_______________________________________________ RESPONDENT'S MOTION FOR SUMMARY RELIEF GRANTED: December 10, 1996 _______________________________________________ GSBCA 13525 CAFRITZ COMPANY, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Rebecca L. Kehoe of Cotten & Selfon, Washington, DC, counsel for Appellant. Kevin S. Anderson, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges BORWICK, HYATT, and DeGRAFF. BORWICK, Board Judge. Appellant is the Cafritz Company (Cafritz), which seeks damages for the Government's holdover in premises leased by Cafritz to the General Services Administration (GSA). Cafritz seeks holdover rental for an extended lease term or trespass damages from the Government. Cafritz also seeks special damages for improvement costs. Both Cafritz and GSA have filed cross-motions for summary relief as to holdover damages. For the reasons stated below, we grant the Government's motion on the holdover damages. Cafritz's claim for rent based on an extended lease term sounds in implied- in-law contract. Cafritz's claim to fair market value rent sounds in trespass and implied-in-law contract. We lack jurisdiction over both trespass and implied-in-law contract claims. We will schedule further proceedings as to Cafritz's claim for special damages. Basic terms of lease The material facts are not in dispute. The Government and appellant entered into a lease for premises--1201-1211-1221-1301 South Fern Street, Arlington, Virginia--(known hereafter as the premises or the building) for a term from June 1, 1983 through November 25, 1986 at a rate of $61,041.67 per month. Appeal File, Exhibit 2. The lease allowed the Government to terminate the lease, at any time after December 21, 1984, by giving at least 120 days notice in writing; the lease did not contain a holdover clause. Id. The monthly and annual rent reflected a base rental rate and an operating costs escalation rate. The base rental rate was increased or decreased based on the agreement of the parties. The operating costs escalation rate was increased or decreased in accordance with the lease, with such increase or decrease based on changes in the consumer price index. Respondent's Motion for Summary Relief, Attachment 1,  5 (Declaration of John C. DeCosta, Deputy Director, Procurement and Contracts Office, Washington Headquarters Services, Pentagon (Sept. 9, 1996)). The operating cost escalation rate also reflected costs for supplies, materials, maintenance, engineering services, and other maintenance expenses, which, according to the lease, were adjusted by the consumer price index. Id. Lease extensions By supplemental lease agreement (SLA) 7, the parties extended the lease's term until November 25, 1987, and provided the Government with a two year renewal option at the same rental rate and terms and conditions. Appeal File, Exhibit 5. On June 10, 1987, GSA exercised the option, extending the lease term through November 25, 1989. Id., Exhibit 7. By SLA 11, the parties extended the lease term through November 25, 1990, and provided the Government with a one year renewal option. Id., Exhibit 8. On August 1, 1990, the Government exercised that option, extending the lease term through November 25, 1991. Id., Exhibit 9. On November 25, 1991, the lease expired, with the Government not having obtained alternate space. On July 30, 1992, the parties entered into a standstill agreement, in which the parties agreed to enter into good faith negotiations for a succeeding lease, at a monthly rental retroactively effective from November 26, 1991. The parties agreed to undertake no actions that would damage the position of the Government with respect to its use of the property or the position of the landlord with respect to its ownership of the building. Respondent's Motion for Summary Relief, Attachment 3 at 1 ( 2), and 2. This agreement reflected the landlord's desire to avoid a condemnation action, the Government's desire to avoid disruption to its operations, and the desire of both parties to avoid holdover status. Id. at 1 ( 2). As negotiated, the standstill agreement was to terminate on the earlier of September 18, 1992 or the date a new lease agreement was signed by the parties. Respondent's Motion for Summary Relief, Attachment 3 at 4. On September 30, 1992, the parties extended the standstill agreement through February 18, 1993. Lease payments and final lease extension Between November 26, 1991 and February 2, 1994, the Government paid, and Cafritz accepted, the monthly and annual rental of the expired lease, increasing the rental amount as required for operating cost