Appeal of

EASTERN RETAIL HOLDINGS LP

LEASE AGREEMENT

PSBCA Nos. 4838 and 4902

APPEARANCE FOR APPELLANT:
Matthew B. Hill, Esq.

APPEARANCE FOR RESPONDENT:
Alfred J. Zwettler, Esq.

OPINION OF THE BOARD

            Appellant, Eastern Retail Holdings LP, entered into a lease with Respondent, United States Postal Service, to provide temporary quarters for a post office.  Relying on the lease’s termination clause, Respondent notified Appellant that it was terminating the lease effective March 31, 2002.  Appellant objected, contending Respondent’s right to terminate the lease became effective no earlier than September 30, 2002.  Appellant asks the Board to find that its interpretation of the lease clause is correct.

            The appeal is being decided on the record under the Board’s accelerated procedure, 39 C.F.R. §955.13 (d).^[1]

FINDINGS OF FACT

            1.  Sometime before July 1999, the Irmo, South Carolina Post Office was destroyed by fire.  Representatives of Respondent and Appellant, the owner of a strip mall in Irmo, began negotiations to relocate the post office to Appellant’s mall temporarily while the original post office was rebuilt.  (Appeal File, Tab (“AF”) 22).

            2.  Respondent’s real estate specialist advised Appellant’s agent that the process of rebuilding the post office could take three years, but it could also take less, so Respondent wanted flexibility in the term of the lease.  Appellant wanted a long-term lease.  (AF 22).

            3.  In the negotiations, the parties’ representatives identified two goals.  The first was to establish a minimum lease term of three years as requested by Appellant.  The second was to afford Respondent flexibility in terminating the lease because it was not known how long it would take to plan, fund, and construct the new facility.  (AF 22).

            4.  Eventually, it was agreed that Respondent’s real estate specialist would draft a lease that would include the issues that he and Appellant’s agent had agreed on (AF 22).

            5.  The real estate specialist assembled the lease using Respondent’s standard forms and included language he drafted addressing the termination rights under the lease (AF 22).

            6.  Respondent sent the lease to Appellant, and Appellant executed it without comment or objection.  The contracting officer executed the lease thereafter on August 20, 1999, and returned a copy to Appellant.  (AF 1, 2, 4, 5, 22).

            7.  The term of the lease was five years, from October 1, 1999, to September 30, 2004, with no renewal options (AF 5, Addendum).

            8.  The lease contained the following termination provision:

“Termination:  This lease may not be terminated by either party between October 1, 1999 and March 31, 2002.  After March 31, 2002 the lease may be terminated by the Postal Service provided Six months written notice is given to the lessor . . ..”  (AF 5, Addendum).

            9.  On August 28, 2001, Respondent sent Appellant a Notice of Termination of Lease.  The Notice advised that “the Postal Service hereby terminates said lease” and that the termination was effective at close of business on March 31, 2002.  (AF 14).

            10.  By letter dated September 17, 2002, Appellant complained that termination was not permitted until September 31 [sic], 2002, which was six months after March 31, 2002, the earliest date on which, according to Appellant, the notice of termination could be given (AF 15).

            11.  On September 19, 2001, the contracting officer responded, advising of his interpretation that the lease termination provision did not preclude giving notice of termination before March 31, 2002, to be effective March 31, 2002 (AF 16).

            12.  Appellant filed a notice of appeal (AF 18), which was docketed as PSBCA No. 4838.

            13.  As the contracting officer’s letter of September 19 (Finding 11) was not a final decision and there was some question whether Appellant had submitted a claim, Appellant submitted a claim on February 12, 2002, asking the contracting officer to accept Appellant’s interpretation of the lease’s termination provision (AF 19, 20; Stipulation of Facts ¶¶2, 3).

            14.  In a final decision dated April 17, 2002, the contracting officer rejected Appellant’s interpretation of the termination provision and concluded that Respondent’s termination was effective March 31, 2002 (AF 21).

            15.  Appellant filed a notice of appeal, which was docketed as PSBCA No. 4902.  The two appeals are consolidated for decision.

DECISION

            Appellant argues that the termination provision of the lease did not permit a termination to be effective any earlier than September 30, 2002.  Respondent argues that the termination provision plainly allowed Respondent to give notice of termination six months in advance of March 31, 2002, so long as the effective date of the termination was no earlier than March 31, 2002.

            The language of the termination provision is ambiguous.  While the provision can be read, as Respondent urges, to allow termination effective March 31, 2002, the language is also susceptible to a reasonable reading consistent with Appellant’s interpretation.  The first sentence of the termination clause in the post office lease describes when the lease cannot be terminated:  between October 1, 1999, and March 31, 2002.  The second sentence, permitting Respondent to terminate the lease after March 31, 2002, provided six months written notice is given, when read with the first, provides Appellant the benefit of a six-month notice period after March 31, 2002, before the termination can be effective.  Both interpretations being reasonable, the lease is ambiguous regarding when the termination provision can be exercised.  That being the case, the Board may consider extrinsic evidence in order to ascertain the intentions of the parties.  See Morningside Investments, PSBCA No. 3124, 93-1 BCA ¶ 25,492; Bell and Howell Co., PSBCA No. 1154, 84-1 BCA ¶ 17,216.

            The record reflects that when entering into the lease in 1999, the parties intended for the termination provision to allow termination no earlier than three years after the effective commencement date of the lease term.  Both of the parties’ representatives in the negotiations intended and expected that Respondent’s real estate specialist would draft language for the lease’s termination clause that met Appellant’s demand for a minimum three-year lease.  (Findings 3, 4).

            Respondent now asserts that the termination provision gave Appellant only a two-and-one-half year guaranteed term, but Respondent has presented no evidence that when entering into the lease it intended the lease to be terminable effective March 31, 2002.  Notably, in his declaration in these appeals, Respondent’s real estate specialist states that his intention in drafting the provision was to provide the three-year term demanded by Appellant.  He does not suggest that his intent in drafting the termination language as he did was to give Appellant anything less than the three-year minimum term.  Therefore, in order to give meaning to the parties’ intention, see United States v. Bethlehem Steel Co., 205 U.S. 105, 119, 27 S. Ct. 450, 51 L. Ed. 731 (1907); Alvin, Ltd. v. United States Postal Service, 816 F.2d 1562, 1565 (Fed. Cir. 1987) quoting 4 S. Williston, A Treatise on the Law of Contracts §601 (3d ed. 1961), we find that the termination provision of the lease allowed Respondent to terminate its tenancy effective no earlier than September 30, 2002.

            The appeal is sustained.

Norman D. Menegat
Administrative Judge
Board Member

I concur:
James A. Cohen
Administrative Judge
Chairman

     [1] Respondent timely submitted a declaration of its real estate specialist regarding the lease negotiations.  Appellant submitted affidavits in support of its position, but they were submitted with Appellant’s reply brief, well beyond the time allowed by the Board for submission of evidence.  Accordingly, Appellant’s affidavits were not considered.