Camden Securities Co., PSBCA Nos. 1266, 1325, 86‑1 BCA ¶ 18,519, for repairs that are of a purely cosmetic nature, see Edward R. and Lorraine Ester, PSBCA No. 1559, 88-2 BCA ¶ 20,573, for the cost of performing preventive maintenance, Kaplan, 88-3 BCA ¶ 20,827 at 105,315, or for the cost of performing housekeeping functions.
The items of work described below were, in whole or in part, not Appellant’s responsibility for the reasons stated.
a. Repair of Damage Caused by Respondent's Employees.
From the location of certain of the bollards in the area near the docks and fuel pad (Findings 30, 36), it is reasonable to infer that at least some of the damage to them resulted from the acts or negligence of Respondent's employees. The same inference pertains to the bent fence posts, which will be addressed later. Respondent has not offered evidence to dispel that inference. Respondent previously acknowledged responsibility for replacement of the electric panel cover (Finding 42).
b. Improvements.
Interior Lighting:
Replacement of the existing, surface-mounted lighting system with a recessed system constituted an improvement. Respondent’s architect’s testimony that the cost of the new, recessed system was comparable to a repair of the surface lighting system that it replaced (Finding 41) was general and uncorroborated by specific cost information. Respondent has not demonstrated that an entirely new recessed lighting system was a necessary repair as opposed to an improvement and that the existing lighting could not have been repaired at a lower cost. Therefore, Respondent may not recover the full cost of the replacement.
However, maintaining the surface-mounted lighting system that existed in the building was the lessor's responsibility, and the lessor did not do so (Findings 3, 29). Therefore, Respondent may recover the reasonable cost of making all of the existing lights operational. We accept Appellant's expert's testimony that the lights could have been made operational for $10,000 (Finding 41), and that is the total amount that Respondent can recover for repair of the light fixtures.
Miscellaneous:
Additionally, the following items from the list of work to be performed appear to constitute improvements, and Respondent provided no evidence to meet its burden of demonstrating the contrary: refurbish the existing soffit lighting; remove abandoned chiller pipe; install signage and Postal Service seal; install new fuel oil pipe; install new intake louver and anchor shelves and lockers (Finding 36).
c. Cosmetic Repairs.
Ceiling Replacement:
A substantial number of the ceiling tiles were soaked and stained by water penetration through the roof (Findings 15, 20, 21, 29), and Respondent replaced the entire grid system and all of the tiles (Findings 36, 39). Appellant does not challenge Respondent's recovery for the cost of replacing tiles that were actually stained or otherwise damaged and for cleaning or repair of the part of the grid actually damaged or stained by water, but it contends that replacement of the entire ceiling system was unwarranted.
Respondent has not demonstrated that a total replacement of the grid system and all ceiling tiles was as economical and practical as replacing only those tiles and grids that were stained or damaged. The testimony of Respondent’s architect in this regard was general and uncorroborated by specific cost information or estimates. Additionally, the architect's recommendation and Respondent's determination that the entire ceiling should be replaced were motivated in substantial part by their desire to avoid what they considered to be the unsightly mixing of old and new ceiling tiles (Finding 39). However, Respondent did not demonstrate the severity of the mismatching or show why such cosmetic considerations would require replacement of the functionally acceptable ceiling in the non-public area of the facility. Therefore, Respondent may not recover for the complete ceiling replacement. See Kaplan, 88-3 BCA ¶ 20,827 at 105,315; Edward R. and Lorraine Ester, PSBCA No. 1559, 88-2 BCA ¶ 20,573
However, the evidence demonstrates that there were substantial areas of damaged and missing tiles and grid, and Respondent is entitled to recover the reasonable cost of restoring the ceiling. There is no direct evidence as to the exact number of tiles or parts of the grid that were damaged to an extent that they had to be replaced for other than purely cosmetic reasons. The only evidence regarding the cost to restore as opposed to replace entirely the ceiling was Appellant’s expert’s testimony that $14,529 would be a reasonable cost to replace only the damaged tiles and grid. However, he did not see the condition of the ceiling before the work was done and based his estimate of the reasonable cost to replace only the stained and damaged tiles on the pre-replacement photographs offered by Respondent (Finding 40). The photographs showed some stained and damaged ceiling sections, but they did not show typical conditions because they depicted only the center of the facility, and the damage was much worse to the ceiling around the perimeter of the building (Finding 40). As Appellant's expert’s estimate was based only on photographs that did not show the worst areas, his estimate is probably low. Therefore, the amount Respondent is entitled to recover is more than $14,529.