escalation. Respondent's Motion for Summary Relief, Attachment 1 at 3 ( 8). The Government also paid, and Cafritz accepted, real estate tax payments during that period. Id. On February 3, 1994, the parties executed SLA 12, which extended the lease term through November 25, 1994. Appeal File, Exhibit 10. The SLA also gave the Government the right to terminate on or before March 31, 1994, upon written notice to the lessor at least thirty days before the intended termination date. Id. SLA A011 adjusted lease rental to account for increases in operating expenses and real estate taxes; the monthly rental under the lease after the adjustment and effective June 1, 1994, was $81,049.37. Respondent's Motion for Summary Relief, Attachment 1, Attachment 1 at 26. Lease expiration, subsequent payments, and events leading to claim On September 12, 1994, the Government forwarded to Cafritz a proposed standstill agreement. Appeal File, Exhibit 11. On September 16, GSA advised the Department of Defense (DOD) that GSA had determined that long-term occupancy of the building would not be feasible due to the cost to rectify numerous fire and life safety deficiencies in the building. Id., Exhibit 12. After lease expiration on November 25, 1994, Cafritz and the Government did not have a new agreement as to a monthly and annual rental rate; the Government continued to pay Cafritz the previously established monthly rental rate of $81,049.37. Respondent's Motion for Summary Relief, Attachment 2 at 2 ( 5) (Declaration of Marc Rappaport, Contracting Officer, General Services Administration (Sept. 9. 1996)). Cafritz did not demand that the Government quit the property or object to the Government's continued use of the building. Id. At no time in 1994 or 1995 did Cafritz claim that the Government was a trespasser. Cafritz continued to accept the monthly rental payments at the previously established monthly rental rate. Id. In February or March of 1995, Cafritz advised the Government that it was not willing to renovate the property at its expense in order to satisfy National Fire Protection Association guidelines. Respondent's Motion for Summary Relief, Attachment 2 at 3 ( 7). On March 15, GSA personnel advised Cafritz that it was the Government's intent to vacate the property by July 31. Appeal File, Exhibit 28; Respondent's Statement of Undisputed Facts at 5 ( 17). Cafritz disputes the statement immediately above only to the extent that respondent did not make clear that the notice was oral. Appellant's Statement of Genuine Issues at 3 ( 17). For the purposes of deciding these cross-motions for summary relief, we will assume that the Government's notice of March 15, to Cafritz, was oral. On March 16, Cafritz advised GSA that while it had been willing to contemplate entering into another standstill agreement on the condition of GSA's entry into a long-term lease, "the short term in which you now expect to occupy the premises forces the Lessor to view your occupancy of the space as a holdover." Appeal File, Exhibit 15. Cafritz demanded "double the term rate, inclusive of all adjustments" for the premises to "reflect the current fair market value of [the] lease." Id. Adjustments would include "the economic uncertainty of having a month to month tenant, the Lessor's inability to sell the property, and the potential increase[d] damage and remodeling costs due to the Government's tenancy." Id. On March 23, Cafritz wrote GSA and acknowledged that the Government intended to vacate the property "by the end of July 1995." Id., Exhibit 16. GSA responded on March 28, noting that it had been interested in negotiating a succeeding lease, that "negotiations were stalled by concerns over Fern Street," and that GSA "had requested a proposal from the owner for a long-term lease at Fern Street but the owner was not interested in providing a proposal to the Government." Appeal File, Exhibit 17. GSA denied any liability for remodeling costs because "those expenses would be incurred for any new tenant the lessor would house." Id. On April 27, Cafritz sent an invoice to the Government for $486,296.22 for alleged holdover under the lease. This sum was comprised of $324,197.48--$81,049.37 per month for the alleged four-month holdover period November 26, 1994 through March 25, 1995--and $162,098.74 for the alleged holdover through the month of April. Appeal File, Exhibit 18. On May 9, GSA refused to pay the invoice, stating that "there is no reference to the Lessor being permitted to unilaterally and arbitrarily setting [sic] a rental rate for the space." Id., Exhibit 19. On July 28, the Arlington County Fire