The General Services Administration, by published reports, has been terminating leases with commercial landlords. The rules for acquiring and un-acquiring rented real estate differ a lot from those for everything else the government buys. Haynes Boone procurement attorney Dan Ramish joined the Federal Drive with Tom Temin to discuss.
Interview transcript:
Tom Temin: And from what you’ve been able to tell these terminations, that is the giving up of leased office space, is happening at a pretty rapid pace, GSA ostensibly, but really directed by DOGE, it seems.
Dan Ramish: That’s right, Tom. There are indications that GSA has been terminating a substantial number of leases with commercial landlords on behalf of tenant agencies and that this will be a continued focus of the Department of Government Efficiency during this administration.
Tom Temin: It’s a little bit ironic, given the fact that they want everybody back in the office and people are going to show up and be like musical chairs if you want to work. I don’t know what their grand plan is, but what do landlords need to know? Do they have any recourse or can this just be like a regular procurement contract terminated for convenience?
Dan Ramish: So, Tom, given the termination issues that are coming up these days, I think it’s useful to think about the ways in which lease contracts are treated as other government contracts and the way that they are treated differently from contracts for goods and services. So GSA leases are not subject to the Federal Acquisition Regulations like goods and services contracts are. There are other regulations, the Federal Management Regulations, the Public Building Service, which is the GSA service office that administers real property for GSA, maintains a leasing desk guy that has policies and procedures for leases. And then the General Services Acquisition Regulation has one part, 570, that addresses acquiring leasehold interests in real property. But the FAR writ large doesn’t apply. Although one of the provisions of the General Services Acquisition Regulation provides for using certain FAR clauses and GSAR clauses in leases by GSA and by other agencies that are delegated lease authority by GSA. So those clauses incorporate some government contracts-type requirements, including, among those clauses is the Disputes Clause because one of the ways in which federal leases are treated like government contracts is that they’re subject to the Contract Disputes Act.
Tom Temin: Which then gives landlords some recourse if they feel the government is treating them unjustly?
Dan Ramish: It establishes the process for how to contest government actions under the lease contract.
Tom Temin: So back to my first question then, can the government simply terminate leases for convenience the way it can terminate a management consulting contract or something for convenience?
Dan Ramish: So the government doesn’t have the same level of broad termination rights across the board in federal leases, the termination rights depend both on the terms of the individual lease and also where the parties are in the performance of the lease. So the way that this is treated in GSA’s L100 Global Lease Template, it provides for a firm term and then a non-firm term. And the firm term is essentially the noncancelable term of the lease, during which the government is obligated to make rental payments with or without occupancy. And then after the end of the firm term, the government typically has the right to terminate the lease with some notice to the landlord.
Tom Temin: Right. So that’s not unlike just renting an apartment. You’ve got a certain year long lease and then you can go monthly at that point.
Dan Ramish: That’s right. In that respect, it is similar to a lot of commercial leases.
Tom Temin: The commercial leases have more than one year though usually is the minimum period.
Dan Ramish: I think it may depend on the type of lease. I think the concept of a firm term of a lease and then the remaining term after the firm term expires and treating those periods differently is common between commercial and government leases. But there is a provision commonly found in government leases that is different from commercial lease agreements, which is called the Adjustment for Vacant Premises Clause, which is GSAR 552.270-16, and that clause allows GSA with 30 days’ notice to reduce rental payments if it doesn’t occupy the space for the entire term, and that’s intended to pass savings on to the agency because of the reduced costs that the landlord has of unoccupied space.
Tom Temin: Got it. Well, I guess they could look at it that way or lost revenue from what they thought would be rented for years ahead. We’re speaking with Dan Ramish, a procurement attorney at Haynes Boone. So this gets to some sort of bigger issues. I mean, just looking at the Washington, D.C. situation, the mayor, Muriel Bowser, has said she wants federal employees back in their offices because it helps the economy of the city. And I’m sure other mayors and other town councils believe this also to have the feds back. In a lot of the space, even in Washington, D.C. is leased. All that space in Rosslyn, which is kind of becoming sort of a desert also leased. And so it seems like even though people are welcoming the return to the office in some quarters. If the space isn’t leased, then you’re not going to fit so many people in. I don’t understand what the end goal here is.
Dan Ramish: I think there is a lot of uncertainty there, Tom, and hopefully the tenant agencies are planning this out and considering both their office space needs for staff that are returning to the office and also locations, right? Some agencies are considering moving folks out of the D.C. area to other areas. So I think there are a lot of considerations agency by agency.
Tom Temin: All right. Well then, if you are a landlord, then what should you do? Can they protect themselves? I mean contractors are, as you know, complaining about terminations. And they’re happening rapidly, especially in the services area, not so much in the goods area as far as we can tell. But landlord, that’s a service business essentially. But they also have a big capital component to operate a building. And so what should landlords do do you think?
Dan Ramish: Well, so one important thing, Tom, is for landlords to ensure that they’re meeting all of the terms of the lease. Dotting their i’s and crossing their t’s because for leases that are within the firm term, the government still has a right to terminate for default in the event that the landlord isn’t performing their obligations under the lease. This is governed by another GSAR clause, default by lessor during the term, and that clause provides for a cure period of 30 days. And if issues are not addressed within that 30 days, then the government has the right to terminate for default or if they’re recurring issues, even if they’re individually cured at some point, that will give the government the right to terminate the lease. And so it’s likely that obligations of landlord under leases that are still within term will be subject to new scrutiny if the government is looking to kind of get out of the lease.
Tom Temin: Right. And I guess this is out of the scope of what you’re able to see, but it does not seem to make sense to cancel wholesale leases or cancel leases wholesale and yet also have everyone come back to the office to work. In fact, in some instances, are having people that were long-term remote way before pandemic report to some federal office just to be in an office, even if they’re still working remotely, which I guess there’s some advantage in that if you look hard enough. But how can you do all of that and get rid of all the space that people were formerly occupying?
Dan Ramish: I agree with you, Tom. It’s hard to see how it all adds up. It may be that there are shifts happening and there are also, of course, some government employees that are being let go for different reasons. So that is presumably also a factor. But it’s hard to have a comprehensive understanding of the Department of Government Efficiency’s objectives here and how they all line up.
Tom Temin: So in the meantime, though, landlords should just look at the leases carefully and make sure that just to be a stickler for what it is that is within your rights to impose on the government?
Dan Ramish: Yes. It’s important for landlords to be aware of what the terms of their lease allow and to monitor communications from the government, from GSA specifically. So one of the things about being a government contract in some respects is that there is still a contracting officer, at lease contracting officer, that has authority over leases. And to the extent that there’s a dispute in relation to a lease, in this case, the landlord has to submit a claim under the Contract Disputes Act to the lease contracting officer before appealing. And one important point on that is that, as with normal government contracts, a termination of a lease is generally a government claim and operates also as a final decision that has to be appealed. And so there’s a risk that the clock starts running once the landlord receives a termination notice from GSA that they’re going to have to appeal within 90 days to the Civilian Board of Contract Appeals.
Tom Temin: All right. So everything that’s going on all point to one single growth industry and that’s law right now.
Dan Ramish: There are a lot of disputes going on right now, Tom, but I think everyone who practice law on the government contracts area would actually prefer fewer issues for their clients. And it’s difficult to watch everything that’s going on right now and the challenges that people are facing.
Tom Temin: You bet.
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