November 13, 1998
Appeal of
NATIONWIDE POSTAL MANAGEMENT
LEASE AGREEMENT
PSBCA No. 3938
APPEARANCE FOR APPELLANT:
John P. Spector, Esq.
APPEARANCE FOR RESPONDENT:
Samuel J. Schmidt, Esq.
OPINION OF THE BOARD
Appellant, Nationwide Postal Management, has appealed the final decision of the contracting officer assessing against Appellant (lessor) $25,000, representing the estimated cost of repair (by replacement in kind) of the air conditioning units at the Parklawn Station Post Office in Milwaukee, Wisconsin. A hearing was held at the request of the parties in Milwaukee, with additional testimony taken by telephone following the hearing. Both entitlement and quantum are at issue in this appeal.
FINDINGS OF FACT
1. On April 14, 1972, Appellant's predecessor-in-interest leased property to Respondent, United States Postal Service, to be used as the Parklawn Station Post Office. The original lease term was for ten years, with four, five-year options. The last option has been exercised by Respondent, and the lease expires on November 30, 2001. (Appeal File Tab (AF) 3-A).
2. Paragraphs 6 and 7 of the lease specified, in pertinent part, as follows:
"6. Lessor agrees to furnish air conditioning equipment in accordance with contractual requirements, servicing of said equipment including, but not limited to, the replacement of necessary refrigerant and filters as required for proper operation of the equipment during the continuance of the lease.
7. The lessor shall, unless herein specified to the contrary, maintain the demised premises, including the buildings and any and all equipment, fixtures, and appurtenances . . . furnished by the lessor under this lease in good repair and tenantable condition, except in case of damage arising from the act or negligence of the Government's agents or employees." (AF 3-A).
3. Respondent required the lessor (including Appellant's predecessor-in-interest), to accomplish all necessary repairs to the air conditioning units (Transcript pages (Tr.) Vol. I, 181, 182; Supplemental Appeal File Tab (SAF) 29-41).
4. On an annual basis, Respondent's maintenance personnel inspected the air conditioning units at the Parklawn Station and performed routine maintenance. This maintenance included cleaning and lubricating the units, adding freon and changing the filters, as needed. (Tr. Vol. I, 143, 156, Vol. II, 15, 16). Respondent believed that routine servicing of the air conditioning equipment by its personnel was provided as a convenience to the lessor rather than an obligation, and the lessor was advised that if it wanted the service discontinued, it should so advise Respondent (SAF 41).
5. On February 26, 1992, Appellant purchased the Parklawn Station property and assumed the lease (SAF 9).
6. Respondent's personnel discovered, during a routine inspection in May of 1994, that the Parklawn Station air conditioning units were not working and, by letter dated May 25, 1994, Appellant was contacted and requested to repair or replace the inoperable units (Tr. Vol. I, 144, 145; SAF 42).
7. In a letter dated June 14, 1994, Appellant stated that it was not its responsibility to service the air conditioning units (SAF 43).
8. By letter dated June 28, 1994, Respondent informed Appellant that if it did not correct the problem with the air conditioning units by July 28, 1994, a third party contractor would be engaged to perform the work, and the cost of the work would be deducted from rent owed to Appellant (SAF 44).
9. Appellant did not respond to this letter in writing, although in a telephone conversation with a representative of Respondent, Appellant reiterated that it did not believe it was Appellant's responsibility to repair or replace the air conditioning units (Tr. Vol. I, 54, 55, 207, 208).
10. In January 1995, Respondent contracted with an engineering firm (Foth & Van Dyke) to inspect the condition of the Parklawn Station air conditioning units and provide an independent recommendation as to whether the units should be repaired or replaced (Tr. Vol. I, 55, 107).
11. The engineering firm recommended that the air conditioning units be replaced with new units. This conclusion was based on the fact that the existing units were approximately 30 years old; sub components of the units were damaged beyond repair; the original manufacturer (Climatrol) was no longer in business and, therefore, replacement parts would be hard to find; and a new system would be more economical to operate. Foth & Van Dyke estimated it would cost $20,000 to $25,000 to provide a "one-for-one" replacement of the original system. (Tr. Vol. I, 87-89, 108-115; SAF 45).
12. Respondent's air conditioning maintenance personnel also believed that replacement of the units was the most economical course of action (Tr. Vol II, 46, 47).