Department advised Cafritz that "for all intents and purposes," with the exception of a small engineering staff, the premises would be vacant on July 31. Appeal File, Exhibit 26. As of August 1, the Government had physically vacated the premises, including furniture and other items, with the exception of a few chairs and a forklift. Respondent's Statement of Undisputed Facts at 7 ( 25); Appellant's Statement of Genuine Issues at 4 ( 25); Respondent's Motion for Summary Relief, Attachment 2 at 4 ( 9). The Government retained the keys to the property through July 31, because Government employees were at the property removing items late into the evening of that day. During the first week of August, the few remaining items were removed from the property after Cafritz employees assisted the Government in gaining access to the property. Respondent's Statement of Undisputed Facts at 7 ( 25); Appellant's Statement of Genuine Issues at 4 ( 25). On August 1, Cafritz, at the request of the Fire Marshall, changed the locks of the premises, preventing the Government from gaining entry. Respondent's Statement of Undisputed Facts at 7 ( 26); Appellant's Statement of Genuine Issues at 4 ( 26) On August 24, Cafritz wrote to GSA and argued that the Government had been in holdover status for more than eight months. Appeal File, Exhibit 29. Cafritz argued that: [I]n accordance with Virginia law, VA Code 8, Title 55- 223, the Government's willful holdover, due to the negligence of the Government which could have been avoided with adequate planning by the Government, creates a new lease term in accordance with the terms of the previous Lease. Therefore, [Cafritz] elects to renew the Lease for one year, in accordance with Virginia law and the terms of [the] Expired GSA Lease No. GS-11B-20085, due to the Government's eight month holdover. The Lessor expects lease payments to continue in arrears through the term of the new Lease. Id. Cafritz stated that "the general rule in the law of landlord and tenant [is] that where a tenant [for] a year or other definite term holds over after the term and the landlord elects to hold the tenant for another term, the tenant is bound thereby." Id. Cafritz further argued that "the law implies an agreement on the part of the tenant." Id. Cafritz stated that: if it [was] the Government's intention to end the lease, the Government must provide written notice sufficiently in advance of the proposed termination in accordance with the terms of the lease, and per VA Code 8, Title 55-222. As stated in our previous correspondence, the Government has failed to provide the required written notice of its intent to terminate the lease. Id. On August 30, GSA replied to Cafritz's letter, stating that the Government gave Cafritz the required notice upon the Govern- ment's vacating the premises, and that, in any event, Cafritz acknowledged control over the building by changing the locks on August 1. Appeal File, Exhibit 30. Cafritz responded to GSA's letter on September 6. Appeal File, Exhibit 33. Cafritz maintained that (1) the Government had the general right to vacate the premises without terminating the lease, (2) the mere act of removing people and furniture from the property was insufficient to terminate the lease, (3) Cafritz construed GSA's letter of August 30 as the written notice of termination, and (4) Cafritz would take possession of the premises "for remediation purposes" on September 30, thirty days after GSA's "notice of termination." Id. On September 28, Cafritz submitted a certified claim to the contracting officer, maintaining that: 1. [T]he Government [had] been in holdover at the subject property for over ten (10) months, November 26, 1994, to September 30, 1995, and owes the Lessor double rent for the period of the holdover. The current amount past due is $810,493.70, or $81,049.37 per month of holdover, with interest. 2. Alternately, and in accordance with our letter dated August 24, 1995, as the Government has failed to pay rent in the amount stated above for the holdover period, and should the Government elect not to pay rent as stated above, the Lessor has no other recourse than to consider the Government's holding over as a renewal of the lease for an additional year's term in accordance with Federal and State Laws and the provisions of the original lease. The Government is therefore liable for all damages from the Government's default under the lease. Appeal File, Exhibit 42. Cafritz maintained that the damages from the Government's default were those damages associated with the "removal and preparation" of the property for receipt