Appeal of

J. LEONARD SPODEK
NATIONWIDE POSTAL MANAGEMENT

LEASE AGREEMENT
(Eau Claire Station - Colombia, SC)
PSBCA No. 4506

APPEARANCE FOR APPELLANT:
J. Leonard Spodek

APPEARANCE FOR RESPONDENT:
Gail A. Nettleton, Esq.

OPINION OF THE BOARD

            Appellant, J. Leonard Spodek/Nationwide Postal Management, has appealed the final decision of the contracting officer assessing against Appellant (lessor) $62,987.23, representing the costs incurred by Respondent, United States Postal Service, in repairing and replacing the roof of the Eau Claire Station Post Office in Columbia, SC.  A hearing was held in Columbia, SC.  Both entitlement and quantum are at issue in this appeal.

FINDINGS OF FACT

            1.  Beginning on September 1, 1966, Appellant’s predecessor-in-interest leased property to Respondent for an initial fifteen-year term to be used as the Eau Claire Station Post Office in Columbia, SC.  The lease contained five five-year options, exercisable by Respondent.  All of the options have been exercised, thereby extending the lease to August 31, 2006.  (Appeal File Tabs (AF) 1, 4-6, 11).

            2.  Paragraph 7 of the lease, specified that the lessor agreed to maintain the facility in good repair and tenantable condition, except for damage arising from the act or negligence of Respondent’s agents or employees.  In addition, Paragraph 10.d.1 specified that the lessee must give notice, by registered or certified mail, to the mortgagee or assignee of monies due under the lease before taking action to cancel the lease or to incur a cost for which it could obtain reimbursement under the lease.   (AF 1).

            3.  On February 3, 1992, Appellant purchased the property and assumed the responsibility as lessor (AF 7, 8).

            4.  In September 1994, the roof of the facility began leaking.  Appellant was notified that the roof was leaking and was requested to make repairs (Transcript pages (Tr.) 288, 289; AF 29).

            5.  Appellant neglected to make the necessary leak repairs and, on June 12, 1995, Respondent arranged to have the leaks repaired by awarding a work order in the amount of $6,517.95 under an existing Indefinite Quantity Construction (IQC) contract.  The IQC contract had been awarded after a competitive bidding process.  The work was accomplished, and Respondent paid the IQC contractor $6,517.95 for the work.  (Tr. 127, 128; AF 29, 41).

            6.  The roof began leaking again in 1997.  Respondent accomplished temporary repairs of these leaks, again without Appellant’s involvement.^[1]  However, beginning in September 1998, the roof again began leaking.  Appellant was notified in writing and by telephone of these latest leaks beginning on September 22, 1998.  However, Appellant insisted that it was not responsible for repairing the roof.  (Tr. 221, 222; AF 34, 35, 37, 40).

            7.  By letter dated September 23, 1998, the contracting officer advised Appellant that unless it immediately began efforts to repair the roof, Respondent would arrange to have the roof repaired by a third party contractor and assess Appellant for the costs involved (AF 34).

            8.  Appellant did not respond to the contracting officer’s September 23, 1998 letter (Tr. 223, 282).

            9.  The roof continued to leak and, on December 10, 1998, Respondent had the roof inspected by an independent roofing expert.  The expert concluded that the roof had failed and that replacement of the roof would be necessary to correct the leaking condition.  Among the most serious problems with the roof was that the roof lacked proper sloping which allowed excessive water to pond on the roof.  The drains were in good shape but water couldn’t get to the drains because of the lack of proper slope.  The water ponding caused severe cracking and deterioration in the locations where the water ponded.  The ponding was so severe that it created a danger of the roof collapsing.  The expert also concluded that any repairs would not last and would not be cost effective and that replacement of the roof was the only appropriate option.  Appellant was provided with a copy of the expert’s report.  (Tr. 40-47, 55-57, 63, 64, 88-91, 145, 286; AF 31, 32).

            10.  By letter dated January 14, 1999, the contracting officer notified Appellant of the continuing leaks and advised Appellant that Respondent estimated that it would cost Respondent approximately $53,000 to replace the roof.  Appellant was further notified that unless roof repairs were begun within thirty days, Respondent would have the roof replaced by third party contract and the cost of the third party contract would be deducted from rents otherwise due Appellant.  (AF 31).

            11.  By letter dated February 24, 1999, Appellant notified Respondent that it had contacted roofing contractors concerning inspecting the roof and was awaiting their response before entering into a contract for repair (AF 26).

            12.  By letter dated March 4, 1999, Appellant notified the contracting officer that it had contracted “with a local roofer to make the roof watertight.”  Despite this assertion, Appellant had not entered into any agreement or contract to correct the roof leaks at the facility.  However, about this same period of time, a roofer contacted by Appellant did perform a temporary patch on at least one of the leaks while he was inspecting the roof.  (Tr. 12, 13; AF 24; Appellant’s Exhibit No. (AE) 8).

