October 22, 1996
Appeal of
SJ POSTAL LIMITED PARTNERSHIP
Under Lease Agreement
PSBCA No. 3811
APPEARANCE FOR APPELLANT:
Alvin S. Nathanson, Esq.
APPEARANCE FOR RESPONDENT:
Robert E. O’Connell, Esq.
OPINION OF THE BOARD
Appellant, SJ Postal Limited Partnership, has appealed from the decision of the Contracting Officer denying its claim for reimbursement of certain assessments made by Santa Clara County against Appellant's property in San Jose, California, which property is leased to Respondent, United States Postal Service. Only entitlement is at issue in this appeal.
FINDINGS OF FACT[1]
1. On January 5, 1966, Appellant’s predecessor in title and Respondent[2] entered into a lease for postal purposes of the premises located at 1750 Meridian Avenue, San Jose, California, by which Respondent leased the premises for a term beginning November 24, 1965 and ending November 23, 1995, with options for renewal of the lease for eight successive five-year terms.
2. The original lease contained a clause entitled "Tax Escalation Clause Rider," which provided that Respondent would pay any "general real estate taxes" in excess of $50,000 per annum. (Stipulation paragraph (Stip.) 2; Appeal File Tab (AF) 1).
3. On April 15, 1968, the lease was amended effective December 1, 1966. Under the amendment, the Tax Escalation Clause Rider was replaced with a clause entitled "Tax Clause Rider." That clause provided that Respondent would pay to the lessor, as additional rent, the net amount of any "general real estate tax", upon presentation of the tax bill by the lessor. (Stip. 3; AF 2).
4. The lease placed on Respondent the responsibility for keeping the premises in "good repair and tenantable condition." Respondent's repair obligation was defined to include "repairs of every character, exterior and interior, structural and nonstructural, ordinary as well as extraordinary, foreseen as well as unforeseen, replacements and renewals." The lessor's responsibility to make repairs was limited to "damage ... or destruction ... caused by fire or other casualty or calamity, Act of God, acts of the public enemy, or acts of a stranger...," or latent defects occurring before occupancy by the government. (AF 1). The lease arrangement for this facility, which made the Postal Service responsible for virtually all maintenance and repairs, was an unusual arrangement found in only a small number of Postal Service leased facilities. (Tr. 18, 30).
5. Respondent paid to the lessor the entire amounts of the 1967-68 through 1983-84 real estate tax bills. All of these bills were calculated on an ad valorem[3] basis, except that the 1982-83 and 1983-84 tax bills included an item under the category of "direct assessment"[4] identified as "800 Sewer Service." (AF 16-32).
6. The 1972-73 and 1973-74 tax bills, which Respondent paid in their entirety, each contained an item with the title "S C CO FLD CONTROL DIST," calculated on an ad valorem basis. The 1972-73 tax bill also contained an item titled "FLOOD CONTROL ZONE W-4," calculated on an ad valorem basis. (AF 21, 22).
7. The 1984-85 tax bill contained three "direct assessment" items -- one for sewer service and two items titled "852 SCVWD - UNBILLED FC A" and "882 SCVWD FLOOD CONTR." Respondent agreed to pay the item for sewer service but declined to pay the latter two items. A letter to the then owner of the property stated that Respondent was responsible for the payment of "general (ad valorem) real estate taxes only" and would not pay any "direct or special assessments." (AF 33). The assessment titled "882 SCVWD FLOOD CONTR", was levied by the Santa Clara Valley Water District (SCVWD) to fund flood control programs in Santa Clara County.
8. The 1985-86 through 1993-94 tax bills each contained two direct assessment items -- one for sewer service and one titled "882 SCVWD FLOOD CONTR." In each case, Respondent agreed to pay the item for sewer service but refused to pay the item for flood control.
9. On July 6, 1994, Respondent exercised the renewal option for the period beginning November 24, 1995 and ending November 23, 2000.
10. On October 11, 1994, Appellant purchased the leased premises from the former owner. Respondent began making rental payments under the lease to Appellant effective October 1, 1994.
11. The 1994-95 tax bill included direct assessment items for sewer service and "882 SCVWD FLOOD CONTR." As before, Respondent paid the item for sewer service but refused to pay the item for flood control.
12. On November 18, 1994, Appellant filed a claim with Respondent requesting reimbursement for the SCVWD flood control assessments which Respondent had not previously paid, including those not paid to the previous owner, and requesting that Respondent assume responsibility for this assessment on future tax bills.
13. On February 17, 1995, Respondent denied Appellant’s claim by a Contracting Officer’s Final Decision. Appellant filed a timely appeal with this Board.
DECISION
In this appeal, Appellant seeks reimbursement from Respondent for certain assessments for flood control levied by the Santa Clara Valley Water District in Santa Clara County, California, against property leased by Appellant to Respondent.
