January 6, 1995
Appeal of
J. LEONARD SPODEK d/b/a IDAHO POSTAL HOLDINGS
Under Lease Agreement
PSBCA No. 3532
APPEARANCE FOR APPELLANT:
J. Leonard Spodek
APPEARANCE FOR RESPONDENT:
Samuel J. Schmidt, Esq.
OPINION OF THE BOARD
Appellant, J. Leonard Spodek, has appealed the denial of his claim for reimbursement of general real estate taxes paid on a parking area adjacent to the Bannock Station, Pocatello, Idaho, leased by him to Respondent, United States Postal Service.[1] This appeal is being decided on the record in accordance with 39 C.F.R. §955.12.
FINDINGS OF FACT
1. On April 1, 1976, Respondent and Fargo Holding Company entered into a lease for the Bannock Station, Pocatello, Idaho. The term of the lease was ten years at $16,920 per year and included two five-year options at a rate "to be negotiated at the Fair Market Rental Value." (Appeal File Tab (AF) 1).
2. The lease contained a Tax Clause Rider that read, in relevant part:
"(a) The lessor agrees to pay all taxes levied against the property subject to this lease. During the basic term of the lease and any renewal periods, if the total general real estate taxes levied during a lease year exceed the total general real estate taxes levied during the second lease year, the Postal Service shall reimburse the lessor 100 per cent of the excess.... Reimbursement shall be made promptly after submission by the lessor of copies of the tax bills, receipts (or other documentary evidence of payment) and a correctly calculated invoice." (Id.).
3. On August 7, 1981, Respondent and Hill-Marshall, Appellant's immediate predecessor in interest, entered into a "Lease Extension Agreement" extending the term of the lease to March 31, 1991, at a stated rental rate and specifying a rental rate for the second five-year lease option period. The agreement incorporated a Maintenance Rider and a set of General Provisions, neither of which is relevant to the dispute before us. (AF 2)
4. On June 14, 1988, Respondent and Hill-Marshall entered into the "First Amendment to Lease" that provided, in relevant part:
"In consideration for increasing the annual rental from $21,144.00 to $22,044.00 for the period beginning May 16, 1988, and ending March 31, 1991, Lessor agrees, in addition to the area leased under the terms of the aforementioned lease, that the Postal Service will have exclusive use of a parking area consisting of 80 feet by 35 feet located in the northeast portion of Lot 5 as identified on 'Exhibit A' attached hereto and incorporated into this agreement.
***
IT IS FURTHER UNDERSTOOD AND AGREED between the parties hereto that in all other respects, said lease shall remain the same and is hereby confirmed."
"Lot 5" as referenced in the lease amendment was a portion of "Block 450" in the city of Pocatello. (AF 3).
5. On October 22, 1990, Respondent and Hill-Marshall entered into "Amendment No. 2 To Lease and Lease Extension Agreements." In addition to other provisions not relevant to this appeal, the parties agreed to change the rental rate for the second lease option period and the Postal Service agreed to exercise that option and extend the lease period to March 31, 1996. The amendment also repeated that,
"In addition to the area leased under the terms of the aforementioned lease, the Postal Service will have exclusive use of a parking area consisting of 80 feet by 35 feet located in the northeast portion of Lot 5 as identified on Exhibit A of the First Amendment to Lease.
***
All other provision [sic] of the aforementioned agreements are hereby confirmed and shall remain the same." (AF 4).
6. On or about July 2, 1991, title to the property was transferred from Hill-Marshall to Appellant. On September 10, 1991, Appellant and Hill-Marshall executed a "Certificate of Transfer of Title to Leased Property" through which Respondent was formally advised of the transfer and directed to pay rent on the building to Appellant beginning in October 1991. (AF 17).
7. In a May 17, 1992 letter to Respondent's Salt Lake City Real Estate Branch, Appellant stated that he had been unable to obtain a separate real estate tax bill for the portion of the parking lot leased to Respondent (see Finding 4). He forwarded the 1991 real estate tax bill in the amount of $1,115.86, covering lots 5, 6, and a portion of lot 7 in Block 450 (which included the parking area) and requested reimbursement of 60 percent of that amount. The request for payment was reiterated in a letter dated July 14, 1992. (AF 5, 6).
8. The parking lot added to the lease by the first lease amendment covered an area of 80 feet by 35 feet, or 2,800 square feet (sq. ft.) (Finding 4). The total area covered by the real estate tax bill (lots 5, 6, and a portion of lot 7) was 11,200 sq. ft (AF 18). Therefore, the area leased by Respondent comprised 25 percent of the area covered by the tax bill.
9. By letter dated August 12, 1992, a contract technician in Respondent's Real Estate Branch advised Appellant that before reimbursement of taxes on the parking lot could be authorized, a separate assessment had to be provided and agreement had to be reached as to the "base year" to be used. In answer to another letter from Appellant, this advice was reiterated by Respondent's Real Estate Specialist in a letter dated August 31, 1992. (AF 7, 8, 9).
