Beware of the very unique contract terms used in GSA lease contracts to avoid headaches.
The general services administration (GSA) leases more than 150 million square feet of space from private building owners in over 2000 communities. This makes them an extremely important player in the real estate community. Because of the unique terms and conditions contained in government releases, buyers of office buildings where the government is already a tenant basis the learning curve.
The number of potential conflicts between building owner and government tenant increase as the square footage under lease increases. Some investors assume wrongly that entering into lease agreement with the government is the same as a standard commercial lease.
They use a standard tax escalation clauses stating that the amount of any increase in taxes about the first fully assessed year will be paid in a lump sum payment. Yet buried in the contract is a clause that requires the lessor to submit the tax escalation claim within 60 days of the tax payment date. If they miss the deadline, the lessor forfeits the entire escalation.
When they want to make alterations to a space, the GSA may ask building owners to sign a “waiver of restoration” clause, stating that when the lease ends, it won’t be required to restore the space to its original condition. Some owners think that by refusing to sign the waiver, they stop any alterations. But in a standard lease, there is a clause that allows alterations to take place. The protections for owners lie in the fact that, by refusing to sign the waiver, they may be able to force a restoration when the government tenant moves out. Keeping good records is critical for this.
Conflicts occasionally occur, and when they do, there’s another interesting clause that comes into play. The GSA contract outlines procedures to follow when owners have a disagreement with the government they can’t resolve through negotiations. It allows building owners to submit a claim against the government by simply writing a letter to the government contracting officer outlining the basis for the claim and the amount. The government contracting officer can then either negotiate, pay the client, or issue a denial of claim. The denial of claim is in the form of a “final decision” which is misleading because the decision is not final. If the owner doesn’t agree with what the contracting officer decides he can appeal to a board of contract appeals which renders unbiased decisions. This is all done simply by mailing a letter.
Ultimately, there are good things and bad things associated with government leases. To avoid any unpleasant surprises, owner should do their homework and understand their options in the event of conflicts.