________________________________________________ MOTION FOR SUMMARY RELIEF GRANTED IN PART: September 28, 1995 ________________________________________________ GSBCA 12989 GREENVILLE STORAGE & INVESTMENT, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. David C. Hammond of Powell, Goldstein, Frazer & Murphy, Washington, DC, counsel for Appellant. John C. Ringhausen, Office of Regional Counsel, General Services Administration, Atlanta, GA, counsel for Respondent. Before Board Judges DANIELS (Chairman), NEILL, and HYATT. NEILL, Board Judge. This dispute concerns the partial termination of landscaping and maintenance requirements under a multi-year lease between appellant and the General Services Administration (GSA). In her decision apprising appellant of this partial termination, the contracting officer also advised appellant that GSA would make an initial lump sum rental deduction for the actual costs of bringing appellant's facility and surrounding property up to an acceptable level of landscaping. In addition, the contracting officer's decision advised appellant that a service contract for annual maintenance and plantings would be awarded and the actual costs associated with this contract would be deducted from rental payments. The annual deduction for this cost has been estimated to be $24,400. Finally, the contracting officer's decision informed appellant that the base cost of services due under the lease would be reduced by $28,000. In partially terminating appellant's lease, the contracting officer contends that the authority to do so is found in the Failure in Performance clause of the lease. Appellant has brought a motion for summary relief arguing that the Government does not, as a matter of law, have the authority under this provision to terminate the landscaping and maintenance requirements for the remaining portion of the lease term. In addition, appellant seeks summary relief from the deductions and adjustments described in the contracting officer's decision. For the reasons set out below, we grant the motion in part. We conclude that respondent does not have the authority under the Failure in Performance clause to effect a partial termination of the lease for default. Given this conclusion, we also hold that the contracting officer's decision to deduct the cost of future landscaping and landscaping maintenance from rental payments is unjustified. The contracting officer's announced plan to reduce rental payments by the cost of current landscaping efforts does not raise an issue susceptible to resolution on a motion for summary relief. Under the Failure in Performance clause, respondent does have the authority to make reductions in rental payments if it can be demonstrated that the lessor has failed to meet a requirement of the lease. In this case, however, the issue of whether appellant is accountable for the lack of landscaping and landscape maintenance is a matter which is very much in dispute. As to the contracting officer's plan to reduce the base cost of services by the cost of landscaping, the existing record does not provide us with sufficient information on the nature of this adjustment to permit us to determine whether it is justified or not. We, therefore, deny the motion for summary relief as to these two issues. Background The record does not show any disagreement between the parties to this dispute regarding the following facts. 1. In 1987, appellant submitted an offer to lease to the GSA approximately 1.3 million square feet of warehouse and related space in Palmetto, Georgia. The offer was accepted and a lease was entered into on October 15, 1987. The term of the lease is twenty years with two ten-year options. The annual rent is approximately 3.6 million dollars. Appeal File, Exhibit 1. 2. Section 44 of the lease has the following provision concerning landscaping: Where topographical conditions permit, the site shall be landscaped with trees and shrubbery. The contracting officer shall approve the landscaping to be provided. Appeal File, Exhibit 1 at 2. 3. Paragraph I(P) of the lease amended Section 44 of the lease by adding the following: Landscaping and planting is required around the foundation at the main building entrances to the office areas (Block A, B, and C) as allowed by paved areas. Landscaping and planting of low maintenance trees shall be included for parking areas taking into consideration full maximization of land area for access/maneuverability for truck traffic. A minimum number of trees shall be that which may be required by local code or ordinance and in the event no local code requirements exist -- provide one (1) tree of 2" minimum diameter and 8'-0" high for each 2000 square feet of parking areas. Landscape screen planting of unsitely [sic] areas is also required. This requirement may be revised depending upon the individual site characteristics. Appeal File, Exhibit 1 at 2. 4. Paragraph 3 of the general clauses of the lease reads as follows: MAINTENANCE OF PREMISES (JUNE 1985) The Lessor shall maintain the demised premises, including the building and all equipment, fixtures, and appurtenances furnished by the Lessor under this lease in good repair and tenantable conditions, except in case of damage arising from the act or negligence of the Government's agents or employees. For the purpose of so maintaining said premises and property, the Lessor may at reasonable times, and with the approval of the authorized Government representative in charge, enter and inspect the same and make any necessary repairs thereto. Appeal File, Exhibit 1 at 8. 5. Paragraph D of Addendum 1 of the lease also deals with maintenance. It states that the lessor is responsible for the total maintenance and repair of the leased premises and that this maintenance includes the site and private access roads. This provision expressly states that the lessor is responsible for maintenance of the building interior and exterior and that exterior maintenance includes the exterior grounds. Appeal File, Exhibit 1 at 7. 6. By letter dated September 16, 1994, the contracting officer issued a written decision to appellant advising that beginning October 1, 1994, GSA would take over full responsibility for all landscaping requirements and maintenance under the lease. The reason given for this action was that -- so far as landscaping of the warehouse was concerned -- appellant was in default of the three provisions described above in Findings 3-5. Appeal File, Exhibit 49. 