Postal Service™ Answers Lessor Questions

During the general session at a recent AUSPL annual conference, Art Strange, USPS® National Manager, Real Estate, gave his informal responses to lessor-posed questions about a variety of topics relating to operating Post Office™ facility buildings.

Q: What are the chances of the Postal Service™ being privatized?

A: I don't think that is likely to happen. We would not want that to occur.

Q: Barn swallows are a problem in many areas of the country. Who is responsible if barn swallows set up housekeeping in the eaves of the Post Office™ Facility?

A: Responsibility belongs to whoever has maintenance responsibility as defined in the lease. It might take a joint effort to solve the problem by repairing the building so the birds can't nest in it.

Q: Who decides to put Federal Express boxes in front of the Post Office™ Facility?

A: Even though we are competitors, we have entered into a joint business venture with Federal Express. We move our mail using their planes. It's very lucrative for us. We receive good rates to move the mail and we receive rent from the boxes in front of the building.

Q: How do you set a policy, by region, for market value for renewals?

A: It depends on the size of the facility. In metropolitan areas, rental comparables are easier to obtain. When the annual rent is $150,000, for example, we will ask for an appraisal. On smaller facilities, we will buy comps. The challenge is what to do in rural areas. In those cases, we rely on the experience of the real estate specialist, who is familiar with local trends, brokers and appraisers. We will also research tax records to spot trends. Usually, we prefer not to consider the annual rents received at other facilities in the area.

Q: Who is responsible for the sprinkler system when the lessor has maintenance?

A: The lessor is responsible because the sprinkler system is considered part of the potable water system. If a gardener (hired by USPS®) or a USPS® employee damages the sprinklers, then Postal ServiceTM would pay for repairs.

Q: Can we be notified when an expansion is needed?

A: Yes, lessors should be notified. We have to look at expansion as part of the community contact process.

Q: Are there standard plans for new buildings? Is there a preference for controlled versus uncontrolled sites?

A: Yes, there are standard plans, which allow for regional differences on both. Typically, controlled sites are available in the Midwest, but not in the Northeast. It is dictated by the market.

Q: What is the difference between controlled sites and uncontrolled sites?

A: These are market driven sites. Controlled sites means the Postal Service® can option a piece of land and hire someone to build a new facility on it. On the other hand, an uncontrolled site is one in which the people in the community have the land tied up, and they will only build on their own land. They will not give us control over the land at all. The Postal Service® prefers controlled sites because we get better competition for construction costs.

Q: What recourse do I have when a postmaster won't let me in my own facility?

A: Perhaps your request comes at an inconvenient time. The best thing for a landlord to do is to call the postmaster and arrange a time that is convenient and is during business hours. Postmasters will accommodate the need to conduct repairs after normal business hours. If you still have a problem, call the real estate specialist for your building.

Q: Is there a list of new space projects available?

A: Yes, we have a priority list that runs through 2007. The list is not public because we would lose the benefit of competition. We'd have people going out and trying to option land ahead of everyone else. We want competition so everyone has the same opportunity.

Q: Is there a list of Post Office™ facilities for sale?

A: No, there is no standard list. AUSPL has a list of qualified, licensed real estate brokers who specialize in Post Office™ facility sales. Call AUSPL at 800-572-9483 to request a list.

Q: How is the decision made to rent or own a new facility?

A: It varies. Generally, if the building is more than 6,500 square feet, we are going to own it. If it's less than 6,500 square feet, we are going to lease it, depending on the geographic area. On the East Coast where land value is higher than building costs, we're going to buy some small buildings because it makes economic sense. Usually, the smaller the facility, the chances of leasing it are greater.

Q: Rumors abound that "brick and mortar" Post Office™ facilities are a thing of the past.

A: That is not true. Postal operations drives the need for new facilities. If the Postal Service™ does not outgrow its space, we will stay forever.

Questions About Leases

Q: Who should I call when I have a problem with my lease or my building?

A: The Facilities Service Office that handles your Post Office™ facilty can handle anything you are concerned about. You need to get to know the real estate specialist that is responsible for your territory, that's the best contact you have.

Q: Why does the Postal Service™ require its leases be negotiated 24 months in advance?

A: It's to protect our interest so we have a place to operate, so we can keep the mail moving. It's actually 12-24 months. If we don't have a lease negotiated within 12 months of expiration, we are looking for a new home.

Q: The standard lease term is five years. Under what circumstances will the Postal Service™ consider a 10 year lease?

A: You need to talk to your real estate specialist on an individual basis. We don't have the authority to go beyond a five year fixed term without operational concurrence from the District. Usually we negotiate a five year fixed term with a five year renewal option. If you want a 10 year term, it needs to be a more economical advantage for the Postal Service™ than a five year plus five year renewal. That way I can tell the District it is going to save them money over the long term.

Q: The purchase option offers the Postal Service™ six months to react, which effectively "handcuffs" any owner from selling the building.

A: Even so, the lessor had the opportunity to negotiate the option and give the Postal Service™ only 60 days instead of six months. Further, the lessor has the right to say six months is too long. If the Postal Service™ wants the purchase option in the lease, it has to accept less time to act.

Q: Is there an opportunity to change clauses or riders when the Postal Service™ exercises a renewal option?

A: No, there isn't because all we're doing is exercising an option that is in the existing contract. Whatever is in the lease stands as is.

Q: If a lessor decided to sell the building, what is the status of the purchase option which gives the Postal Service™ first right of refusal?

