July 25, 1996
Appeal of
J. LEONARD SPODEK d/b/a NATIONWIDE POSTAL MANAGEMENT
Under Lease Agreement
PSBCA No. 3710
APPEARANCE FOR APPELLANT:
J. Leonard Spodek
APPEARANCE FOR RESPONDENT:
Glenn L. Smith, Esq.
DECISION OF THE BOARD
Appellant, J. Leonard Spodek d/b/a Nationwide Postal Management, has appealed from the decision of the Contracting Officer withholding from rents otherwise due Appellant, the costs associated with replacing the roof at the Abbeville, South Carolina Main Post Office, which Appellant leased to Respondent, United States Postal Service. This appeal is being decided on the record, in accordance with 39 C.F.R. §955.12. Both entitlement and quantum are at issue.
FINDINGS OF FACT
1. In August 1966, Respondent[1] leased the Abbeville, South Carolina Main Post Office from its original owners by means of a lease providing a base term of twenty years (from February 1, 1966) and six five-year options, exercisable by Respondent. The annual rental for the base period was $7,333, with annual rentals for the option periods rising in several steps to $8,181 in the last four option periods.[2] (Appeal File Tab (AF) 1).
2. The lease provisions required the lessor to maintain the building "in good repair and tenantable condition," and made the lessor responsible for returning the building to "satisfactory condition" if it became "unfit for use for the purposes leased." (Id.).
3. The building was purchased by Appellant in February 1992. Respondent has exercised three of the renewal options, establishing a current lease expiration date of January 31, 2001.[3] (AF Tabs 1B, E, F).
4. By letter dated June 15, 1992, to Appellant, the Abbeville Postmaster ("postmaster") informed Appellant that the post office roof needed a thorough inspection and repairs because of leaks, and proposed August 15, 1992, as a date by which the repairs should be accomplished. Apparently having received no answer to his letter, the postmaster wrote to Respondent's Support Services Division on August 12, 1992, requesting that that office send a second letter to Appellant. (AF 10, 11).
5. At that time (and until the roof was replaced) there were leaks above the mechanical room (including a leak causing water to accumulate on top of an electrical panel); leaks above the work room, causing the postmaster to abandon a portion of that room to prevent damage to mail normally stored there; leaks in several spots above the box lobby, causing wet floors and loose floor tiles that the postmaster regarded as safety hazards; a leak directly above the service counter where customers transacted business; a leak in the postmaster's office; and a leak in the vestibule adjacent to the rear loading dock, causing a wet floor. (Respondent's Supplemental Appeal File Tab (RSAF) 2 (¶4)).
6. The roof then on the building, which was the building's original roof, was a four-ply asphalt built-up roof. This type of roof has an average life expectancy of 15 to 20 years. Under "extraordinary" circumstances, such a roof may last 25 years. (RSAF 1 (¶8)).
7. On September 24, and October 5, 1992, the postmaster telephoned Appellant to discuss roof leaks at the post office and followed up the conversations with letters dated September 28, and October 9, 1992. (AF 12, 13; RSAF 2).
8. On November 23, 1992, the postmaster again telephoned Appellant to discuss roof leaks. By letter of the same date, the postmaster forwarded Appellant an estimate in the amount of $424.24 from a local roof coating company for the repair of three leaks on the east side of the roof. (RSAF 2 (¶3G, H); AF 15).
9. On or about January 4, 1993, the coating company performed work on the roof of the post office, apparently at Appellant's direction. It is unclear whether that roof work was successful in stopping some of the roof leaks (e.g., the three leaks identified in the estimate), but, in any event, there were leaks remaining after the coating work was performed. (AF 16, 17, 25; RSAF 2 (¶4)).
10. On March 5, 1993, the postmaster again telephoned Appellant to discuss roof leaks and the need for an inspection of the roof. On or about April 26, 1993, the postmaster wrote to Appellant, referring to their telephone conversation of March 5, and proposed that Appellant have the roof repairs done by May 26, 1993. (RSAF 2 (¶3I); AF 19).
