Recent communications from the U.S. General Services Administration (GSA) indicate that the agency’s goal under the new administration is to cut all aspects of GSA by 50%. This includes staffing, budget, and infrastructure – meaning they intend to dispose of 50% of their owned real estate inventory and terminate (or allow to expire) 50% of their leases. GSA is currently assessing which of their leases have no firm terms, are already in their “soft” terms, or have firm terms set to expire in the coming years. They have already started the process of ending those contracts.
The Real Estate Group at Scale LLP is advising government landlords to take the following steps to prepare for GSA potentially vacating their space and terminating their lease contract.
- Review your lease contract carefully. Government leases contain specific language regarding when the firm term (if any) expires, and the termination rights that arise upon expiration of that firm term. Note that if your lease is still within the firm term (i.e., the government does not yet have a termination right), and GSA provides notice of termination, the landlord is entitled to the full amount of rent due for the remainder of that firm term. This is a situation that must be negotiated carefully to ensure the landlord is properly compensated and for the end of this guaranteed rental stream.
- If you have received a notice of termination, review that document carefully. If it contains any release of claims, waivers, or any other language that relieves GSA of responsibility, be advised that you are not required to sign that document and doing so may affect your ability to protect your interests.
- Carefully police how the government vacates the space. It is common for the government tenant to purposefully or inadvertently abandon personal property in the premises. If they do so, this could mean that the government is still technically occupying the space. The lease contract governs what happens when property is left behind, and the landlord does have an opportunity to file a claim with the Lease Contracting Officer (LCO) to assert that the government is a holdover tenant. It can take months to contract for moving services, and for many government tenants, termination of the lease may come as a surprise. Therefore, they may be ill-prepared to vacate the space. Additionally, thoroughly document any damage that has been done to the premises. Depending on the terms of the lease contract, you may be able to be compensated for damage or waste.
- Don’t be afraid to exercise your right to file a claim. If you believe the government has treated you unfairly, or if they have broken any terms of the lease, you can avail yourself of the contract dispute process, the first step of which is to file a claim with the LCO. There are very detailed requirements in the Federal Acquisition Regulation and Contract Disputes Act that govern this process, and obtaining legal counsel is recommended.
- Don’t go it alone. There are numerous consultants and law firms that can help you negotiate with the government, ensure your rights are protected, ensure you are properly compensated. Scale LLP’s Public Sector Team is here to provide guidance, negotiate, and take formal steps as needed.
In addition to the individual impact felt by landlords leasing space to the government, GSA’s actions will have repercussions across the real estate industry. GSA’s website states that it “owns and leases over 363 million square feet of space in 8,397 buildings across more than 2,200 communities nationwide.” While most of GSA’s space is government offices, they also lease and own space used for research, industrial and port purposes, courthouses, high-security operations like FBI and continuity of operations facilities, post offices, data centers, health care, agricultural, and public-facing service centers.