            13.  By letter dated March 5, 1999, the contracting officer asked Appellant to provide the name of his roofing contractor so that the Postal Service could contact the contractor and arrange a schedule that was compatible with Postal Service operations.  However, Appellant never responded to this letter.  (Tr. 283; AF 22).

            14.  The roof continued to leak and the leaks interfered with mail processing (Tr. 280, 286, 287).

            15.  By letter dated June 9, 1999, the contracting officer advised Appellant that the Postal Service was ready to have the roof replaced unless Appellant immediately responded to the prior request for information concerning Appellant’s roofing contractor ((AF 19).

            16.  Appellant did not respond to the contracting officer’s June 9 letter and did not make any arrangements for a roofing contractor to correct the leaks on the facility’s roof.  (Tr. 14, 477, 478; AF 16).

            17.  Thereafter, Respondent solicited quotes for a roof replacement for the facility from two local IQC contractors who were already under contract with the Postal Service.  On July 23, 1999, the contracting officer issued a work order, in the amount of $54,969.27, to Acme Roofing and Sheet Metal Co. Inc., the contractor that submitted the lowest quote for the work.^[2]  The work order required the IQC contractor to remove the existing roof on the facility and install a “like kind” replacement roof.  The work included correcting the slope on the roof to eliminate ponding by installing tapered insulation layers.  In addition, the work required the replacement of the gutters, since it is more cost effective to replace the old gutters that have to be removed to replace the roof rather than repair the damage that generally occurs during the removal process.  (Tr. 123-127, 176, 177, 186, 213-215, 224, 264, 265, 288; AF 17, 42, 43).

            18.  By letter dated August 24, 1999, the contracting officer notified Appellant that the work order to replace the roof had been issued and that the costs of the work, plus administrative costs, would be assessed against Appellant (AF 18).

            19. The work was substantially completed by August 27, 1999, and the contractor was paid $54,969.27 for its effort (AF 17, 42, 43).

            20.  By letter dated August 30, 1999, Appellant notified Respondent that it was soliciting bids to repair the roof at the facility (AF 16).

            21.  By final decision dated September 10, 1999, the contracting officer notified Appellant that the third party contractor had completed work on the roof.  The contracting officer also reminded Appellant concerning the roof repairs that Respondent had accomplished by a third party contractor in 1995 (see Finding of Fact No. 5).  The contracting officer concluded by notifying Appellant that it was in debt to the Postal Service in the amount of $62,987.23, consisting of $6,517.96 representing the cost of the 1995 third party roof repair, $54,969.27 for the current roof replacement, plus $1,500.00 in administrative costs.  ( AF 14).

            22.  By letter dated November 29, 1999, Appellant filed a timely appeal of the September 10, 1999 final decision of the contracting officer (AF 13).

DECISION

            Respondent argues that the repairs to the roof in 1995 and the roof replacement in 1999 were both necessary and that the lease placed the responsibility on the lessor to carry out these tasks in order to maintain the facility in good repair and tenantable condition.  Respondent further argues that it gave Appellant sufficient notice of the need to correct the leaks in the roof and that, when Appellant failed to do so, it had the right to have the work done and charge Appellant the cost of the work.  Finally, Respondent argues that the costs incurred in having the work done were reasonable.

            Appellant first argues that written notice was not issued in accordance with paragraph 10.d.1 of the contract (Finding of Fact No. (FOF) 2).  Paragraph 10.d.1 specifies that Respondent must give notice, by registered or certified mail, to the mortgagee or assignee of monies due under the lease before taking action to cancel the lease or to incur a cost for which it could obtain reimbursement under the lease.  At least as of the date of the two repairs in dispute herein, there is no evidence Appellant ever furnished the Postal Service with the names and addresses of any assignees or mortgagees of the lessor.  Further, even if Appellant had shown the existence of a mortgagee or assignee, it would not prevail because it has not demonstrated any prejudice or harm as a result of the failure to provide notice.  See J. Leonard Spodek/Wisconsin Postal Holdings, PSBCA Nos. 4243 & 4324 (Slip Opinion, December 14, 2001).  Thus, paragraph 10.d.1 of the lease does not alter Appellant’s responsibility to maintain the roof in good repair and tenantable condition, or relieve it of the costs of either the roof repair in 1995 or the roof replacement in 1999.

1995 Roof Repairs

            Under the lease, Appellant was responsible for the roof, which we have found was leaking and in need of repair in 1994.  We have also found by a preponderance of the evidence that, notwithstanding Appellant’s assertion that it never received notification, Respondent notified Appellant of the leaking condition and requested Appellant to make repairs.  (FOF 2, 4).  However, were we to conclude that Appellant never received notice, it would not be relieved of all liability for the costs of repairs.  Instead, where, as here, Respondent has shown that repairs were required and were the responsibility of the lessor, failure to give proper notice relieves the lessor of repair costs only to the extent that it can show that it could have accomplished the necessary repairs at a cost lower than that incurred by Respondent.  See J. Leonard Spodek d/b/a Nationwide Postal Management, PSBCA No. 3710, 96-2 BCA ¶ 28,457.  In this instance, Respondent had the leaks repaired by issuing a work order under a competitively awarded IQC contract.  The leaks were repaired and Respondent paid the IQC contractor $6,517.92 for the work.  (FOF 4, 5).  Appellant has offered no evidence that it could have had the repairs performed at a lower cost.  Accordingly, this portion of the appeal is denied.

