CBCA 6012

THIS OPINION WAS INITIALLY ISSUED UNDER PROTECTIVE ORDER AND IS BEING RELEASED TO THE PUBLIC IN ITS ENTIRETY ON APRIL 5, 2021 GRANTED IN PART: March 26, 2021 CBCA 6012 1125 15TH STREET, LLC, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Brett D. Orlove of Grossberg, Yochelson, Fox & Beyda, LLP, Washington, DC; and Mark H.M. Sosnowsky and Joie C. Hand of Faegre Drinker Biddle & Reath LLP, Washington, DC, counsel for Appellant. Michael Converse and Elyssa Tanenbaum, Office of the General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges HYATT, GOODMAN, and RUSSELL. RUSSELL, Board Judge. Appellant, 1125 15th Street, LLC, seeks damages for the Government’s holdover in premises leased by appellant to respondent, General Services Administration (GSA). Respondent has conceded liability under a breach of contract theory, specifically, that the Government breached its implied duty to vacate the premises at the conclusion of the lease. Therefore, the only questions relate to the period of the holdover (specifically, on which date CBCA 6012 2 did the Government vacate the premises), and the amount of any damage award. For reasons stated below, we agree with appellant as to when the holdover period expired. We disagree with both parties as to the fair market rental value of the holdover period, finding that a fair and reasonable rental amount is slightly higher than the amount calculated by GSA’s expert. Therefore, we grant the appeal in part. Findings of Fact The Lease On April 24, 2006, appellant and the United States, acting through GSA, executed a lease for the use of 64,507 rentable square feet (RSF) of space consisting of the 10th, 11th, and 12th floors at a commercial office building located at 1125 15th Street, N.W., in Washington, D.C. The tenant agency occupying the space was a component of the Department of Homeland Security (DHS). In August 2010, the lease was amended to add 156 RSF for the construction of a guard’s room near the loading dock area on the second floor of the building. As a result of that amendment, the total square footage of the leased space increased to 64,663 RSF. The lease included a security provision allowing the Government, during the lease term, to install and operate X-ray and magnetometer screening equipment in the lobby and loading dock area on the second floor; employ armed guards to screen visitors using the security equipment; and conduct vehicle and passenger searches at the parking garage entrance. The lease was for a five-year term with a single option to renew for an additional five years. The lease did not include a holdover clause. The lease commenced on or about November 10, 2006, and was set to expire on November 9, 2011. On or about November 7, 2011, the parties executed a supplemental lease agreement under which the Government exercised its five-year option to extend the lease to November 9, 2016. The lease included a base rent amount, plus a pro-rata share for operating expenses and real estate taxes. The base rent amount was the same each year, but the operating expense portion was to be adjusted up or down based on changes in the consumer price index (CPI). Additionally, the real estate taxes were paid in an annual lump sum after the lessor had paid the tax for the year. The annual rent amount for the five-year extension, including adjustments for operating costs and real estate taxes, was $2,579,067.48 per year, or an annual rate of $39.88 per RSF ($2,579,067.48 ÷ 64,663). Starting in the summer of 2016 and continuing through the summer of 2017, the parties attempted to negotiate a short-term extension of the lease but were unsuccessful. During the negotiations, GSA offered to extend the lease for as much as $50 per RSF for up CBCA 6012 3 to forty-eight months with a right of cancellation after forty-two months. DHS personnel continued to occupy the premises without a lease from November 9, 2016, to December 31, 2018, when DHS moved to another building owned by the same lessor. GSA’s Payments During the Holdover Period After the lease expired in November 2016, GSA paid rent in the same amount as it had been paying during the final year of the lease, i.e., $214,922.29 per month or an annual rate of $39.88 per RSF.