Washington, DC

U.S. Office of Personnel Management
Compensation Claim Decision
Under section 3702 of title 31, United States Code

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Robert D. Hendler
Classification and Pay Claims Program Manager
Agency Compliance and Evaluation
Merit System Accountability and Compliance


08/11/2014

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Date

The claimant is a Federal civilian employee of the Department of the Army at Headquarters, U.S. European Command, in Vaihingen, Germany.  She requests the U.S. Office of Personnel Management (OPM) review the agency's decision regarding the exchange rate used to compute the living quarters allowance (LQA) she was granted for the purchase of personally owned quarters (POQ).  We received the claim on February 23, 2012, the agency administrative report (AAR) on March 20, 2012, and additional information from the agency at our request on May 5, 2014.  For the reasons discussed herein, the claim is denied.

The claimant was appointed to the Federal service on October 4, 2009, and was granted LQA for rental housing.  On December 10, 2009, she entered into a contract for the purchase of a house but did not move in immediately because the property was still under construction.  The claimant continued to live in her rental quarters while receiving LQA until April 30, 2010, when she took occupancy of her POQ.  In calculating the amount of the LQA grant, the agency used the exchange rate in effect on the date the claimant took occupancy of the house rather than the exchange rate in effect on what the claimant characterizes as the date of purchase.

The claimant asserts:  "The regulations very clearly state that the rate of conversion used in the computation of LQA for the purchase of a POQ is the conversion rate on the date of purchase.  I signed the purchase agreement at the Notare (Notary) in Stuttgart, Germany on 8 Dec 2009."  She therefore believes the exchange rate used in the computation of her LQA grant should have been set in accordance with that date. 

The agency notes that although the purchase agreement shows a "purchase price" of € (Euro) 307,971.47, this amount was subsequently renegotiated between the claimant and the builder and that the actual purchase price was reduced to €281,555.57 for the cost of construction "exclusive of additional items purchased by [claimant] to render the dwelling habitable.[1]" These items cost an additional €18.388.84, which made the total amount reimbursable in the LQA computation  €299,944.41.  Accordingly, the agency determined that because the claimant’s POQ was incomplete on the date of the purchase agreement, it did not meet the standard that would provide for suitable and adequate living quarters under the Department of State Standardized Regulations (DSSR).  The agency further reasons that since the claimant submitted requests for the inclusion of items in the LQA computation which were purchased after the date of the purchase agreement and which were approved for inclusion, using the exchange rate for December 10, 2009, would have been inappropriate as it would have resulted in crediting of those items at a different rate than the rate at which they were actually purchased.   

The DSSR contains the governing regulations for allowances, differentials, and defraying of official residence expenses in foreign areas.  Within the scope of these regulations, under DSSR section 013 the head of an agency may issue further implementing instructions for the guidance of the agency with regard to the granting of and accounting for these payments.  Thus, Department of Defense Instruction (DoDI) 1400.25, Volume 1250, implements the provisions of the DSSR, but may not exceed their scope; i.e., extend benefits that are not otherwise permitted by the DSSR.

Section 136, Personally Owned Quarters, of the DSSR states:

(a)    When quarters occupied by an employee are owned by the employee or the spouse, or both, or by the employee or the domestic partner, or both, an amount up to 10 percent of original purchase price (converted to U.S. dollars at original exchange rate) of such quarters shall be considered the annual rate of his/her estimated expenses for rent.

Paragraph SC1250.5.1.12, Personally Owned Quarters (POQ), of DoDI 1400.25, Volume 1250, dated December 1996 incorporating change 1, June 26, 2006, administratively reissued July 31, 2009, and in effect at the time the claim accrued, expands on the above provision as follows:

The annual rent payable for POQ is based on the purchase price or appraised value of the property, converted to U.S. dollars at the exchange rate in effect at the time of purchase.

Since the DoDI may only supplement but not supplant the DSSR, the above regulatory citations must be read in concert.  The term “original purchase price” as it is used in DSSR section 136 is considered to mean the actual price of the POQ when it was purchased, exclusive of the cost of any subsequent improvements made to the property, and the “original exchange rate” is the rate in effect on the date of the “original purchase.”  Therefore, the “time of purchase” referenced in DoDI paragraph SC1250.5.1.12 must coincide with the date of “original purchase” referenced in the DSSR section 136.  In determining the “time of purchase,” we employ the commonly-understood meaning of the term “purchase” as the acquisition of ownership through the act of buying.  Thus, implicit in the provisions of DSSR section 136 is the understanding that the exchange rate that serves as the basis for the LQA computation is the rate that was in effect when the monetary transactions to effect the purchase actually occurred.  Otherwise, the LQA grant, which in effect potentially reimburses the cost of the POQ over a ten-year period, would misrepresent the value of the recipient’s actual monetary outlay at the time of purchase. 