A: The Right of First Refusal is a negotiated item in any lease. When it is included, the Postal Service™ must be able to respond within the time frames structured in this clause/rider.

Q: Is the Postal Service™ exercising purchase options?

A: The answer is yes and no. When it's a financial benefit to us, yes, we will. We rarely exercise purchase options. We'll do it when the numbers work.

Q: If the Postal Service™ moves out of a building which has two years remaining on the lease and vandalism occurs, who is responsible?

A: First, the Postal Service™ will notify the lessor of our intention to move out, and we will negotiate a termination agreement. It will likely include a percentage of the rent that would have been paid during the full term of the lease. The lessor will regain control of the building. If we cannot negotiate a mutual termination, then the terms of the lease apply.

Q: My lease is about to expire. I am responsible for maintenance. I want to have a USPS® maintenance rider when I negotiate for my new lease. Who makes that final decision?

A: That decision would go to the District we serve. On an existing lease, which is up for renewal, in which the lessor wants to change the maintenance rider, we will talk with the District. We will ask them if they have the personnel and resources to deal with your request. Maintenance issues are undergoing changes as the Facility Single Source Provider (FSSP) continues to evolve.

Questions About Maintenance

Q: If the lessor does not agree that a maintenance issue is his/her responsibility under the lease, what recourse is available?

A: Call either the real estate specialist or the real estate manager for your building.

Q: Who is responsible for cleaning out the gutters?

A: The Postal Service™, as long as it is not necessary to place personnel and equipment on the roof (which is always the landlord's responsibility). Thus, gutters not located along the eaves or edge of the roof (scupper drains, etc) are the landlord's responsibility.

Q: Who replaces the ballasts?

A: It depends on the maintenance rider.

Q: If the Postal Service™ makes improvements to the facility such as a drop ceiling and installs new lighting, who is responsible for maintaining the new lighting?

A: Generally, the Postal Service™ is responsible if we use a third party to make improvements to the facility. Of course, we would prefer the lessor make improvements, and we would reimburse the costs. This way, maintenance responsibility would remain with whichever party has maintenance responsibility under the lease.

Q: Do new construction leases include maintenance riders or tax riders?

A: Yes. Personally, I think new construction leases should have a USPS® Partial Maintenance Rider and a Tax Reimbursement Rider. We are trying to limit as many variables as we can over a 20-year term. There are items, like taxes, that you cannot control because you don't know what will happen with taxes. Of course, we want to get the best deal we can. Additionally, we want to put you in a position where you will have the best chance to compete, also.

Q: If floor tiles crack due to the use of equipment ­ equipment that is different than that which was in the facility when it was purchased ­ what happens?

A: If the cracking is due to Postal Service™ negligence, we would have some responsibility; however, it would have to be determined on a case-by-case basis.

Q: Are lessors required to use union labor for painting?

A: No, although union-scale wages may be required, pursuant to the terms of the lease and the Davis-Bacon Act.

Q: What are we doing about mold in postal facilities?

A: The Postal Service™ is working on a new policy for this issue. There are no current defined standards for mold.

Q: Who is responsible for changing the interior and/or exterior light bulbs?

A: The Postal Service™, regardless of who does maintenance. It's a custodial item. Ballasts are different because changing the ballasts depends on the maintenance rider.

Q: When the Postal Service™ moves out of a building, who is responsible for repairing broken windows, shattered tiles, landscaping, etc. to bring the building to useful capacity?

A: First, review the restoration clause in the lease, which varies widely. If the Postal Service™ bears some responsibility, the real estate specialist would handle such repairs. We ask the lessor to give notice regarding maintenance issues so we can determine if we agree or disagree with the assessment. Again, it is a maintenance issue. If the lessor did not maintain the building properly, the Postal Service™ will return it in the same manner as it was maintained while we occupied it.

Questions About Tax Riders

Q: Do new construction leases include tax riders or maintenance riders?

A: Yes. Personally, I think new construction leases should have a USPS® Tax Reimbursement Rider and a Partial Maintenance Rider. We are trying to limit as many variables as we can over a 20-year term. There are items, like taxes, that you cannot control because you don't know what will happen with taxes. Of course, we want to get the best deal we can. Additionally, we want to put you in a position where you will have the best chance to compete, also.

Q: Can the Postal Service™ turnaround tax reimbursements faster?

A: We have an incentive to turn the taxes around quickly because when we go past 30 days, we have to pay interest on prompt payment. We are in a hiring freeze, which causes shortages throughout the system. Our challenge is that taxes come to us in waves and our staff is overwhelmed by the sheer volume of paperwork. Over time, the process will improve.

Q: Should we notify the Postal Service™ about increases in assessments?

A: Yes. In fact, our tax program is being revamped and expanded. We want those assessments because it's a mutual benefit for us. We gain the benefit of reduced taxes when we reimburse them. It's also to your benefit if we move out and you end up with the facility. You will not want the taxes out of line either.

Q: What is the appropriate time for negotiating a new tax rider?

A: The only time to negotiate a tax rider is when you're entering a new lease after the old lease and all renewal options have expired. Once you have a fixed contract, we are not going to renegotiate taxes or anything else until the new lease is renewed.

Q: Will the Postal Service™ share in the cost of reducing taxes?

A: Contact your real estate specialist when you get in that situation. In most cases we are going to want to participate with you because we will also benefit.