Respondent’s architect estimated the cost to replace the ceiling to be $38,270, but that was as part of a total project estimate that proved to be substantially higher than the actual cost to do the work. However, dividing the architect’s estimate for the ceiling replacement by his estimate for the total rehabilitation project results in a ratio that can be applied to the total actual cost of the project to produce a reasonable approximation of the actual cost to replace the ceiling. That calculation produces an approximate price for the ceiling replacement of $31,337 ($38,270 (architect’s estimate for ceiling demolition and replacement)/$263,785 (architect’s estimate total) x $216,000 (actual total cost of project)). Appellant’s expert estimated the cost to replace the ceiling to be $26,789 (Finding 40). As discussed above, because replacement of the entire ceiling was not necessary, these figures are high. Based on the evidence in the record, we determine that Respondent is entitled to recover from rent $20,000 as the reasonable cost to repair the ceiling.
Painting:
Under the maintenance clause of the leases, the lessor was required to paint the interior of the building every 5 years (Finding 3), and it had not been done for at least that long before it was performed as part of the 1992 rehabilitation project. Therefore, Respondent may recover for the interior painting. Exterior painting, which was also done, however, is a different matter.
The maintenance clause does not require exterior painting on a regular basis, and, therefore, Respondent must demonstrate that the exterior painting performed was justified. See Edward R. and Lorraine Ester, PSBCA No. 1559, 88-2 BCA ¶ 20,573. The side and rear of the building were painted, and there is no showing that other than cosmetic considerations drove the decision to paint these walls, which were not routinely visible to customers using the post office, or that the walls were in such a deteriorated condition that painting could be considered necessary. There was evidence that waterproofing of the walls had failed at some time before 1992 (Findings 13, 14, 20, 21, 29), but Respondent has not shown that waterproofing was included as part of the exterior painting or that the painting itself was to correct the failure of the waterproofing. Therefore, Respondent may not recover the cost of the exterior painting. Additionally, painting the curb and the bollards (Finding 36) has not been shown to be other than cosmetic (or possibly an improvement).
Fence:
The fence was rusted, but the photographs show that it was fully functional, and Respondent presented no evidence to the contrary (Finding 30). True, some of the posts were bent, but as the fence was adjacent to the Postal Service dock, parking and maneuvering areas, it is likely that Respondent's employees bent them by hitting them with their vehicles, and lessor is not responsible for correction of that condition. In 1983, when Grayling objected to a similar demand that it repair bent fence posts on the ground that the damage was likely caused by Postal Service employees, the contracting officer withdrew repair of the fence from the list of repairs he demanded the lessor perform (Finding 14). Respondent has not demonstrated that the lessor was responsible for replacement of the fence.
d. Preventive Maintenance.
The following items appear to be preventive maintenance, and Respondent offered no evidence to meet its burden to demonstrate to the contrary: replace sealed joints, service exhaust fans, service air handling units (Finding 36). Therefore, Respondent is not entitled to deduct the cost of this work from the rent.
e. Housekeeping.
Respondent has not demonstrated that removing debris and vegetation around the grounds and cleaning and deodorizing the lookout gallery (Finding 36) were anything other than normal housekeeping that should have been performed by Respondent.
4. Quantum.
The parties requested that the Board address quantum as well as entitlement, but there is little direct evidence from which we can determine the value of individual repair items comprising the 1992 rehabilitation work to apportion responsibility between the parties. The construction contractor did not break down the cost of performing the work according to the tasks identified in the architect's estimate. However, the absence of mathematical certainty need not preclude apportioning contract cost liability. The Board can use a jury verdict approach to determine the amount Respondent properly recovered from rent under the circumstances of this appeal because there is clear proof of damage to Respondent in having to perform the repairs, Respondent does not have better evidence regarding the value of the different items of work because its construction contractor broke down the work by trades and not by task and, as discussed more fully below, there is sufficient evidence to make a fair and reasonable approximation of damages. See Dawco Constr., Inc. v. United States, 930 F.2d 872, 880 (Fed. Cir. 1991); David Sahagian, PSBCA Nos. 3385, 3416, 94‑2 BCA ¶ 26,688; Golden West Builders, PSBCA No. 3378, 93-3 BCA ¶ 26,195; Kaplan, 88-3 BCA ¶ 20,827 at 105,318.
The architect's estimate assigned a dollar value to each item from his list of necessary repairs, which items were ultimately included in the scope of work for the rehabilitation contract (Finding 36). While the total of the architect’s estimate was substantially higher than the actual total cost of the work (Findings 36, 37), that estimate establishes approximately the relative value of each item of repair to the total value of the project. Applying the ratio of the estimate of an item’s cost to the architect's total estimate to the actual cost of performance, therefore, establishes a reasonable value for each task of the contract as performed. Deducting the value so calculated of the tasks that were not within the scope of the lessor's maintenance responsibility from the total actual cost of contract performance produces a reasonable approximation of the total cost of work that was the lessor's responsibility. Respondent may recover that amount from the rent.
