DENIED: December 2, 1992 GSBCA 11325 W. DAVID AND JANET M. KIMBRELL, Appellants, v. GENERAL SERVICES ADMINISTRATION, Respondent. Matthew R. Hale of Polsinelli White Vardeman & Shalton, Kansas City, MO, counsel for Appellants. Martin A. Hom, Office of the General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges LaBella, Acting Chief Judge, HYATT, and WILLIAMS. WILLIAMS, Board Judge. This appeal was filed on July 3, 1991, by W. David and Janet M. Kimbrell (the Kimbrells) challenging a contracting officer's denial of their claim for $74,996.80 representing increased real estate taxes, allegedly owed by the General Services Administration (GSA) pursuant to a rent escalation clause in Lease No. GS-06P-88719. The parties have elected to submit their cases on the record.[foot #] 1 For the reasons stated below, we deny the appeal. Findings of Fact By letter dated June 15, 1988, the Kimbrells were notified that their offer to lease to the Government 14,351 net usable square feet of property at Quail Crest Place and Wakarusa ----------- FOOTNOTE BEGINS --------- [foot #] 1 The parties also filed cross motions for summary relief. Because we consider the entire record, we deny the motions for summary relief. ----------- FOOTNOTE ENDS ----------- Boulevard, Lawrence, Kansas, together with 29 on-site vehicle parking spaces, at an annual rental of $267,933.17, had been accepted. Appeal File, Exhibit 2. The lease provided for improvement of the property with a building, leased in its entirety to the Government for use by the United States Geological Survey (USGS) as a laboratory and office. Appeal File, Exhibit 1; Affidavit of W. David Kimbrell and Janet Kimbrell (Kimbrell Affidavit), 2, 4. Construction of the leased building began on approximately July 1, 1988, and was completed in late November or early December of 1988. Appellants' Response to Respondent's Interrogatory Nos. 13-14. The lease term commenced on December 1, 1988, and was to terminate on November 30, 1998. Appeal File, Exhibit 2. The lease describes the premises as: 14,351 net usable square feet of special purpose and office space, together with 29 on-site vehicle parking spaces, consisting of the entire building, to be constructed at Quail Crest Place and Wakarusa Boulevard, Lawrence, Kansas . . . . Appeal File, Exhibit 1 at 1. The solicitation for offers concerning the lease was amended on April 5, 1988, to include the following: PARAGRAPH 97 - TAX ADJUSTMENT GSAR 552.279-24 (JUNE 1985) IS ADDED. (A) THE GOVERNMENT SHALL PAY ADDITIONAL RENT FOR ITS SHARE OF INCREASES IN REAL ESTATE TAXES OVER TAXES PAID FOR THE CALENDAR YEAR IN WHICH ITS LEASE COMMENCES (BASE YEAR). PAYMENT WILL BE IN A LUMP SUM AND BECOME DUE ON THE FIRST WORKDAY OF THE MONTH FOLLOWING THE MONTH IN WHICH PAID TAX RECEIPTS FOR THE BASE YEAR AND THE CURRENT YEAR ARE PRESENTED, OR THE ANNIVERSARY DATE OF THE LEASE, WHICHEVER IS LATER. THE GOVERNMENT WILL BE RESPONSIBLE FOR PAYMENT ONLY IF THE RECEIPTS ARE SUBMITTED WITHIN 60 CALENDAR DAYS OF THE DATE THE TAX PAYMENT IS DUE. IF NO FULL TAX ASSESSMENT IS MADE DURING THE CALENDAR YEAR IN WHICH THE GOVERNMENT LEASE COMMENCES, THE BASE YEAR WILL BE THE FIRST YEAR OF A FULL ASSESSMENT. * * * * (D) IN THE EVENT OF ANY DECREASES IN REAL ESTATE TAXES OCCURRING DURING THE TERM OF OCCUPANCY UNDER THE LEASE, THE RENTAL AMOUNT WILL BE REDUCED ACCORDINGLY. THE AMOUNT OF ANY SUCH REDUCTIONS WILL BE DETERMINED IN THE SAME MANNER AS INCREASES IN RENT PROVIDED UNDER THIS CLAUSE. Appeal File, Exhibit 1, Amendment 2 at 1. Under Kansas law, the valuation date of property for tax assessment purposes is January 1 of the tax year. Complaint, 14 (citing Kansas Statutes Annot. 79-309, 79-1804, 79-2004, 79-2968). In Kansas, tax statements are sent to property owners on or after November 1 of the tax year. Id., 19; Respondent's Motion for Summary Relief, 13. In tax year 1988, the property under the lease was taxed based on an appraisal in the amount of $5,829.00. Appeal File, Exhibits 4, 6, 12; Kimbrell Affidavit, 11. However, the 1988 property tax appraisal in the amount of $5,829.00 did not include the newly constructed building; the property was not improved with the building until after the January 1, 1988, valuation date for 1988 taxes. Complaint, 21; Respondent's Motion for Summary Relief, 6, 9, 11. On the Lessor's Annual Cost Statement, GSA Form 1217, dated February 9, 1988, which lists estimated annual costs of ownership exclusive of capital charges -- including real estate taxes -- the Kimbrells estimated the annual real estate taxes as $14,931.00 for 1989.