11. By letter dated June 21, 1993, Tim Houston, a Facilities Specialist in Respondent's Columbus, South Carolina office, wrote to Appellant on behalf of the Manager, Administrative Services, and warned Appellant that if the roof repairs were not accomplished by July 23, 1993, the Postal Service would have the work done using a third-party contractor. The letter further warned that the costs of such work, plus administrative charges, would be recaptured from Appellant via rental deductions. (AF 20; RSAF 4 (¶9)).
12. On June 29, 1993, Mr. Houston personally inspected the Abbeville Post Office. He concluded that water was leaking into the building through the roof in numerous places, including the mechanical room, the work room (where mail is processed), the box lobby, and the customer lobby. His observations were consistent with leaks observed earlier by the postmaster (finding 5). (RSAF 4; AF 31).
13. By letter dated July 26, 1993, to the postmaster, Appellant indicated that the coating service had been unsuccessful in repairing the leaks and stated that he was "now in the process of contracting for that repair."[4] (AF 25).
14. In September 1993, Appellant had a roofing company, M&M Roofing, inspect the roof and give him a proposal for repairs. Appellant received that proposal, in the amount of $2,449.00, on or about September 7, 1993. The proposal included, generally, applying a coating and roofing fabric to one section of the roof (consisting of 1,296 square feet[5]), and nailing flashing back in place. The workmanship was to be guaranteed for a period of 90 days. By letter dated September 30, 1993, Appellant sent the postmaster a deposit check, to be given to the roofing company when it was ready to start the job. (AF 28; Appellant's Supplement to the Appeal File (ASAF), Item 3).
15. On September 22, 1993, Mr. Houston (Respondent's Facilities Specialist) again inspected the post office. He found that no repairs had been attempted since his last visit and that there were still numerous roof leaks in the building. He specifically observed blisters in the roof covering, rotting wood on the roof, and roof flashing failures. (RSAF 4 (¶11))
16. By letter dated September 30, 1993, Mr. Houston advised Appellant that he was responsible for work needed to "repair/replace" the roof and that if the work was not completed by October 10, 1993, the Postal Service would proceed to have the work done by a third-party contractor. Mr. Houston also noted that the work would most likely be considerably cheaper if Appellant, who was not subject to "statutory wage provisions," had the work done himself. An employee of Appellant replied to Mr. Houston via a letter dated October 5, 1993, stating that the roof repair had been "given out" to M&M Roofing. Although the reply letter was received by Respondent on October 13, 1993, it was apparently lost in Respondent's internal mail system and did not get to Mr. Houston until two months later. (AF 29; Complaint, Exhibit F; RSAF 4 (¶¶ 12, 14)).
17. At some time in late October or early November (no later than November 5), M&M Roofing performed repair work on the roof. The work was limited to the south side of the building, in the areas above the work room and mechanical room, and, therefore, did not address all the areas that were leaking (see finding 5, above). (ASAF 3; Complaint, Exhibit G; RSAF 2; AF 28).
18. Following M&M's repair work, the roof was still in generally poor condition. There were still multiple defects in the roof (e.g., blisters, splits, ridges, flashing and gutter problems, and wet insulation), most of which either led to, or were the further result of, moisture having entered the roofing system. The condition of the roof was such that even "non-emergency"[6] type repairs would have been unlikely to stop all water entry into the building, other than temporarily. Because of the underlying wet insulation, blistering of the roof would be expected to continue and blisters, splits and ridging would be expected to reappear within 1 to 12 months of any repairs, necessitating that the repairs be repeated. (RSAF 1; AF 30; see also, RSAF 3). Maintaining the roof through such repairs, rather than replacing it, would have required the continuing expenditure of approximately $5,000 annually (RSAF 1 (¶¶19, 20); see also, ASAF 4).