As discussed above, the following amounts taken from the architect's estimate will be deducted from the total estimated value of the project to determine the ratio of work that was the lessor's responsibility:
|
Repair, Replace and Paint Bollards |
$3,459 |
|
Replace Bent Bollards at Fuel Pad |
500 |
|
Electrical Panel Cover |
100 |
|
Demolition of Existing and Replacement of Interior Lighting |
37,406 |
|
Refurbish Soffit Lighting |
4,200 |
|
Remove Abandoned Chiller Pipe |
4,300 |
|
Install Signage and Seal |
1,647 |
|
Install New Fuel Pipe |
900 |
|
Install New Intake Louver |
2,622 |
|
Anchor Shelves and Lockers |
2,250 |
|
Ceiling Demolition and Replacement |
38,270 |
|
Exterior Painting |
8,094 |
|
Paint Curb |
200 |
|
Fence |
27,935 |
|
Replace Sealed Joints |
1,183 |
|
Service Exhaust Fans |
1,490 |
|
Service Air Handling Units |
16,025 |
|
Remove Debris and Vegetation |
1,500 |
|
Clean and Deodorize Lookout Gallery |
400 |
|
Total |
$152,481 |
The total deductions from the architect's estimate are $152,481, leaving $111,304 of the architect's $263,785 estimate the lessor's responsibility. Applying the ratio of $111,304/$263,785 to the actual cost of construction of $216,000 equals $91,141 as the lessor's basic responsibility for the 1992 project. To that is added the $20,000 allowed above for the ceiling repair and $10,000 allowed for the lighting repair, resulting in a total of $121,141 for which Appellant is responsible.
5. Respondent May Recover a Portion of the Architect's Fees Associated with the 1992 Repair Project.
As discussed above, Respondent is entitled to recover its reasonable architect's fees necessary to performance of repair work that should have been performed by the lessor. The architect's fees for the 1992 project were $56,658, which includes preparation of a scope of work, as-built drawings, design, construction estimate and performing construction surveillance (Findings 28, 43).
Appellant has challenged the need for as-built drawings. However, Respondent demonstrated, as it did not with respect to the 1988 roof as-builts, prepared after completion of the reroofing, that the as-builts for the 1992 project, prepared in advance of the project, were necessary in order to solicit and administer the repair contract. Appellant's expert's testimony that as-built drawings were unnecessary was based on his experience with awarding repair contracts in the private commercial world, and that experience was not shown to be applicable to Postal Service procurement where greater attention must be paid to assuring all offerors have an equal opportunity to compete on the same, precisely-specified project design. We accept the testimony of Respondent's witnesses that the charge for the as-built drawings included payment for taking measurements and confirming the existing conditions, work necessary to design the rehabilitation work, and that the as-builts were necessary, in part, due to the state of disrepair Appellant and its predecessor had allowed at the Highlandtown Station (Finding 43). Nevertheless, Appellant should not bear the total cost of the as-builts, and we will allow the portion of the as-builts fee in the same ratio as the work that was the lessor's responsibility bears to the total. Applying the ratio of the cost of work that was the lessor's responsibility to the total price ($121,141/$216,000) to the fee for the as-builts, $19,631 (Finding 43), results in an allowance to Respondent of $11,010.
As to the remaining portion of the architect’s fees, absent other evidence of what part was attributable to the lessor's work, we apply the fee limitation from the United States Postal Service Procurement Manual that applies to Respondent’s own architect contracts and allow a fee of 6 per cent of the construction costs we have found to be the lessor's responsibility, $7,268 ($121,141 x .06). See Procurement Manual 11.3.3 f, incorporated by reference at 39 C.F.R. §601.100.
III. Respondent Is Entitled to Recover for the Cost of Repairing the Water Main.
The water main repair (Finding 33) was a repair within Appellant's responsibility under the leases and, therefore, Respondent is entitled to recover the $7,790 cost of its repair from the rents.
IV. Summary.
The total amount that Respondent was entitled to deduct from rent is $252,931, calculated as follows:
|
Roof Replacement |
$101,012 |
|
Architect's Fee for Reroofing |
4,710 |
|
1992 Rehabilitation Project |
121,141 |
|
As-Built Drawings for 1992 Project |
11,010 |
|
1992 Architect's Fee |
7,268 |
|
Water Main |
7,790 |
|
Total |
$252,931 |
Rent withholdings totaling $252,931 were reached approximately in November, 1993 (AX 64). Therefore, further withholdings should cease, and Appellant is entitled to recover rent withheld after Respondent collected $252,931. Although Appellant requested interest on its recovery of back rent payments, the parties have not addressed Appellant’s entitlement to Contract Disputes Act interest under the circumstances of the recovery as determined in this decision. Therefore, the Board leaves calculation of interest for negotiation by the parties.
