Holland & Knight Secures Victory for Federal Landlord Client in Tax Dispute

WASHINGTON, D.C. (February 13, 2023) – Holland & Knight recently secured a victory for client Rooker Coweta LLC, an affiliate of Atlanta-based real estate development firm Rooker, in a dispute over a lease with the U.S. Department of Agriculture (USDA) at the U.S. Civilian Board of Contract Appeals (CBCA), an administrative court with the authority to hear disputes over U.S. government contracts.

In Rooker Coweta LLC v. USDA, the CBCA accepted, wholesale, arguments advanced by Holland & Knight Partner Gordon Griffin and Associate Sean Belanger concerning the calculation of entitlements to real estate tax reimbursements from the federal government. As a result, on Jan. 27, 2023, the CBCA concluded that Rooker was entitled to $159,382.96 in back payments.

A recent Holland & Knight client alert discusses how the real estate tax adjustment clause in government leases provides fertile ground for disputes between landlords and their government tenants. This clause requires the government to reimburse landlords for any real estate taxes paid in excess of a Real Estate Tax Base, or, in the alternative, it requires the landlord to give the government a credit for any decrease in real estate taxes below the Real Estate Tax Base.

In this case, the dispute concerned the calculation of the Real Estate Tax Base. The USDA took the position that because the GSA Form 1364 – a standard government form used to offer and justify rental rates – included an estimated amount for real estate taxes and was incorporated into the lease, the parties had negotiated an amount for the Real Estate Tax Base. Holland & Knight, arguing on behalf of Rooker, countered that this amount was provided simply for price evaluation and that the lease required the parties to calculate the Real Estate Tax Base as the taxes paid for the first full tax year following lease commencement.

In its decision, the CBCA held that a lease’s language indicating that “[t]he base for calculating real estate tax adjustments for the leased premises shall be the first fully assessed year,” plainly established that the Real Estate Tax Base must be calculated using the tax amount of the first full tax year following lease commencement. In addition to receiving back payments, this ruling also ensures that Rooker is entitled to a re-establishment of the tax base for the remainder of the lease term, which represents a savings of roughly $50,000 per year for the remaining term.