19. On November 12, 1993, Appellant sent a letter to the postmaster asking whether, since the time M&M had completed its repair work, there had been a hard rain and whether there had been any leakage. This was in accordance with Appellant's normal policy, which was to make sure that repairs were successful before making final payment to a contractor. Appellant received a reply to his letter answering both questions in the negative. Appellant then sent a letter to M&M Roofing stating that he could not yet authorize payment for the roofing work, since the roof had not been confirmed leak-free. (ASAF 1, 2).
20. On December 7, 1993, Appellant's employee called the postmaster on the telephone because Appellant had received another payment request from M&M Roofing. The two had a very brief conversation (one minute or less) about the condition of the roof. Although the postmaster did not inform Appellant's employee that the roof was watertight, the employee concluded from the conversation that there had been a hard rain in Abbeville and that the roof was "OK." Appellant then sent M&M a check for the balance. (ASAF 1-3; RSAF 2, (¶¶7, 8)). In fact, and contrary to the conclusion reached by Appellant's employee, roof leaks still existed at that time. (RSAF 2 (¶6); contra ASAF 3).
21. In mid-December, Mr. Houston contacted the postmaster to determine whether any further work[7] had been done on the roof and whether the roof was still leaking. Mr. Houston was informed that the roof was still leaking and that no further work had been done. As a result, he decided to proceed with letting a contract for roof replacement. Mr. Houston decided that, inasmuch as the Postal Service had previously notified Appellant of the need for repair and inasmuch as adequate time had passed to have effectuated the repair, he would not issue another letter of demand to Appellant before proceeding. Mr. Houston relied on the two letters that he had sent to Appellant (findings 11, 16) warning him of the Postal Service's intent to take action if Appellant did not complete the necessary repairs. (RSAF 4 (¶17).
22. Mr. Houston decided to wait until Spring to have the actual work performed so as to avoid installation and warranty problems that might arise if the work was done in cold, wet weather. He also elected to have the roof replacement performed by a contractor holding an indefinite quantity contract (IQC) with the Postal Service, because he believed the work could be accomplished more quickly by proceeding in that manner.[8] Mr. Houston drafted a scope of work for the contractor which reflected replacement of the roof with a like kind. (RSAF 4 (¶18)).
23. On March 3, 1994, Respondent exercised the third of its six five-year options, thereby extending the term of the lease to include the period from February 1, 1996, to January 31, 2001. (AF 1F).
24. On March 29, 1994, the Contracting Officer issued a work order to the IQC contractor, authorizing replacement of the roof. The work order was in the amount of $25,547.52. Had Appellant contracted for this work, the cost to him would have been $3,000 to $4,000 less. Work was ultimately completed and accepted by Respondent on August 2, 1994, on which date the Contracting Officer authorized final payment. The roof installed carried a one-year warranty against defective materials, equipment, and workmanship. (RSAF 4 (¶18); AF 37; ASAF 4).
25. Respondent incurred costs for salaries and office expenses in excess of $500 in the process of drafting the statement of work for the roof replacement and administering the roof replacement contract. (RSAF 5, 4 (¶20)).
26. In 1994, the market interest rate paid by the Postal Service to creditors for money it borrowed was eight and one-eighth percent. (RSAF 5, 7).
27. On or about August 23, 1994, the Contracting Officer authorized a deduction from rent otherwise due Appellant for the Abbeville Post Office, beginning in January 1995. The deduction authorized was 50 installments of $614.31, for a total of $30,715.50. The total amount was calculated as follows:
Roof Replacement $25,547.52
Administrative charges 500.00
Interest (at 8%) 4,667.92
$30,715.44 (rounded to $30,715.50)
(AF 41).
28. Appellant first found out about the roof replacement and the resulting rental deductions when he inquired as to the reason he had not received the August 1994 rental check for the Abbeville Post Office.[9] After several rounds of correspondence between Appellant and Postal Service personnel, the Contracting Officer issued a final decision on November 8, 1994, denying Appellant's demand for the cancellation of the rental deduction for the roof replacement and the return of those funds already deducted. This appeal followed. (AF 43-45, 48-50, 53-58).