[foot #] 2 Appeal File, Exhibits 6, 15; Kimbrell Affidavit, 12. This form accompanied appellants' "bid for the lease." Appellants' Response to Interrogatory No. 12; Appeal File, Exhibits 6, 15; Appeal File Index; Respondent's Motion for Summary Relief, 4. In fact, the 1989 taxes on the property leased to GSA were $52,747.48. Appeal File, Exhibits 4, 6, 12; Kimbrell Affidavit, 13. There was an increase in the tax rates under Kansas state law which was effective January 1, 1989, and appellants' 1989 tax appraisal included the newly constructed building. Appellants' Responses to Interrogatory No. 12; Affidavit of Robert C. Taggart, 3,4. As of approximately June 27, 1990, the Kimbrells had paid the 1989 taxes in full. Appeal File, Exhibits 4, 6, 12; Kimbrell Affidavit, 13. The 1990 taxes for the subject property were $52,111.32. Appeal File, Exhibit 12. The Kimbrells paid half of the amount due on or about December 27, 1990, with the remainder due by June 20, 1991. Id. On or about August 28, 1990, the Kimbrells' investment advisor, by letter, advised GSA that the Kimbrells were seeking reimbursement for 1989 taxes which exceeded the amount originally contemplated in their bid for the lease. Appeal File, Exhibit 4. The letter also informed the Government that the Kimbrells had formally protested the increased taxes to the Board of Tax Appeals of the State of Kansas, but had been unsuccessful. Id. ----------- FOOTNOTE BEGINS --------- [foot #] 2 The Kimbrells, through their agent, were advised by the Kansas state taxing authority of the approximate amount of taxes they could anticipate for the 1989 tax year. Kimbrell Affidavit, 12. Based on the discussions with the state taxing authority, the Kimbrells' agent calculated the estimate of $14,931.00. Id. ___ ----------- FOOTNOTE ENDS ----------- By letter dated October 2, 1990, the contracting officer denied appellants' request for reimbursement of the 1989 real estate tax increase. Id. By letter dated April 16, 1991, the Kimbrells submitted a claim for reimbursement of $37,380.32 (the full amount of taxes paid, $52,747.48, minus the amount they had estimated, $14,931.00) and adjustment of the terms of the lease related to rental due to the rise in 1990 Kansas property taxes to the GSA contracting officer. Appeal File, Exhibit 6. By letter dated May 7, 1991, the GSA contracting officer denied appellants' claim for the 1989 property tax increase, citing the following reasons: 1. The lease commencement date is established as December 1, 1988. 2. No full tax assessment was made during the calendar year (1988) in which the lease commenced. The first full tax assessment was made for the 1989 tax year. Thus, 1989 is the "Base Year" for tax adjustment purposes. 3. Eligibility for tax adjustment, therefore, begins with the 1990 Tax year compared to the 1989 taxes. 4. Submission by the offeror of estimated taxes on GSA form 1217, in reply to "Solicitation For Offers", is requested for the purpose of the Government's determination of the fair market value of the space to be rented. . . . Appeal File, Exhibit 7 at 1. By a second letter dated May 7, 1991, the GSA contracting officer notified appellants that since the 1990 tax assessment was $636.16 less than the 1989 tax assessment, and that 1989 was the base year, the Government was deducting the amount of $636.16 from rent due June 1, 1991, pursuant to the rent escalation clause. Appeal File, Exhibit 8. By letter dated May 13, 1991, the Kimbrells requested that the GSA contracting officer clarify his decision with regard to appellants' claim for reimbursement of the 1990 tax increase. Appeal File, Exhibit 9. On or about May 30, 1991, the contracting officer issued his final decision denying the Kimbrells' claim for 1990 property tax reiterating that 1989 was the "Base Year" for the purpose of tax adjustment under the terms of the lease and that eligibility for tax adjustment began with the 1990 property tax year compared to the 1989 taxes. Appeal File, Exhibit 