of new tenants--$536,803 of improvements necessary to make the space rentable. Id. The mistaken check On August 24, the Government informed Cafritz that it had mistakenly sent a check in the amount of $81,049.47 to Cafritz for the August rent and asked that Cafritz return the check. Respon- dent's Statement of Undisputed Facts at 7 ( 28); Appellant's Statement of Genuine Issues at 4 ( 28). On September 1, Cafritz advised GSA that it had received a check from the Government for August 1995 rent. Cafritz deposited the check and advised GSA that it considered receipt of the check further evidence of the Government's intent to remain in the premises "for a full addition- al term." Appeal File, Exhibit 32. GSA immediately advised Cafritz that the check was mailed in error. Id., Exhibit 33. On May 10, 1996, the Government offset funds from the Government's real estate tax payments due to Cafritz under the lease, to recover a portion of Cafritz's debt of $81,049.47 due to what the Govern- ment considers improper cashing of the check. Respondent's Motion for Summary Relief, Attachment 9. Discussion The parties' contentions Cafritz's claim to the contracting officer is not precise as to the basis for recovery. We read the claim in conjunction with Cafritz's previous correspondence with GSA of March 16 and August 24, 1995. On March 16, Cafritz requested double rent to "reflect the fair market value of [the] lease." On August 24, Cafritz wrote GSA and told it that it considered GSA in holdover and that it expected lease payments to continue in arrears "through the term of the new lease." Cafritz's letter of March 16 is the basis for paragraph one of the claim to the contracting officer. As to that claim paragraph, Cafritz argues that "in not agreeing to extend the lease beyond November 25, 1994, and by never agreeing to a new lease term [Cafritz] opted to treat the Government/holdover as a trespasser." Appellant's Memorandum in Support of Motion for Summary Relief at 3. Paragraph two of Cafritz's claim to the contracting officer incorporates the demand of August 24 that GSA pay rent for a new lease term. Cafritz stated in that paragraph: "the Lessor has no other recourse than to consider the Government's holding over as a renewal of the lease for an additional year's term in accordance with Federal and State Laws and the provisions of the original lease." That paragraph also contains an alternative demand for payment of $536,803 of special damages for remodeling, allegedly due to the Government's holdover. The Government argues that from November 26, 1994 through March 15, 1995, Cafritz treated the Government as a tenant, based upon Cafritz's acceptance of the lease rental. Respondent's Memorandum in Support of Cross-Motion for Summary Relief at 6. The Government argues that Cafritz, while demanding double rent after March 15, treated the Government as a tenant by accepting rent checks and not requesting the Government's surrender of the property. Id. at 8-10. The Government maintains that application of the prior rental rate is consistent with the prior course of dealings between the parties, which the Government characterizes as an "implied-in-fact contract" to pay the prior rental rate, plus applicable escalation during occupancy. Id. at 11. The Government also argues that the holdover period extends only to July 31, the date the Government actually vacated the premises, and does not extend to the September 30 date. The Government notes that on March 15, Cafritz received actual notice of the Government's intention to vacate the premises by July 31, and that Cafritz waived the requirement of written notice. Respondent's Memorandum in Support of Cross-motion for Summary Relief at 12-13. Applicable law Contracts to which the Government is a party, including leases, "are normally governed by federal law, not by the law of the state where they are made or performed." Prudential Insurance Co. of America v. United States, 801 F.2d 1295, 1298 (Fed. Cir. 1986). However, "[t]o the extent that existing federal law is not determinative of the issue and permits an area of choice between the merits of competing principles, the best in modern decision and discussion, including the general principles of contract and landlord-tenant law, should be taken into account." Id. As we noted in Burdette A. Rupert v. General Services Administration, GSBCA 10523, 93-1 BCA  25,243, at 125,728: When a tenant holds over at the end of a lease term and fails to surrender possession of the premises, the landlord may treat him as a holdover tenant or as a trespasser at the landlord's