Type: Law Bulletins
Date: 06/28/2010

Leasing Space to the Federal Government: The Atypical Tenant

According to the most recent Federal Real Property Report, for FY 2008, the Federal Government leased over 2,830.5 million square feet of building space from private entities. Although these numbers actually reflect a decrease in leasing over the past years, unlike in the private sector, the number of federal employees is growing, which may indicate that the opportunities to lease property to the Federal Government will also grow. In addition, it appears that the Government’s needs have evolved not just in terms of quantity but also in terms of specific “green” and security requirements.

The General Services Administration (“GSA”) is the federal agency primarily responsible for owning, leasing, and managing real property on behalf of most other federal agencies, although some agencies (like the Department of Defense, Postal Service and Veterans’ Administration) handle some of their own real property needs. Of the 1.2 million federal workers that work in space controlled by the GSA, half work in space owned by the Government and half work in “over 7,100 separate leased properties.” See www.gsa.gov/leasing. More than 50% of those leases are for spaces of 10,000 square feet or less. 

As a general rule, like with everything else, the Government must conduct competitive procurements for its real estate needs. The Government is required to state clearly its needs in a solicitation for offers (“SFO”) for leases, and reserves for itself the right to reject offers not conforming to its stated needs.1  In addition to the more traditional evaluation factors, lessors should expect to respond to two particular issues that require attention: 1) environmental concerns, and 2) security requirements.

  • Government Goes Green

On October 5, 2009, President Obama signed Executive Order (“EO”) 13514, entitled “Federal Leadership in Environmental, Energy, and Economic Performance.” EO 13514 generally requires all Federal agencies to set performance goals, increase energy efficiency, and support environmentally-friendly practices, and built upon the previous mandates in the Energy Independence and Security Act of 2007 (which required the GSA to reduce its energy consumption significantly and required leases beginning in the year 2010 to be only with buildings that have earned the Energy Star designation).

The GSA takes its environmental directives very seriously and has become a leader in the area of implementing green strategies that integrate cutting-edge technologies into construction, design and operation of high performance buildings. It has applied this policy not only to new construction, but also to its leasing activities.  The GSA also requires its lessors to be LEED rated, a certification that attests to a building’s friendliness to the environment. According to GSA policy, every SFO must contain certain green lease provisions, which are available on the GSA website. See www.gsa.gov/leasing.

  • Security Requirements

Security at Federal facilities was raised to the forefront of the public attention in 1995 when a bomb detonated in a car parked outside the Alred P. Murrah Federal Building in Oklahoma City resulted in the deaths of 168 people. Six years later, 9/11 drew more attention to the vulnerability of buildings. Even more recently, federal facilities have been the subject of several other acts of violence. On January 4, 2010, a gunman opened fire in a Federal courthouse and office building in Las Vegas Nevada, shooting a Court Security Officer (who later died) and a Deputy U.S. Marshal. On February 18, 2010, a small plane crashed into an IRS office in a building leased through the GSA in Austin, TX, and on March 4, 2010, a lone gunman shot 2 officers outside the Pentagon.

Federally leased space is subject to the Interagency Security Committee (“ISC”) guidelines, which divide security needs into levels based on number of employees, use, public contact, and mission specific risks and vulnerabilities of the Federal tenant. In turn, the Federal Protective Service (“FPS”) is responsible for the safety of the premises. The title of the recent Government Accountability Office (“GAO”) Report on the security at Federal facilities gives away its conclusions: it is titled, “Ongoing Challenges Impact the Federal Protective Service’s Ability to Protect Federal Facilities.” See GAO-10-506T (March 16, 2010). Despite the fact that the Federal Protective Service has a budget of about $1 billion, 1,225 full-time employees, and approximately 15,000 contract guards, the GAO found that there are serious deficiencies in the FPS’ ability to protect the federal buildings for which they are responsible. While the lessor may have no control over the FPS, the security concerns of the federal government should be of great concern to a lessor.

Government leases typically include clauses for termination for convenience (which allows the government to terminate its contractual agreement whenever it believes doing so is in its best interest), termination for default, and provisions which, while similar to clauses found in all Federal procurement contracts, are significantly different than a standard commercial lease. Lessors must weigh the impact of these clauses given the increased physical risk of a catastrophic terrorist attack and the monetary risk of government–imposed security enhancements. The lessor must consider what liability it will have to its Federal tenant under common law (duty to provide safe premises and to provide security against criminal acts) or whether those common law rights are superseded in favor of specific security provisions put forth by GSA.  Additionally, the lessor needs to consider what liability it may have to its non-government, private tenants due to the imposition of any Federally-imposed security provisions or any damages to them as a result of any attack on the Federal tenant. In a world where a terror attack on a Federal agency location is a very real concern, these considerations take on a new and greater perspective.

1 Note, while smaller leases are often solicited via less formal means, they are still subject to the intricate regulatory scheme in the Federal Acquisition Regulations (“FAR”) and the General Services Administration Regulations (“GSAR”) supplement.

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