Building managers who lease office and warehouse space to the federal government may need to read their lease-renewal clauses carefully if they include escalators.
The General Services Administration tried to interpret a section of an escalator clause with Plaza East Limited Partnership, which leases a building at 1800 N. Kent Street in Arlington to the federal government, to mean something other than what it the company thought it said when the deal was signed.
As a result, Plaza East took its case before the GSA Board of Contract Appeals and won a judgment worth at least $56,331 in back rent. In future years, the judgment will mean more money for the company unless tax and operating costs that comprise the escalator clause come down.
What happened was the government tied the escalator clause to the third, sixth and ninth years, though the contract itself was only for five years. At the end of the fifth year, GSA wanted to renegotiate the contract with a new base rate that did not take into regard the escalators that had jacked up the costs to $645,326 a year in the fourth and fifth years.
"The board found that was an unreasonable interpretation," said Anthony L. Washington, the GSA claims attorney who handled the case. "but even in losing this particular case, we're still paying less than the going rate in Rosslyn."
In his opinion, Administrative Law Judge James W. Hendley said, "It is not given to man to foresee the future -- but death, taxes and the future inherent in the calendar itself can be considered a moral certainty. In short, the parties entered into an agreement which, of necessity, created some questions as to how the escalation provision should be applied to the three years following the first three years of the lease."
Hendley said he found Plaza East's understanding of the clause "to be the only one consistent with a reasonable interpretation of the terms of the lease in light of the practical economic scheme evinced from the lease as a whole."
Hawaii Gov. George R. Ariyoshi (D) and GSA continue to squabble over who should get parts of huge abandoned military bases in the state, much of it now prime development land. Hawaii contends that much of the land the government wants to sell is due the state because it was originally "taken" by the U.S. government for use as military reservations.
An example of the feud pertains to two properties: the 71-acre Honouliuli Military Reservation and the three-acre Hickam Air Force Base Administrative Annex.
State officials have wanted a 13-acre sliver of Honouliuli that is adjacent to the new Barber's Point harbor on Oahu that the U.S. Army Corps of Engineers is dredging. GSA refused to fragment the property and put it up for sale. Last week, the federal agency accepted a $6.8 million bid from the Cook Inlet Regional Corp.
With bid openings on Hickam scheduled for two days later -- April 28 -- the state immediately filed suit in U.S. District Court to bar that sale. Judge Samuel King has ruled that GSA must hold up the sale for 20 days while the state prepares its case.
Coincidentally, Cook Inlet officials apparently are willing to talk to the state about the 13-acre parcel. Perhaps complicating those discussions is the fact that the Alaska native Cook Inlet group also won the Hickam bid -- $1.6 million.Cook Inlet is "buying" because its money is really government scrip, awarded -- but still held in the U.S. Treasury -- by the Alaska Native Claims Settlement Act in "payment" for lands the government has taken in that state. GSA officials, although trying to build up the federal coffers to help offset rising debts, say they have to accept that Treasury-held money equally with bucks from corporations and individuals.
In another part of Hawaii, state officials and GSA did manage to agree to hold up the sale of the 174-acre Waiawa Military Reservation for 60 days because state officials want to use some of the land as a prison. Mary Filippini of GSA's San Francisco regional office said that Hawaii "did not notify GSA during the screening period" of its interest. Still, because GSA was able to verify that the state had ongoing discussions with the Justice Department about where to put the new "rehabilitation correctional institution," Filippini says GSA property disposal officials are allowing them a 60-day delay.
The White House Property Review Board -- which is supposed to cut the red tape on this kind of dispute -- hasn't been asked to help, and Joshua A. Muss, the panel's executive director, said it may be too late anyway.
"They missed their chance at the initial screening," Muss said."But we look favorably at state requests for penal purposes. It would be within the guidelines of the board to approve such an application."