10. By letter dated October 5, 1992, Appellant asked the Contracting Officer to review the requirement stated in the earlier correspondence that a separate assessment be secured for the portion of the parking lot leased by Respondent. In a November 24, 1992 response, the Contracting Officer repeated advice he had received from Respondent's legal department regarding the base year to be used in the tax calculation, but was silent with respect to the issue of the separate assessment. The legal office had advised that using the second year of the lease on the parking area -- i.e., 1989 -- would be a reasonable approach to the calculation. (AF 10, 11, 12).
11. After additional correspondence between the parties, the successor Contracting Officer wrote to Appellant on November 5, 1993, and advised him that the advice given him in the letter of November 24, 1992, was still in effect. He stated that he was denying Appellant's request to "reopen consideration" of the matter. Appellant then filed an appeal with this Board. (AF 13, 14, 15; Notice of Appeal).
12. The 1992 tax bill for lots 5, 6 and a portion of lot 7 (see Finding 7) was $1,271.28. The 1993 tax bill for the same area was $1,210.54. (Attachments to the Complaint).
13. The total general real estate tax levied on the property covered by the lease in 1977, the second year of the lease, was $3,043.36 (AF 7).
DECISION
In their arguments, the parties agree that since the parking area occupied by Respondent is 25 percent of the area covered by the tax bill for lots 5, 6 and a portion of lot 7 (see Finding 8), Appellant's recovery is to be based on only 25 percent of the taxes for that area.[2] The parties disagree, however, on how the calculation of the amount due is to be made.
Relying on the language of the Tax Clause Rider (Finding 2), Appellant argues that the "base year" to be used in calculating its entitlement is 1977, the second year of the lease on the original property. Appellant contends that there is only one lease and only one "second lease year" and that, therefore, the base against which tax increases are to be measured is the tax in that year. Appellant argues that the first amendment to the lease, which gave Respondent exclusive use of the parking area, did not create a separate lease for that area and did not amend the Tax Clause Rider to give a different result. Moreover, Appellant relies on the language in both lease amendments that provided that all other provisions of the lease were to remain unchanged (findings 4 & 5). Under Appellant's argument, the entire tax on the Postal Service parking area[3] would be added to the current tax on the original property and the total of the two would be compared to the 1977 tax to calculate the amount due Appellant under the Tax Clause Rider.
Respondent argues first that Appellant has failed to submit evidence of payment of the taxes he seeks to recover, as required by the Tax Clause Rider. On that basis alone, Respondent argues that the appeal should be denied.
Respondent next argues that Appellant's calculation of the amount due is flawed. Respondent notes that Appellant has only owned and been entitled to receive rental payments on the property since October 1991. Therefore, Respondent contends that any recovery should be limited to the period after that date.
Respondent also takes issue with Appellant's literal application of the language of the Tax Clause Rider through which Appellant contends that the single base year for the calculations should be 1977. Respondent argues that the addition of a "severable" portion of property under the first lease amendment in 1988 requires that the Tax Clause Rider be applied separately to that parcel, using a base year of 1989 (the second year of the lease on that property) for the calculation of the amount of the reimbursement due.
Neither party has offered any evidence of the parties' intent with respect to the treatment of real estate taxes when they executed the lease amendment that first gave Respondent exclusive use of the parking area. The record contains no evidence related to the negotiation or execution of the lease amendments or, for example, any evidence of how Respondent and Appellant's predecessor administered the tax payments after the lease was amended and before Appellant acquired the property. Therefore, we rely only on the language of the lease itself.
The Tax Clause Rider provides that the general real estate taxes levied during any one year be compared to the taxes levied in the "second lease year." The "second lease year" was 1977. The language of the clause does not provide different treatment for property added to the lease at a later time. The calculation scheme urged by Respondent is not an unreasonable approach and the parties could have adopted it and inserted the appropriate language into the lease amendment had they chosen to do so. However, there is no evidence in the record to support this interpretation. Moreover, the lease amendments both provided specifically that all other provisions of the lease were to remain unchanged. Absent any evidence that the parties intended a different result, we read the Tax Clause Rider as Appellant does and accept Appellant's position that the year to be used as the base for the calculation is established only once and, in this instance, is 1977.
We agree with Respondent, however, that the record does not contain proof of actual payment of the taxes sought by Appellant. While we do not accept Respondent's position that the lack of proof mandates denial of the appeal, any recovery is contingent on proof by Appellant of actual payment of the taxes by him.
Therefore, subject to the condition that Appellant show evidence of actual payment of the taxes, the appeal is sustained. The dispute is remanded to the parties for negotiation of the amount due, including Contract Disputes Act interest. If the parties cannot agree, the Contracting Officer should issue a final decision, which may be appealed in accordance with the Contract Disputes Act.
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] Two other claims, related to assessments by a business improvement district were abandoned by Appellant after this appeal was filed.
[2] In his Complaint, Appellant sought to recover 46 percent of the taxes paid for the years 1990 through 1993. In his brief, Appellant seeks only 25 percent of the taxes for the years 1991 through 1993.
[3] That is, 25 percent of the tax on lots 4, 5, and a portion of lot 7.