DECISION
Respondent is deducting from rent otherwise due Appellant, costs associated with replacement of the roof of the Abbeville, South Carolina, Post Office, which Respondent leases from Appellant. In this appeal, Appellant contends that Respondent's decision to replace the roof and charge Appellant the associated costs was improper.
Appellant's primary argument is that Respondent failed to give him proper warning before having the roof replaced. Appellant argues that, as far as he knew, the repairs that had been performed in October or November 1993 had eliminated the leaking problem. He relies on the advice he claims was given to his employee by the postmaster during a telephone call on December 7, 1993. As a result of that telephone call, Appellant argues, he understood that there had been a hard rain and that the roof had not leaked. Appellant contends that because of that telephone call, he agreed to pay the balance owed to his roofing contractor. Therefore, Appellant argues, it was improper for Respondent to have proceeded with roof replacement without giving him later notice that the roof was still leaking. Accordingly, Appellant argues that any funds already withheld from him should be returned and no further deductions should be allowed. In addition, Appellant asks for a declaration that any future maintenance of the roof will be Respondent's responsibility.
Respondent argues first that the Abbeville Post Office was not in tenantable condition, as that term is used in the lease, because of the persistent, multiple leaks in the roof. As a result, Respondent argues, given Appellant's failure to put the facility in tenantable condition with reasonable diligence after having been notified on several occasions, Respondent was entitled to perform roof work on its own and charge the costs to Appellant. Respondent also contends that its decision to replace the roof represented the only viable method by which the facility could be rendered watertight.
Respondent argues finally that it is entitled to recoup the direct contract and administrative costs associated with the replacement work, and that it is entitled to interest based on the fact that the costs will not be collected at once, but will be recovered over a period of more than four years.
We agree with Respondent that the Abbeville Post Office was not in "good repair and tenantable condition," as those terms are used in the lease. The number of persistent leaks, their locations, and their effects on operations at the post office (see finding 5) all lead us to that conclusion. Under the terms of the lease, Appellant was obligated to take measures necessary to correct the condition and provide at least a "safe, dry interior." M.R. Kaplan, et al., PSBCA Nos. 1147, 1298, 1303, 1310, 88‑3 BCA ¶ 20,827 at 105,320
Appellant was first notified of the condition of the roof no later than June 1992, was asked repeatedly thereafter to arrange for repairs, and was warned that unless he had the roof work done, Respondent would contract with a third party and charge the resulting costs to Appellant. Appellant took no substantial action to correct the problem until he contracted with M&M Roofing to perform roof repairs in the Fall of 1993.[10] Those repairs, although completed, were ineffective in sealing all the leaks in the roof. Nevertheless, because of his apparently serious attempt to solve the leak problems, even though unsuccessful, and because the leaks did not represent an emergency situation, Appellant was entitled to some further notice that his efforts had been unsuccessful and notice that Respondent intended to proceed with its own roof work, before that work was undertaken. However, the effect of Respondent's failure to give adequate notice to Appellant is not to excuse Appellant from all liability for the cost of roof replacement. Rather, as explained below, the effect is to limit Respondent's recovery.
We agree with Respondent that when it had roof work performed, it was reasonable for Respondent to opt for roof replacement rather than repairs. There had been two unsuccessful attempts to repair the roof leaks, and the age and generally poor condition of the roof, coupled with the projected annual repair costs, made replacement a reasonable choice. In this connection, we also note that shortly before it actually contracted for the repairs, Respondent had exercised an option under the lease that extended the term to January, 2001. Therefore, Respondent's obligation to pay rent and Appellant's corresponding obligation to keep the premises in good repair were to continue at least another seven years. Under these circumstances, Respondent's decision to replace, rather than repair, the roof was reasonable. M.R. Kaplan, 88-3 BCA ¶ 20,827 at 105,324.
