The post office in Tamms, Illinois, is on the POStPlan list, and it was supposed to have its hours reduced to six a day. But this week the people in Tamms learned that instead of having its hours cut, their post office will be closing completely. It’s another case of an emergency suspension over a lease issue.
There are nearly one thousand post offices that have a lease expiring over the next three months. Unless Congress or the PRC does something about it, many of them will be closed by emergency suspension over manufactured lease problems. You can see the list as a spreadsheet here, a table here, and a map here.
A long history of problems
The Postal Service has been using lease problems to justify emergency suspensions for many years. Back in 1997, Congress became concerned about the abuses and asked the GAO to look into it. The GAO report notes that from 1992 to 1997, there were 651 suspensions, almost half due to the termination of the post offices’ lease or rental agreement. Only 31 of the 651 post offices ever re-opened.
In 2009, the Postal Regulatory Commission began an investigation of the practice. It obtained a list from the Postal Service showing that between 2004 and 2009, 300 post offices were suspended for building-related issues, at least half of them due to a lease problem. No final report was ever issued by the PRC, and the docket is still open (PI2010-1).
Earlier this year, complaints from postal lessors about dealing with Postal Service’s exclusive real estate broker, CB Richard Ellis, led the USPS Office of Inspector General to put a page on its website inviting comments about the USPS-CBRE contract. The page no longer appears on the OIG’s website, but word has it that a report may yet be forthcoming.
While it’s difficult to get hard numbers, emergency suspensions seem to be on the increase. CBRE has been driving a hard bargain in lease negotiations, so hard, in fact, that many lessors have been come to the conclusion that the Postal Service isn’t really interested in renewing the lease at all. It’s just looking for an excuse to close the post office, and the lease issue is just a smokescreen.
The early-termination issue
While the Postal Service and the landlord sometimes disagree over the amount of the rent or responsibility for maintenance, the issue that is causing many of the lease problems these days is the Postal Service’s insistence on adding an early-termination clause to the lease. This clause permits the Postal Service to end a lease whenever it wants, and on relatively short notice too.
Traditionally, the Postal Service would sign a five-year lease with an option for another five years. In some cases, the leases were even longer. Leases rarely if ever contained a clause permitting one party to terminate at will. The fact that the building would house a post office for a long time was one of the main reasons why investors got into the business of owning post offices in the first place.
Now the Postal Service wants to insert early-termination clauses in the leases, giving it (and only it) the option to get out before the five years are up, sometimes with as little as 60 or 90 days notice. These termination clauses have been the source of a lot of controversy, and the lessors have complained vociferously to the Postal Service and the PRC about them.
That kind of flexibility may be good for the Postal Service — especially if it’s planning on closing lots of post offices — but the termination clause makes it impossible for landlords to make long-term plans for their buildings. Landlords are put in an untenable position, and it’s no surprise that lease negotiations have been breaking down at an unprecedented rate and that emergency suspensions are happening on a regular basis.
The Tamms story
The lease on the Tamms post office expires on December 31, 2012. A note on the door says the post office will be suspended as of Friday, December 28. The Postal Service says it will decide what to do about providing services to Tamms sometime over the coming months. In the meantime, residents must drive 7.4 miles to Ullin to get to a post office. That ride may become a permanent fact of life in Tamms.
The annual rent for the Tamms post office is $11,600 (about $7 a square foot or about $2,000 a month), but money wasn’t the issue that caused problems in the lease negotiations. It was all about the termination clause.
The mayor of Tamms, Lamar Houston, was told that the Postal Service failed to reach a new lease agreement with the landlord for other reasons. As he related to the local news, “The length of term and the termination agreement that the postal service wanted to put in the contract is my understanding, the problem that we’re having with the contract now.”
Because of all the complaints over the termination clause, the Association of U.S. Postal Lessors (AUSPL) got the Postal Service to agree to make the shortest termination clause 30 months. In other words, once a lease goes into effect, the soonest it can be terminated is two and a half years. But once the 30 months have gone by, the Postal Service can terminate the lease on relatively short notice. That’s similar to the deal the Postal Service wanted to strike on the Tamms’ lease.
The Tamms post office is owned by Continental Postal Group, a subsidiary of Bridgeway Investments, an investment firm based in San Francisco. A Bridgeway representative says that the Postal Service wanted to insert a clause saying that it could terminate the lease anytime after December 31, 2014, with 180 days notice. That means Postal Service would commit to remaining in the building for only two years; after that, it could exit anytime it wanted, with six-months notice.
The landlord says he would have been willing to sign a two-year lease and then revisit things after that, but he didn’t want to get locked into a situation where the Postal Service could suddenly announce that it was leaving the building before the lease ended in December 2017. The landlord would very much like the post office to stay in his building — that’s why he doesn’t want the early termination clause to begin with — but he and his investors can’t find themselves in a position where the Postal Service can just walk away whenever it feels like it.
Not a new problem
The Continental Postal Group owns several dozen post offices, and they’ve been in the post office business for over fourteen years. This isn’t the first time that problems negotiating leases with the Postal Service have led to emergency suspensions.
Back in 2010, for example, the Postal Service suspended the post office in Flushing, Ohio, over a problem negotiating a new lease with Continental. The Flushing post office never re-opened. It was eventually replaced by a contract postal unit inside a convenience store.
Later that year, the Postal Service suspended the post office in Caledonia, New York. The Postal Service claimed it couldn’t come to an agreement with Continental, but one of the partners said that was a “flat-out lie.” He explained that Continental had put $22,000 into the building for a new roof, new ceiling tiles, etc., and he was only asking for a tiny rent increase to cover it, which seemed reasonable considering the rent had been the same for the previous five years.
The Postal Service made no counter-offer and instead asked for a four-month extension to give them time to vacate. Continental then offered to lower the rent to keep the post office open, but the Postal Service declined the offer.
The Caledonia post office never re-opened. In December 2011 the community received a Final Determination, making the emergency suspension a permanent closure. Residents have been using the post office in nearby Mumford, but now the Mumford office is on the POStPlan list, its hours soon to be reduced to six.
What’s to be done?
Tamms’ Mayor Houston says the Postal Service told him that the suspension would be only temporary, but in a letter to residents, the Postal Service said it would be “cost prohibitive to relocate within Tamms at this time.” That certainly makes it sound as if the Postal Service has no plans to keep a post office in Tamms.
The landlord, however, still hopes that an agreement can be reached to keep the post office open, and he’s continuing to exchange messages with the Postal Service in an attempt to resolve the impasse. But there aren’t many days between now and December 28, and in all likelihood, the Tamms post office will be suspended at the end of next week, never to be re-opened.
If the Postal Service is serious about its claim that POStPlan is designed to save, not close, post offices, it should stop insisting on the termination clause and it should stop closing post offices by emergency suspension. If the Postal Service continues on its present path, someone — the PRC, the OIG, Congress, or the President — ought to do something about it. Here’s a prediction for 2013: No one will.