11. He concluded: "The 1990 taxes actually decreased compared to the 1989 taxes, therefore, the Lessor is subject to a deduction in rental, per the terms of said Lease." Id. at 2. On July 3, 1991, the Kimbrells appealed the contracting officer's final decisions of May 7 and May 30, 1991, contending that the base year for purposes of the rental escalation clause is 1988, not 1989 as the Government claims. Appeal File, Exhibit 12. Discussion This case turns on the interpretation of the language in the Rental Escalation Clause in Paragraph 2(A) of Amendment Two of the solicitation. Issues of contract interpretation are resolved by examining the language of the contract itself, reading it as a whole, giving every provision significance. Griffin Services, Inc., GSBCA 11171, 92-1 BCA 24,556; ITT Communications Services, Inc., GSBCA 9072, 91-3 BCA 24,337; W.M. Schlosser Co., Inc., GSBCA 11079, 91-3 BCA 24,258. The first sentence of the Rental Escalation Clause provides that, "[t]he government shall pay additional rent for its increases in real estate taxes over taxes paid for the calendar year in which its lease commences (base year)." Appeal File, Exhibit 1. This sentence by itself is not problematic; there is no question that the calendar year in which the lease commenced was 1988. However, we cannot ignore the last sentence of paragraph 2(A) of Amendment Two which modifies the first sentence and provides, "[i]f no full tax assessment is made during the calendar year in which the lease commences, the base year will be the first year of a full assessment." At issue in this appeal is what constitutes a "full tax assessment" and whether a full tax assessment was made during calendar year 1988, the year in which the lease commenced. In Otto K. Wetzel, GSBCA 7466, 85-2 BCA 18,099, at 90,858, the Board was called upon "to place the proper construction on the term `full tax assessment' as that term is used in a Government lease to establish the `base year' for calculating tax adjustments." In Wetzel, the Board expressly held: "the first year of full assessment is the first tax year in which all contemplated improvements to the assessed property [have] been included in the appraisal base." Id. Appellants admit that the newly constructed building was not included in the appraisal base until the 1989 tax year. Thus, applying the definition of "full tax assessment" adopted in Wetzel, the base year for the subject lease is 1989. Appellants argue that Wetzel is distinguishable and should not be applied here. Appellants' Legal Arguments In Support of Claim and Initial Record Submission (Appellants' Legal Arguments) at 4-5. We disagree. In Wetzel, the Government, under the lease in dispute, occupied approximately one floor in a six-story building. Under the applicable state tax statute, the appraisal value of real property was assessed "as of" January first of each tax year. Since all contemplated improvements to the building, by other tenants to their leased premises, as well as improvements covered by the Government's lease, were not completed until after January 1, the Board held that there was no "full" assessment until the appraisal of property "as of" January of the following year. In sum, Wetzel is controlling; the interpretation of "full tax assessment" adopted by the Board is applicable to the rent escalation clause here. Accordingly, the base year from which increases and decreases in real estate taxes are to be figured for the duration of the lease is 1989, the first year of full tax assessment. The tax assessment for the base year was $52,747.48. Appellants are fully responsible for the taxes in that year. In 1990, the assessment was $52,111.32, $636.12 less than the 1989 tax assessment, entitling the Government to a reduction in the rent in the amount of $636.12. Decision The appeal is DENIED.[foot #] 3 ____________________________ MARY ELLEN COSTER WILLIAMS Board Judge We concur: ____________________________ ____________________________ VINCENT A. LaBELLA CATHERINE B. HYATT Acting Chief Board Judge Board Judge ----------- FOOTNOTE BEGINS --------- [foot #] 3 We need not reach the issue of whether appellant failed to submit tax receipts to respondent within sixty days of the due date, and thereby forfeited the right to file a claim.