Respondent's recovery of its costs from Appellant, however, is limited to what would have been the cost to Appellant for roof replacement. Respondent has acknowledged that its cost for roof replacement would likely have exceeded Appellant's cost to replace the roof (see finding 16). The only evidence of the magnitude of Appellant's cost is found in a letter from a roofing company that inspected the roof at Appellant's request in the summer of 1995. That company, after expressing general approval of the work performed by Respondent's contractor, opined that the work likely would have been $3,000 to $4,000 less expensive had it been competitively bid among local contractors. We accept that evidence as a rough measure of what would have been Appellant's cost and conclude that $3,500 is to be deducted from the amount otherwise recoverable by Respondent. We also note that had Appellant performed the work, Respondent would not have incurred the administrative costs that it did. Accordingly, we conclude that Respondent may not recover the $500 in administrative costs it has assessed against Appellant. Therefore, Respondent may recover $22,047.52 (i.e., $25,547.52 - $3,500) in direct costs from Appellant for the roof replacement.
Respondent may also include interest in its calculation of the amount due, cf. Electronics & Space Corp., ASBCA No. 47,539, 95-2 BCA ¶ 27,768; Flag Real Estate, Inc., HUDBCA No. 84-899-C14, 88-3 BCA ¶ 20,866, but that calculation is to be adjusted for the reduced amount that we have found is due.[11] We leave it to the parties to negotiate revised payment arrangements.
The appeal is sustained in part as explained above, but is otherwise denied.[12]
David I. Brochstein
Administrative Judge
Vice Chairman
I concur:
James A. Cohent
Administrative Judge
Chairman
I concur:
Norman D. Menegat
Administrative Judge
Board Member
[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] The annual rentals provided in the original lease were $8,233 and $9,081, respectively. However, through a lease amendment that changed the responsibility for the payment of real estate taxes, the annual rentals were reduced to the amounts stated above. (AF 1).
[3] If Respondent exercises all of its renewal options, the lease will extend to January 31, 2016.
[4] The primary subject of the letter was Appellant's refusal to pay the coating company for the repairs that had been attempted the previous January. The postmaster had apparently paid the company when it had been unsuccessful in obtaining payment from Appellant, and was seeking reimbursement from Appellant. Appellant refused to pay, stating that the coating company had failed to complete the contract. (AF 18, 23, 25, 26).
[5] The total roof area was approximately 7,500 square feet (AF 30; RSAF 4D).
[6] The record uses the term "non-emergency" repairs to describe repairs of a more permanent, long-term nature, as opposed to those repairs whose purpose is to immediately stop water from entering the building without regard to the longer term.
[7] From visits to the site in December and from Appellant's October 5 letter that he had received by that time (finding 16), Mr. Houston was aware of the repair work that had been performed for Appellant by M&M Roofing in October or November (RSAF 4 (¶16)).
[8] In an IQC, which is awarded competitively, the contractor agrees to perform work specified in work orders at rates specifically set out in the contract (RSAF 4 (¶18)).
[9] The Contracting Officer had previously authorized rental deductions for the replacement of a compressor at Abbeville. Those deductions were to consume the rental payments from August 1994 through December 1994 and, for this reason, the deductions for the roof repair were not scheduled to begin until January 1995. Thus, the reason Appellant did not receive the August check was the deduction for the compressor replacement and not the roof work. However, as a result of his inquiry, Appellant was informed, apparently for the first time, about both deductions. In a September, 1994 letter, Appellant indicated his agreement with Respondent's planned deductions for the compressor replacement. (AF 40, 43).
[10] We do not consider the work performed by the coating company in January 1993 (finding 9) to be a substantial attempt on Appellant's part to deal with the leakage problem, due to the small amount of work performed, the limited scope of the contractor's effort, and the lack of success in accomplishing the objectives.
[11] We note that the interest in this instance is prospective, in the sense that it is being charged on the assumption that the debt will be recovered over a period of 50 months. Appellant may avoid the payment of further interest at any time by repaying the remaining balance of the amount owed.
[12] As noted above, Appellant has taken the position that Respondent's decision to replace the roof on its own relieves Appellant from any further maintenance responsibility for the roof. We do not express any opinion on this issue as it is not necessary to a decision in this appeal.