1999 Roof Replacement

            Although the roof was repaired by Respondent in both 1995 and 1997 (FOF 5, 6), those repairs did not relieve Appellant of the responsibility under the lease to maintain the facility (including the roof) in good repair and tenantable condition.   See Massapequa Partners Limited Partnership MPL Group, Inc., PSBCA No. 3817, 97-2 BCA ¶ 29,058; Edward R. Ester, et al., PSBCA No. 3051, 93-3 BCA ¶ 25,960; M.R. Kaplan, et al., PSBCA Nos. 1147, 1298, 1303, 1310, 88-3 BCA ¶ 20,827.

We have found that roof leaks reoccurred after the 1995 repairs and continued to leak after repairs that took place in 1997.  Despite repeated notifications concerning the leaking roof, Appellant took no action to repair or replace the roof (FOF 7-16).  In the face of Appellant’s failure to take action, Respondent acted properly in accomplishing the task itself.  Moreover, if replacement of the roof was the only reasonable method to accomplish the task, then Respondent was entitled to have a new roof installed at Appellant’s expense.  See Massapequa Partners Limited Partnership MPL Group, Inc., PSBCA No. 3817, supra.

            In this regard, Respondent has established by a preponderance of the evidence that something more than another roof repair was necessary to ensure that the building would remain dry and allow postal operations to proceed unimpeded by water leaks.  Two previous roof repairs had not prevented further leaking.  Moreover, the roofing expert engaged by Respondent had determined that the roof was no longer repairable and that replacement of the roof was the only appropriate option (FOF 9).  Appellant did not offer any evidence to dispute these facts and did not demonstrate that a viable alternative to replacement of the roof would have worked.  In these circumstances, Respondent’s decision to replace the roof was reasonable.

            Respondent had a like-kind replacement roof installed by the IQC contractor that submitted the lowest quote (FOF 17).  Nevertheless, Appellant challenges the costs incurred, arguing that extra insulation was installed and that the gutters did not need replacement.  However, we have found that the extra insulation was installed to achieve a proper slope to insure that the roof drained properly and, thereby, prevent future ponding.^[3]  We have also found that, to install a replacement roof, it was more cost effective to replace the gutters rather than repair and reinstall the existing gutters that had to be removed.  (FOF 17).

            Appellant also argues that the cost of replacing the roof was excessive ($54,969.27), and that it obtained a bid in the amount of $2,100.00 to repair the roof.  However, the record does not support this assertion.  More importantly, Appellant frankly acknowledged that it never hired a contractor to do any work on the roof, despite Respondent’s repeated requests for Appellant to correct the leaks (FOF 16).  In these circumstances, Respondent satisfied its burden of mitigating the costs associated with replacing the roof by having the work done by the IQC contractor that submitted the lowest quote for the work.  See Real Properties MLP Limited Partnership, PSBCA No. 3453, 95-2 BCA ¶ 27,829.  The work was accomplished and Respondent paid the third party contractor for the work (FOF 17).  Accordingly, Respondent is entitled to recover the costs of the roof replacement from Appellant.

            However, Respondent has failed to make any showing of having incurred the administrative costs it claimed and this aspect of the appeal is sustained.  See J. Leonard Spodek/Nationwide Postal Management, PSBCA No. 4223, 99-2 BCA ¶ 30,559.

            Accordingly, the appeal is sustained to the extent that Respondent may not recover the administrative costs it incurred, but it is otherwise denied.  Respondent may recover the costs of the 1995 roof repair ($6,517.92), as well as the costs of the 1999 roof replacement ($54,969.27), as well as interest on amounts due, see J. Leonard Spodek/Nationwide Postal Management, PSBCA No. 3710, supra, from Appellant.

William K. Mahn
Administrative Judge
Board Member

I concur:
James A. Cohen
Administrative Judge
Chairman

I concur:
David I. Brochstein
Administrative Judge
Vice Chairman

[1]  The costs associated with this repair effort are not involved in this appeal.

[2]  Acme Roofing’s IQC contract itself had been awarded through a competitive bidding process.

[3]  Our decision in Massapequa Partners Limited Partnership MPL Group, Inc., PSBCA No. 3817, 97-2 BCA ¶ 29,058, in which we disallowed Respondent’s recovery of the cost of installing tapered insulation is distinguishable from the circumstances in this appeal.  In Massapequa, Respondent failed to demonstrate that installing tapered insulation was essential to replace the roof.  However, in this appeal. Respondent has demonstrated by credible evidence that installing tapered insulation in conjunction with the roof replacement was necessary to achieve proper drainage of the roof and, thereby, prevent future ponding of water (FOF 9).