option. If the landlord treats the holdover as a tenant, then the new rental terms are the same as the original rent; if the landlord elects to treat the former tenant as a trespasser, then the landlord is entitled to the damages he suffers by reason of the holdover's failure to surrender the premises. The amount of damages is usually the value of the use of the premises, i.e. their fair rental value plus such other damages as the tenant could reasonably foresee would result from the tenant's failure to leave the premises. The rent in the lease is evidence of rental value, but a landlord may establish a rental value greater than rent. [Citations omitted]. In so stating, we have followed the general common law. At the risk of repetition, however, we must be a bit more expansive to do justice to the issues presented in this appeal. Under common law, a holdover tenant is one who continues in possession of the premises beyond the term of the lease. Once a lease expires, and the tenant remains in possession of the premises, the landlord may elect to treat the tenant as a trespasser, or may waive the holding over and continue the tenancy. Acceptance of rent by the landlord creates a holdover tenancy, for a year if the lease term was a year or more, or for the term if the term of the lease was for less than a year. First Interstate Bank v. Tanktech Inc., 864 P.2d 116, 120 (Colo. 1993); A.O. Smith Corp. v. Kaufman Grain Co., 596 N.E.2d 1156, 1167 (Ill. App. 1992); cf. Schnucks Carrollton Corp. v. Bridgeton Health and Fitness Inc., 884 S.W.2d 733, 739 (Mo. App. 1994); Steiner v. Minkowski, 596 N.E.2d 492, 497 (Ohio. App. 1991); Bibby's Refrigeration, Heating & Air Conditioning Inc. v. Salis- bury, 603 A.2d 726, 728 (R.I. 1992). There is an exception. Where the parties are negotiating for a new lease, the landlord's acceptance of the rent creates a tenancy from month to month. Alaska State Housing Authority v. Contento, 432 P.2d 117, 122-23 (Ala. 1967); Bismark Hotel Co. v. Sutherland, 415 N.E.2d 517, 521 (Ill. App. 1980). The parties do not dispute that the Government held over. The parties dispute whether Cafritz is entitled to the fair market value during the holdover period and whether Cafritz is entitled to any rent from July 31 through September 30, 1995. We do not have to reach these issues, because, as explained in the next paragraph, we lack jurisdiction to hear claims based either on implied-in-law contracts or torts, the only possible bases in this appeal to recover either the lease rent through September 30, or trespass damages based on fair market value. Award of damages based on fair market value, as we have seen, is usually associated with the tort of trespass. The court in Prudential noted that the variety of common law writs available to a landlord for securing damages from a holdover tenant "are based on tortious conduct--unlawful or unauthorized deprivation of property--a precondition of which is that the tenant has no contractual or other legal right to retain possession or occupancy of the leased premises beyond the lease term." Prudential, 801 F.2d at 1299. Consequently, a claim for fair market rent arising from a holdover is a tort claim, rather than a tortious breach of contract. See L'Enfant Plaza Properties, Inc. v. United States, 645 F.2d 886, 892 (Ct. Cl. 1981) (fraud, misrepresentation and constructive fraud sound in tort, although claims arose in context of a lease). This Board lacks jurisdiction over claims sounding in tort. Sonny's Enterprises, GSBCA 10290, 90-2 BCA  22,740, at 114,150; Jonnet Development Corp., GSBCA 6943, 86-3 BCA  19,311, at 97,656. Damages based on fair market value rent might also be awarded under an implied-in-law contract theory. Cameron Universi- ty, DOTCAB 2010, 90-3 BCA  23,079 at 115,890; First Interstate Bank, 864 P.2d at 120. As explained below, however, we lack jurisdiction to hear a claim founded on an implied-in-law contract. The Board lacks jurisdiction of Cafritz's claim, paragraph two, for rent based on an extended term. This case is similar to a case in the Supreme Court concerning a landlord's claim against the Veteran's Bureau for holdover rent, based on an implied-in-law contract which extended the lease term. The Court held that the Government could not be bound by an implied-in-law contract: In order to bind the Government for the fiscal year ending June 30, 1924, it was necessary, as held in the Leiter case [Leiter v. United States, 271 U.S. 204 (1926)], that after the available appropriation had been made, the Government should affirmatively continue the lease for that year, that