In the present case, the claimant signed a “notary contract” with the property builder representing a purchase agreement for the POQ on December 10, 2009.  This was a legally binding document to initiate the purchase of the property, which was still under construction.  However, the use of this date for establishing the exchange rate for the LQA computation would be inappropriate because the claimant did not acquire legal ownership of the property on that date and further, the record indicates she neither paid for the property nor was the purchase price set at that time.  The stated cost of the house on the notary contract was €307,971.47.  However, the actual cost, as stated on the “property transfer record” provided to us by the agency at our request and signed by the claimant on April 28, 2010, was the renegotiated price of €281,555.57 following changes made by the claimant during completion of the construction.  The “property transfer record” also includes the statements “Invoice No. 33 116 of 15 April 2010 in the amount of €307,971.47 is still due,”  “[t]he client obligates him/herself to a down payment in the amount of: n/a,” and “[t]he remainder of the amount shall be paid immediately following completion of the services not rendered to date,” although there is no indication of any unrendered services. Therefore, it is reasonable to conclude that as of April 28, 2010, the builder had not yet been paid for the POQ but that such action was taken shortly thereafter.  The claim record does not include documentation indicating the date when the builder was paid, as the money would have flowed directly from the bank to the builder. However, we regard the “property transfer record” as the official document reflecting the conclusion of the purchase of the property by the claimant and the date of that document as the “time of purchase” for purposes of establishing the exchange rate for the LQA computation.   

In its AAR, the agency states:

Although the DSSR Section 136 in connection with the DoDI... mark the purchase price of the POQ, converted to the U.S. Dollars at the exchange rate in effect at the time of purchase, as the relevant determinant for the proper determination of the LQA rate payable, this can only be literally applied to instances in which employees purchase quarters that are habitable and not unfinished structures.  It is long-standing practice... that in instances of employees building homes, that the effective date of the purchase price of the property may be somewhere between the date the employee signed the contract and the date he took occupancy of the property.  Otherwise employees could not get reimbursed for items that are purchased after the sale of the property but are required to make the property livable, such as in [claimant's] case, as the costs would have to be considered renovation or additions to existing structures, which cannot be reimbursed under the LQA.

In connection with this reasoning, the agency refers to their email exchanges in 2004 and 2010 with staff members at the Department of State, the agency authorized to promulgate the regulations within the DSSR, in response to a question on the correct exchange rate to use in computing the LQA for an employee who had purchased land and signed a building contract, but where actual construction of the house began much later.  The response indicated that establishing a date of purchase in such cases is not addressed in the DSSR, thus leaving this to agency discretion, but suggesting the date would reasonably be sometime after the employee signed the contract but before taking occupancy.  The agency thus concludes:  “As such, we opine that our previous practice to select the date of move-in into permanent quarters in instances in which the dwelling was to be built or under construction at the time of purchase is the most reliable and consistent date to determine the proper amount of reimbursement as LQA under the provisions of the DSSR Section 136a.” 

We find this reasoning has merit in those situations where an employee contracts with a builder to construct a dwelling on land owned by the employee, in which case the dwelling itself is not "purchased."  Rather, the builder is being paid for his construction services, not for the purchase of the house, and as such there is no actual date of purchase.  Since these circumstances are not addressed in the DSSR, the agency may properly exercise its discretion in using the date of occupancy for LQA computation purposes.  However, this is not applicable to the claimant's situation as she was not having the house built on land she already owned.  In her case, the builder was constructing and owned the property, the claimant purchased the property from the builder, and therefore a date of purchase can be established.  As discussed above, we regard the date of purchase under such circumstances as the date reflected on the “property transfer record.”

The agency's contention that the date of occupancy rather than the date of purchase should be used to set the exchange rate in order to provide for reimbursement of additional items required to render the house habitable also lacks merit.[2]  DSSR section 136 limits LQA for POQ to ten percent of the original purchase price of the house.  Although DSSR section 137 provides an allowance "to cover, under unusual circumstances, the cost of initial repairs, alterations, and improvements which are incurred within 3 months of a rental agreement and are basic to making the employee's first permanent residence at a post habitable," and specifically describes the types of expenses that would be considered reimbursable, no similar allowance is provided for a POQ under DSSR section 136 as opposed to rental property.[3]  This omission leads us to conclude the intent of the DSSR is that an employee who opts to purchase a dwelling (as opposed to renting) incurs the cost of any subsequent repairs, alterations, or improvements, regardless of the condition or habitability of the dwelling upon purchase, and that any such considerations do not justify disregarding the plain and unambiguous language of the DSSR and the DoDI with regard to the use of "original exchange rate" and "the exchange rate in effect at the time of purchase."  Therefore, although not relevant in this case, any costs incurred after the established date of purchase but before the date of occupancy would not be reimbursable in the LQA computation.   

This settlement is final.  No further administrative review is available within OPM.  Nothing in this settlement limits the claimant’s right to bring an action in an appropriate United States court. 

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