7. The contracting officer's decision notifying appellant of partial termination of the lease for default also advised that the following steps would be taken to rectify the lessor's deficiency: 1. To bring the facility and surrounding property up to an acceptable level of landscaping, there will be an initial lump sum rental deduction based upon the Government's actual costs for the provision of landscaping labor and materials. 2. The Base Cost of Services will be reduced by $28,000.00 and is established as $900,707.10. 3. A service contract for annual maintenance and plantings will be obtained by the Government and the annual rent will be reduced by $24,400.00, based on independent Government estimates. This figure is subject to adjustment to compensate the Government for actual costs incurred. Appeal File, Exhibit 49. 8. The contracting officer's decision advised that this takeover of full responsibility for all landscaping requirements and maintenance was done "[i]n accordance with Paragraph 15 (552.270-17, Failure in Performance, June 1985) of the General Clauses" of the lease. Appeal File, Exhibit 49. 9. This paragraph 15 of the lease, the Failure in Performance clause, reads as follows: The covenant to pay rent and the covenant to provide any service, utility, maintenance, or repair required under this lease are dependent. In the event of failure by the Lessor to provide any of these items, the Government may by contract or otherwise perform the service, maintenance, utility, or repair, and charge to the Lessor any cost incurred by the Government that is related to the performance of such service, maintenance, etc., including any administrative costs, and deduct such cost from any rental payments. Alternately, the Government may reduce rental payments by the corresponding value of the contract requirement not performed, as determined by the Contracting Officer. These remedies are not exclusive and are in addition to any other remedies which may be available under this contract or in the law. Appeal File, Exhibit 1 at 10. 10. Appellant's lease contains a termination for default provision. This provision, however, relates only to appellant's initial obligation under the lease to deliver premises ready for occupancy by the Government within the time required by the agreement. This provision does not provide for either partial or total termination for default subsequent to the Government taking occupancy of the premises. Appeal File, Exhibit 52 (GSA Form 3517 at 4). 11. By letter dated September 22, 1994, appellant filed a notice of appeal in reference to the contracting officer's decision of September 16. Appeal File, Exhibit 57. Discussion The issue presented by appellant in its motion for summary relief, simply stated, is whether GSA has the authority under the Failure in Performance clause to terminate in a permanent fashion, appellant's responsibilities for landscaping and landscape maintenance. The position of the Government in this de novo review of the contracting officer's decision remains unchanged so far as the authority for the partial termination for default is concerned. GSA continues to insist that this action may be taken under the Failure in Performance clause. This clause, according to GSA, is prospective as well as retrospective and can, therefore, be used to redress not only past deficiencies in performance but anticipated future deficiencies as well. Two aspects of the clause are said to demonstrate its broad and prospective nature. First, the clause applies to services and maintenance obligations which are, by their nature, continuous. Thus, according to respondent, the clause clearly applies to the lessor's future obligations. The second feature of the clause which respondent believes is demonstrative of its prospective nature is the provision that the Government's costs can be deducted from "any" rental payment. Respondent writes: The clause does not just permit a deduction from the next rental payment or even the next 12 rental payments but any rental payment. This is prospective and not limited. Therefore, the Failure in Performance clause by its own terms provides for a partial termination for default. Respondent's Memorandum of Law in Opposition to Appellant's Motion For Summary Relief at 4. Appellant strongly disagrees and argues that the clause, by its plain language, is limited to situations where the lessor has failed to perform. When this occurs, the Government is entitled to remedy the deficiency itself at lessor's expense or simply to subtract from rental payments the value of the contract requirement not performed. In short, appellant contends that the clause, on its face, is retrospective only and cannot serve as a basis for terminating future performance. See Appellant's Memorandum of Law in Support of Motion for Summary Relief at 10. We agree with appellant that the issue of whether or not respondent has the authority under the Failure in Performance clause to terminate the lease in part is appropriate for resolution through a motion for summary relief. The ultimate question here is one of contract interpretation, with no genuine issues of material fact presented. Armco, Inc. v. Cyclops Corp., 791 F.2d 147 (Fed. Cir. 1986). Upon review of the clause in question, we conclude that appellant is correct. The language of the Failure in Performance clause is clear and unambiguous. The clause applies "[i]n the event of failure by the Lessor to provide any of these items." From the context it is clear that the clause refers not to future failures but to the lessor's present or past failures to perform. The language of the clause describing the alternative remedy of reducing the rental payments by the value of the contract requirement "not performed" further confirms this interpretation. Respondent attempts to reduce appellant's reading of the clause to the absurd by noting that, in the case of recurrent failure on the part of lessor to provide a particular service, maintenance or repair, the parties could become locked in unending litigation. We think not. Enforcement of the Failure in Performance clause should not be particularly controversial if the failure has actually occurred and a convincing case can