is, in effect, make a new lease for the year under the authority of such appropriation. This it did not do, either expressly or impliedly. On the contrary, the notice given by the officials of the Veteran's Bureau to the Company, before holding over, that the Government did not intend to pay rent beyond the actual period of occupancy negatived any intention to continue the lease for the entire year, and left no basis for inferring an agreement to continue it after the Bureau should cease to occupy the premises. It is immaterial that under the common law in Ohio as applied between private parties, a lessee holding over after the expiration of his lease, is held, at the option of the lessor, to be bound for another year under an agreement implied in law, regardless of his actual intention. . . . Not having affirmatively continued the lease beyond the actual period of occupancy, the Government cannot, under the doctrine of the Leiter case, be bound for a longer term. Goodyear Tire & Rubber Co. v. United States, 276 U.S. 297, 292-93 (1928); accord Jonnet Development Corp., 86-3 BCA at 97,657; Cameron University, 90-3 BCA at 115,891. GSA's mailing (to Cafritz) of a check for the August rent was not a recognition of the validity of Cafritz's claims, particularly of an extended lease term. The Government had vacated the building on July 31. GSA sent that check by mistake, and GSA so advised Cafritz before it received the check. Cafritz could not have been misled. GSA did not enter into an implied-in-fact contract to pay the fair rental value during the holdover. Cf. Burdette A. Rupert, 93-1 BCA  25,243 (Government agreed to pay fair market value rent, dispute was over what the fair market value was). We cannot agree with GSA that it had an implied-in-fact contract with Cafritz resulting from the parties' negotiations for succeeding leases during the lease term. Those previous negotia- tions resulted in express contracts--the standstill agreements-- under which monthly lease rental was paid. The payment of rent under the standstill agreements and the payment of rent during the holdover period arose in different contexts. Due to the differing contexts, GSA has not shown the necessary meeting of the minds inferred from the conduct of the parties in light of the surround- ing circumstances, for us to find the existence of an implied-in- fact contract to pay the existing monthly rental. Gilroy-Sims & Associates, GSBCA 9405, 91-1 BCA  23,406, at 117,444. Cafritz argues that what it seeks is nothing more than breach damages allowed by Prudential. We cannot agree with Cafritz that Prudential suddenly vested government contract tribunals with jurisdiction over a claim of trespass because it arose after expiration of a lease, or over a claim based on an implied-in-law contract. Prudential held only that an implied duty to vacate is an inherent part of every fixed term lease. A breach of that duty consequently vested the Court of Claims with jurisdiction under the Tucker Act, 28 U.S.C.  1491(a)(1), to consider the damages sought in the case. Prudential, 801 F.2d at 1299, 1300 n.10. The damages sought were loss of rental revenue, real estate commissions, refurbishing expenses, and increased operating expenses related to the new tenants, Prudential, 801 F.2d at 1296, i.e., the type of special damages which we have recognized as contractual. 6800 Corp., GSBCA 5880, 83-2 BCA  16,581, at 82,450. In their motions, the parties do not address Cafritz's alternate claim of $536,803 for improvement costs. These are the same type of special contractual damages at issue in Prudential. The court held that for such damages to be recoverable, "they must be foreseeable by the tenant [i.e., the Government in this case] at the time the lease was executed." Prudential, 801 F.2d at 1300. We will schedule further proceedings on Cafritz's alternate claim, and we will expect the parties to focus on (1) foreseeability and (2) whether the costs were caused by the Government's possession of the premises beyond the lease term or whether they would have been incurred by Cafritz, regardless of the holdover, when making the building suitable for a new tenant. Decision Respondent's motion for summary relief is GRANTED, and Cafritz's claim for additional lease rent until September 30, 1995, or double-rent damages for the holdover is DISMISSED. Further proceedings will be scheduled on Cafritz's claim for special damages. _________________________ ANTHONY S. BORWICK Board Judge We concur: __________________________ __________________________ CATHERINE B. HYATT MARTHA H. DeGRAFF Board Judge Board Judge