13. Beginning in June of 1995, Respondent competitively solicited bids to replace the air conditioning units at the Parklawn Station with an up-graded, energy efficient system. On July 19, 1995, a contract was awarded to the lowest bidder, Babcock Mechanical, to replace the air conditioning units for a price of $49,706. The contract was subsequently modified and the price was increased to $50,854.95. The new units were installed and accepted by Respondent on December 11, 1995. (Tr. Vol. I, 91, 92; AF 2).
14. After learning that Respondent had awarded a contract to replace the air conditioning units, in October of 1995, Appellant had a contractor inspect the units and give him an estimate for the cost of repairing or replacing them. The contractor provided Appellant an estimate of $29,720 to perform the work, including replacing the two air handling units and condensing units with new units. (Tr. Vol. I, 17, 208; SAF 55).
15. By final decision dated January 17, 1996, the contracting officer notified Appellant that it was responsible to repay the Postal Service $25,000 for its share of the cost to provide an operable air conditioning system at the Parklawn Station (SAF 54). This apportionment of the total cost of replacing the units ($50,854.95) was an estimate of what it would have cost to replace only the inoperable condenser units of the original air conditioning system and was consistent with the cost estimate provided by Foth & Van Dyke (Tr. Vol. I, 100, 101, 134, 135; SAF 45; see Finding 11).
DECISION
Respondent argues that it was Appellant's responsibility under the lease to maintain the Parklawn Station air conditioning system in an operable condition and that when Appellant failed to perform this obligation, Respondent properly undertook to repair the system and charge Appellant the reasonable costs incurred in doing so. Respondent further argues that, in this case, it was reasonable to replace the air conditioning units with an upgraded system, but charge Appellant only what it would have cost to replace the inoperable units with in-kind replacements.
Appellant argues that the course of conduct (Respondent's actions of periodically servicing the air conditioning units) between Respondent and both Appellant and the predecessor lessor, modified the lease to shift the burden of maintaining the air conditioning system to Respondent. Appellant further argues that even if it was Appellant's responsibility to maintain the system, Appellant should not be responsible for Respondent's decision to replace the system instead of simply repairing it.
Other than establishing that Respondent voluntarily performed routine maintenance on the air conditioning units on a periodic basis (see Finding of Fact No. (FOF) 4), Appellant has provided no support for its argument that the lease was modified. At a minimum, Appellant must also demonstrate that it somehow relied to its detriment on Respondent's actions in voluntarily undertaking to service the air conditioning units. See C.R. Klewin, Inc., PSBCA No. 1416, 86-1 BCA ¶ 18,602. However, Appellant has failed to demonstrate any detrimental reliance on Respondent's actions or otherwise show how Respondent's maintenance of the air conditioning units caused or contributed to the need to repair or replace the units. Absent such evidence, Appellant remained responsible under clauses 6 and 7 of the lease to maintain the air conditioning system. See Massapequa Partners Limited Partnership MPL Group, Inc., PSBCA No. 3817, 97-2 BCA ¶ 29,058.
When Appellant failed to repair the air conditioning units after being repeatedly requested by Respondent to do so, Respondent had the right to have reasonable repairs made and deduct their cost from rents due Appellant. See Edward R. Ester and Lorraine Ester, PSBCA No. 3051, 93-3 BCA ¶ 25,960. In this case, Respondent made the decision to repair the units by replacement and, in so doing, to upgrade the energy efficiency of the replacement units (FOF 13). Nevertheless, Respondent only assessed Appellant the reasonable cost of a "like kind" replacement system (FOF 11, 15).
Respondent's decision to replace the units instead of repairing them was reasonable. The age and extent of disrepair of the units, coupled with the fact that the original manufacturer was no longer in business, made repairing them impractical. (FOF 11).
Finally, we conclude it was
reasonable to assess Appellant $25,000 of the $50,854.95 total cost of
replacing the air conditioning units with an upgraded system. This amount,
although based on an estimate by Respondent of what a "one for one"
replacement of the existing units would have cost, was consistent with
the estimate provided by Foth & Van Dyke (FOF 15), and was less than the
estimate to repair the system Appellant received from another contractor[1]
(FOF 14).
Accordingly, this appeal is denied.
William K. Mahn
Administrative Judge
Board Member
I concur:
James A. Cohen
Administrative Judge
Chairman
I concur:
David I. Brochstein
Administrative Judge
Vice Chairman