be made that the failure is the fault of the lessor. Presumably, a successful application of the clause would convince a recalcitrant lessor of the need to comply and the consequences of not doing so -- or alternatively, to agree to a contract modification which decreases rental payments in exchange for the Government's taking over certain responsibilities. The fact that the lessor's obligation is a recurring one does not justify a broad reading of the clause, unsupported by the plain meaning of the words, which would permit respondent to terminate the lessor's right to provide a particular service, maintenance or repair for the balance of the lease-term. Neither are we convinced that the Failure in Performance clause can be prospectively applied to anticipated future failure(s) simply because the clause provides that "any" rental payment can be adjusted to reflect the cost or value of the contract requirement not performed. When read in consonance with the clause as a whole, this provision merely gives the Government a broad degree of discretion in how and when the rental adjustment is made. This is not the first time that we have had the opportunity to comment on GSA's Failure in Performance clause. In another case which, respondent points out, involved an earlier version of the clause, we noted: Paragraph 15 of the General Provisions section of the lease, SF 2-A, is a self-help clause whereby the lessor's failure to perform any requirement of the lease entitled the Government to perform the service itself and deduct the cost from the rent. This provision is commonly referred to as a "repair and deduct" provision. David Kwok, GSBCA 7933, 90-1 BCA 22,292, at 111,957, aff'd, 918 F.2d 187 (Fed. Cir. 1990).[foot #] 1 In Kwok we concluded that the Failure in Performance clause is not intended as a remedy for a substantial and continuous breach. Kwok, 90-1 BCA at 111,962. We are still of that opinion. Respondent's use of the clause to redress such an alleged breach is, therefore, improper and cannot stand. Our decision to uphold appellant's interpretation of the clause is based not only on what the plain words of the provision say, but also on what they do not say. Traditionally a termination for default is considered a "drastic sanction." J.D. Hedin Construction Co. v. United States, 408 F.2d 424, 431 (Ct. Cl. 1969). For this reason, typical termination for default provisions often, as a matter of basic fairness, require that a contractor be given notice and/or an opportunity to cure what is perceived as inadequate performance. The absence of any such provision from the language in the Failure in Performance clause in this case only lends additional weight to our conclusion that this clause should not be read as applying to the type of situation which would merit termination of a portion of the lease for default. The contracting officer's decision in this case advises appellant that three steps will be taken to rectify the lessor's deficiencies. The first step is to make an initial lump sum rental deduction based on the actual cost of providing landscaping labor and materials. Presumably this would be to remedy appellant's alleged failure to meet this requirement of the lease. This is not an issue on which we are prepared to ----------- FOOTNOTE BEGINS --------- [foot #] 1 Respondent attempts to distinguish the Board's decision in Kwok from this case by pointing out that the Failure ____ in Performance clause in Kwok was an older version than that ____ appearing in appellant's lease. Respondent's Memorandum of Law in Opposition to Appellant's Motion for Summary Relief at 64 n.3. Respondent fails to point out, however, how the alleged difference in versions makes our conclusions in Kwok any less ____ relevant to this case. Given the obvious similarity in language, we conclude that, for purposes of our discussion here, any difference in versions is insignificant. ----------- FOOTNOTE ENDS ----------- grant summary relief. While the Failure in Performance clause may well be applicable here, there are, nevertheless, a myriad of material questions of fact that remain in controversy and preclude resolution of the issue through summary relief. The second step planned by the contracting officer is an adjustment of the base cost of services by $28,000. At this point it is not clear from the record what costs are included in the $28,000 figure. In the absence of more specific data, we must deny appellant's request for summary relief on this issue as well. The third step contemplated by the contracting officer is to reduce the annual rent payable to lessor by $24,000. This reduction is to reflect the costs of a service contract for annual maintenance of plantings. We have already concluded that GSA did not have the authority under the Failure in Performance clause to take over from appellant full responsibility for landscaping and maintenance. Accordingly, GSA cannot award a contract to a third party to perform these services and, for the same reason, cannot deduct the cost of such a contract from annual rent due appellant. We, therefore, grant appellant's request for summary relief on this issue. Decision Appellant's motion for summary relief is GRANTED IN PART. Respondent's reliance on the Failure in Performance clause as authority to terminate in part appellant's lease is misplaced and unjustified. Under this clause, appellant cannot be stripped of its duty under the lease to provide landscaping and landscape maintenance services for the balance of the lease term. Neither can respondent hold appellant liable at this time for the cost of having some or all of these future requirements provided under separate contract by a third party. The issue of whether appellant is answerable under the Failure in Performance clause for the cost of current landscaping contracted for by respondent remains before the Board. Also remaining is the issue of whether the base cost of services should be reduced in view of this alleged failure of appellant to perform. Counsel for the parties, therefore, are directed to submit to the Board, within thirty days from the date of this decision, a proposed order for further proceedings. ______________________ EDWIN B. NEILL Board Judge We concur: _______________________ _______________________ STEPHEN M. DANIELS CATHERINE B. HYATT Board Judge Board Judge