Appellant makes three arguments in support of its position that Respondent is liable for the assessments. First, Appellant argues that the evidence shows that the assessment for flood control at issue here was a direct replacement for a service funded from general real estate taxes before the passage of Proposition 13.[5] Therefore, Appellant argues, the Postal Service is liable for the amount of the assessment under the holdings in Alvin, Ltd. v. United States Postal Service, 816 F.2d 1562 (Fed. Cir. 1987) and S.S. Silberblatt, Inc. v. United States, 888 F.2d 829 (Fed. Cir. 1989). Second, Appellant argues that Alvin can be read to make Respondent liable even if the new service is not a direct replacement for a service funded by general real estate taxes, provided the new service is the type of service that would have been funded by general real estate taxes if it had been implemented prior to Proposition 13.
Finally, Appellant argues that the general nature of the lease arrangement -- which it terms an "absolute net lease" -- reflects a scheme in which the lessor is to be relieved from virtually all financial exposure in return for granting favorable rental rates. Appellant argues that the nature of the bargain between the parties was that the lessor (Appellant) was to be insulated from all changes in repair costs and increases in real estate taxes. Accordingly, Appellant argues that Respondent is liable for the payment of the flood control assessment, since it is still collected in the same manner as real estate taxes, and is one of the increases from which Appellant believes it should be insulated.
Respondent, also relying on Alvin and Silberblatt, argues that Appellant has failed to show that the flood control services funded by the assessment at issue here were direct replacements for services funded by ad valorem real estate taxes prior to Proposition 13, as required by those decisions. Respondent contends that Appellant has failed to show that the legislation that authorized the collection of the assessment at issue here was enacted in response to Proposition 13. Respondent also notes that the Postal Service refused to pay the assessment at issue here from the time it first showed up on the tax bills after the passage of Proposition 13. Therefore, Respondent contends that, unlike the situation in Alvin, Appellant may not rely on any evidence of a contemporaneous interpretation by the Postal Service that is at odds with the position it has taken in this appeal.
In the appeal before us, the evidence shows that prior to the passage of Proposition 13, costs for flood control services rendered by Santa Clara County, through the Santa Clara County Flood Control District, were assessed against the property owner on an ad valorem basis and were collected by the County as part of the general real estate tax bill. Although the assessment for flood control was not made in every year of the lease term preceding Proposition 13, the evidence shows that flood control assessments that were made during that period were collected as part of the general real estate tax. Respondent paid the full amount of the pre-Proposition 13 real estate tax bills, including those with flood control assessments, without objection or deduction. This record is sufficient to establish that pre-Proposition 13 flood control services were funded out of the proceeds of general real estate taxes for which Respondent was liable under the Tax Clause Rider.
The record here is also sufficient to establish a prima facie case that the post-Proposition 13 assessment for flood control at issue here was a direct replacement for the pre-Proposition 13 services. The new assessment is collected at the same time and in the same manner as the previous ad valorem tax -- i.e., as part of the real estate tax bill -- and, most importantly, is used to fund the same service, flood control, that was funded by the previous tax. Respondent offered no evidence to refute Appellant's factual contentions with regard to the nature or purpose of the new assessment. Further, there is no evidence that the flood control services previously funded through ad valorem taxes are now being funded in any manner other than through the assessment at issue here. We do not agree with Respondent that, under these facts, Appellant must also show that the legislation authorizing the collection of this flood control assessment was enacted in direct response to Proposition 13. Evidence that it was not so enacted might help Respondent overcome Appellant's prima facie case, but we do not agree that Appellant was required to show the legislative origins of the flood control assessment in order to prove its case.[6]
Accordingly, we conclude that Appellant has met its burden of proving that the flood control services funded by the assessment at issue in this appeal are direct replacements for the flood control services funded by a portion of general real estate taxes prior to Proposition 13. Respondent is thus liable for the payment of that assessment. Alvin, supra; Silberblatt, supra.[7]
The appeal is sustained. However, Appellant may recover only to the extent it has suffered damages due to Respondent's failure to pay as required by the lease. Accordingly, Appellant may recover only those flood control fees not paid while it owned the property. It may not recover that portion of the claim which included fees for the period preceding its acquisition of the property. As only entitlement is at issue in this appeal, we leave it to the parties to negotiate the amount due.
David I. Brochstein
Administrative Judge
Vice Chairman
I concur:
James A. Cohen
Administrative Judge
Chairman
I concur:
William K. Mahn
Administrative Judge
Board Member
[1] Unless otherwise indicated, the Findings of Fact are based on the parties' stipulation.
[2] 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.
[3] Ad valorem, as used in this Opinion, means that the amount of the tax was arrived at by applying a stated rate to the assessed valuation of the property.
[4] The tax bills stated the amount of the direct assessment items but gave no indication of how they were calculated.
[5] Proposition 13 was added to the California Constitution as Article XIIIA on June 6, 1978. It provided that ad valorem taxes on real property could not exceed 1% of the property's assessed value, significantly reducing the revenues available from that source. See Alvin, Ltd. v. United States Postal Service, 816 F.2d 1562, 1563 (Fed. Cir. 1987)
[6] Appellant has called our attention to the passage of the Benefit Assessment Act of 1982, codified at Cal. Gov't Code §54703 (West 1983), which authorized, among other provisions, the imposition of flood control assessments by local government agencies. However, the record does not contain specific evidence that the assessment at issue here was implemented under the authority of that Act.
[7] Because of this holding we need not address Appellant's other arguments, but we note that its second argument was considered and rejected in Silberblatt, 888 F.2d at 833.