While there have been previous efforts to reduce the federal government’s real estate footprint, the scope and speed with which the Trump administration proposes to reduce that footprint is unprecedented.
Acting through the U.S. General Services Administration (GSA), the administration is targeting a 50% reduction of leased office space. It has instructed the GSA to terminate GSA leases, which has been a source of confusion for landlords with tenants under GSA leases. Although government contracts generally permit federal agencies to terminate for convenience, the same is not true of GSA leases.
GSA leases typically include two lease terms – the “soft term” and the “firm term.” The soft term signifies the period of the lease term during which the GSA may terminate the lease without penalty, typically 90-120 days’ advance written notice. The firm term, on the other hand, signifies the period during which there is no right for the GSA to terminate the lease early.
Despite this distinction, the administration erroneously sent lease termination notices to some landlords with GSA leases still in their firm term. According to GSA officials, the GSA is now aiming to fix those errors and will limit terminations to leases in the soft term.
In addition to early lease terminations, the administration also announced its plan to dispose of federally owned properties and published a list of more than 400 federally owned real properties determined to be “noncore assets” slated for disposition. Of those properties identified as “noncore assets,” over 100 are in the greater Washington area. The GSA has since removed the list of these noncore assets for disposal, but it is anticipated that the agency will republish this list again soon.
Before the GSA may dispose of federally owned property for fair market value, however, it must first offer the property to other federal agencies that may have a need for the property. If no other federal agency expresses a need, then the property is considered “surplus” and may be made available to state and local governments and eligible nonprofit organizations for a discount of up to 100% of the fair market value of the property, provided that the property is used for a qualifying public benefit, such as homeless services, public health or education. This type of transfer is referred to as a “public benefit conveyance.”
Under the applicable regulations, public benefit conveyances are subject to the discretion of the GSA administrator based on a highest and best use analysis. However, one current exception is that, under the McKinney Vento Homeless Assistance Act, surplus property must be made available for serving the homeless.
If the property is not transferred pursuant to a public benefit conveyance, the GSA can then dispose of the surplus property to the public for fair market value through sealed bids or auction.
Miles & Stockbridge’s real estate lawyers are monitoring the GSA’s actions related to leased office space and surplus property and can assist landlords with a GSA tenant or developers interested in acquiring federal surplus property.
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