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In September of 2007, 5860 Chicago Ridge, LLC filed suit in the Court of Federal Claims for $2.28 million, claiming that its tenant, the IRS, had arbitrarily terminated its occupancy of office space at Chicago Ridge, and wrongfully withheld a portion of its rent. The IRS asserted constructive eviction as an affirmative defense and counter-claimed for $734,000 for re-procurement costs in finding new office space and $88,000 in overpayment of real estate taxes and unused tenant improvements. The source of the IRS’ complaint? Just a little dampness. Or as the court put it, “75 instances of water-related problems” so frequent and severe it quoted one waterlogged agent as saying “I am running out of trash cans to put under the leaks.” And the owners’ take on their allegedly leaky roof? Not so helpful. In a separate suit against the architects who built the place, the owners asserted that “the extent of the leaking was so great as to constitute a series of sudden and calamitous events.” Complementing the water problems were “71 temperature-related complaints” which occasionally forced agents to flee the building or set up space heaters inside their offices. The building owners themselves summed up the misfortunes at Chicago Ridge by saying, “I only want this nightmare to be over as much as the tenant does…”

At trial, the court’s analysis turned on the standard of proof required of the government. The plaintiff-owners argued that the government must demonstrate a material breach amounting to a failure of consideration in the contract, while the government claimed it need only show that its invocation of the contract termination clause was proper. Finding that the government had the better of that argument, the court turned to whether the government had terminated for a specific, enumerated condition or for a general breach of “other clauses” in the contract. Ultimately, the court found that Chicago Ridge had breached a specific clause giving rise to termination, the clause of habitability and serviceability, stating that the “cumulative effect of these many irregularities deprived defendant of a critical aspect of the Lease – the safe and reliable work environment for which it bargained in the contract.” Though noting the many attempts by the contractors to fix the leaky roof, the court found that the owners had a duty to do more than respond diligently to problems; they had to respond effectively, stating that “even if plaintiff believes that it deserves an “A” for effort (a debatable point, to be sure), it definitely deserves an “F” for effectiveness.”

But the court’s decision was not a total win for the water-logged Revenue Service. The court denied the government’s $734,000 counter-claim for re-procurement costs on the grounds that the GSA had not established the reasonableness of its re-procurement or presented any evidence comparing the new office space with the previous one. Basically, even if you breach your contract to rent a Yugo, you can’t recover damages for replacing the car with a Mercedes. The court found insufficient evidence to support the tax overpayment claim, and refunded $59,000 of withheld rent to the owners, holding that the IRS only was entitled to withhold rent for unusable workspace but not for unspecified administrative costs. But on balance, the taxman had a good day in the Court of Federal Claims: the plaintiffs asked for $2.8 million and got just under $60,000. Judge Allegra concluded on a philosophical note, quoting cowboy-actor Will Rogers, : “[e]verything is funny as long as it is happening to somebody else, but when it happens to you, why it seems to lose some of its humor, and if it keeps on happening, why the entire laughter kinda fades out of it.” The decision of the court can be found here. Blogs