V. Conclusion.
The maintenance responsibilities of the parties are as established in the original leases for Highlandtown Station. Respondent has not assumed responsibility for non-structural maintenance. For performance of repairs that were the lessor’s responsibility, Respondent was entitled to recover $252,931 from rent, which it accomplished as of approximately November 1993, and Appellant is entitled to the rent withheld thereafter. Calculation of interest under the Contract Disputes Act is remanded to the parties. Rent payments are to commence immediately.
The appeal is sustained in part and denied in part, as set forth above.
Norman D. Menegat
Administrative Judge
Board Member
I concur:
James A. Cohen
Administrative Judge
Chairman
I concur:
James D. Finn Jr.
Administrative Judge
Vice Chairman
[1] Management of the property, including arranging for performance of repairs and maintenance, was performed for Grayling, Ltd., by Postal Management Services Company. For convenience of reference, Grayling, Ltd., and Postal Management Services Company will be referred to as "Grayling".
[2] The "deferred maintenance" items listed on the Exhibit Bs were repairs or maintenance needed at the facility which were the lessor's responsibility but which the lessor had not performed. See M.R. Kaplan, et al. (Penner Financial Group), PSBCA Nos. 1147, 1298, 1303, 1310, 88-3 BCA ¶ 20,827 ("Kaplan") at 105,287.
[3] The Lease Amendment Program was developed by Respondent to relieve lessors of a portion of the maintenance responsibility in exchange for a reduction of rent. It was made available to lessors in the early 1980s, and the 1982 amendments to the Leases discussed above were pursuant to that program. (AX 5). When the parties in correspondence and in this proceeding refer to entering or admitting the facility into the Lease Amendment Program, we understand them to mean the time when, under the Lease Amendments, Respondent would assume maintenance responsibility.
[4] The work order included addition of a new hatchway and ladder to the roof that was not included in this price and was not considered by Respondent to be the lessor's responsibility (AX 45).
[5] What Respondent intended by its representations in the estoppel letters that the leases had been modified by the Lease Amendment Program has not been satisfactorily explained. Nevertheless, regardless of those statements, all of the conduct of the parties to the lease before 1992 was only consistent with a shared understanding that the maintenance responsibilities had not shifted to Respondent.
The estoppel letters' erroneous statements that there were no unperformed obligations of the lessor were representations of fact and not evidence of the parties interpretation of the Lease Amendments. Any evidentiary value to be accorded the letters in support of a finding that the Exhibit B work was completed is outweighed by the more substantial and credible evidence discussed above that the lessor had not performed the Exhibit B deferred maintenance.
[6] Appellant argues that there is no admissible evidence that the rent rebate payments were not made, citing the presiding administrative judge's acknowledgment at the hearing that the contracting officer's testimony regarding advice she received from the Postal Data Center that the payments had not been made was hearsay. However, the evidence, though it was hearsay, was admitted into the record, as it is within the Board’s discretion to do. See 39 C.F.R. § 955.21; Fairfield Scientific Corp. v. United States, 611 F.2d 854, 858-859 (Ct. Cl. 1979); Johnson & Son Erector Co., ASBCA No. 23689, 86-2 BCA ¶ 18,931 at 95,606. There is no reason to doubt the accuracy of the information reported. Also, Appellant has not alleged in its complaint or elsewhere that the rebate payments were made. Appellant had access to Grayling's records (Finding 27), yet Appellant presented no evidence from those records or testimony from any person associated with Grayling that would suggest that the rent rebate payments were made. One of Appellant's witnesses testified that he had not seen any evidence of rent rebate payments in the Grayling files he had reviewed. Respondent's evidence is admissible and was uncontroverted. It establishes that the rent rebate payments were not made. See Sanders v. United States Postal Service, 801 F.2d 1328, 1331 (Fed. Cir. 1986).
[7] Respondent has not charged the lessor for the hatchway and ladder added as part of the roof replacement which it concedes was an improvement performed at its own expense (Finding 23). See Kaplan, 88-3 BCA ¶ 20,827 at 105,315.
[8] Appellant suggests that the letters referred to in Respondent's August 13, 1991 letter might not have been attached. However, Appellant did not enquire or complain at the time it received the August 13 letter as it would have been expected to do if the earlier letters had not been attached. We reject Appellant's wholly unsupported suggestion that the letters might have been omitted and find that the August 13 letter conveyed copies of the earlier correspondence.
[9] Appellant’s expert testified that the cost of replacing the ceiling was high (Tr. 195), but in view of our treatment of the ceiling replacement below, that disagreement on price is irrelevant.
[10] See subsection II.B.4, below.
[11] There is little evidence in the record of the conditions necessitating the servicing, and our conclusion that this work was preventive maintenance is based on the characterization of the work as “servicing” on the architect’s list and Respondent’s failure to present evidence that the work was a necessary repair.