[WSBARP] Transfer of Government Leases

Wed Jan 8 13:03:08 PST 2014

Mark-  I am not sure we have met- but hat's off to you for your
willingness to help and great use of the list serve. 

Dustin R. Klinger, P.C.
Partner

Miller Nash LLP
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From: wsbarp-owner at listserv.nethelps.com
[mailto:wsbarp-owner at listserv.nethelps.com] On Behalf Of Mark K. Funke
Sent: Tuesday, January 07, 2014 10:41 AM
To: WSBA RPPT Real Property Discussion Forum
Subject: Re: [WSBARP] Transfer of Government Leases

Travis - I have dealt with the transfer of a major GSA lease as part of a
property acquisition.

Here is the short version of what we did:

*          Estoppel Certificate to the PSA had to conform to GSA form
(termed a "statement of lease" in federal gov. speak). GSA won't sign
anything else;

*          Seller agreed to 6 month holdback of rent to allow enough time
to transfer the lease post-closing; 

*          In a separate clause we addressed overpayment of one party by
the GSA post closing, so that rent received that was not part of the
holdback gets assigned to the new party.

During our due diligence we had the GSA run a background check on my
client, his spouse and children. We obtained written approval that they
passed the background check. This was very challenging to get ahead of
closing, but we did.

In the event there are security clearances required to access the space,
your client may have some challenges viewing the very space he is
purchasing.

Make sure to clarify to escrow that the GSA pays rent in arrears rather
than in advance. It obviously changes the pro-rations.

Also look at the question of amortization of tenant improvements. In our
particular lease that was an added complication because final rent was
going to be determined by the value of the TI construction.

If I remember correctly it took us almost the entire 6 months after
closing to transfer the lease. It was not uncommon to hear voice mail from
the GSA along the lines of: "I will be in the office Tuesday this week and
then out for two weeks and returning phone calls then and then will be in
the office for three days". 

For us it was a slow process. It's my understanding that how easy the
transfer is depends greatly on the kind of lease (say post office vs.
facility with security clearances). The type of lease probably also
effects how concerned your client should be as to whether the GSA will
approve the transfer.

I can send you some sample PSA language that we used. Call me if you would
like to discuss further.

- Mark

__

FUNKE PS

Mark K. Funke, Attorney

1411 East Olive Way

Seattle, Washington 98122

mark at funkelaw.com

www.funkelaw.com <http://www.funkelaw.com/> 

P.206-632-1535

F.206-374-2283

On Jan 6, 2014, at 12:46 PM, Travis Thornton <travis at fksdo.com> wrote:

Good afternoon, all.  We have a domestic client that is considering the
purchase of an office building that is subject to (i) leases with
Washington State Department of Social and Health Services and the
Department of Revenue, and (ii) a federal GSA lease.  In the course of
reviewing the leases, we have identified what appear to be fairly standard
lease provisions for these governmental bodies, but we are unclear as to
how they would operate in practice.  We hope someone has had some real
world experience with these provisions and could share insights as to have
they have operated or been interpreted in the past.

(i)             In the Washington State DSHS lease, the provision in
question states (in its entirety), “The Lease may, at the option of the
Lessee, be renegotiated for an additional five (5) years.”  How does this
rather inchoate tenant right to renegotiate for an additional term get
exercised or waived in practice?

(ii)           With respect to the federal GSA lease, the provision in
question relates to transfers of the property/changes in landlord and
reads:

2.06 CHANGE OF OWNERSHIP (JAN 2011)

A.            If during the term of the Lease, title to the Property is
transferred, the Lease is assigned, or the Lessor changes its legal name,
the Lessor and its successor shall comply with the requirements of FAR
Subpart 42.12. If title is transferred, the Lessor shall notify the
Government within five days of the transfer of title.

B.            The Government and the Lessor may execute a Change of Name
Agreement if the Lessor is only changing its legal name, and the
Government’s and the Lessor’s respective rights and obligations remain
unaffected. A sample from is found at FAR 42.1205.

C.            If title to the Property is transferred, or the Lease is
assigned, the Government, the original Lessor (“Transferor”), and the new
owner or assignee (“Transferee”) shall execute a Novation Agreement
providing for the transfer of Transferor’s rights and obligations under
the Lease to the Transferee. When executed on behalf of the Government, a
Novation Agreement will be made part of the Lease via Amendment.

D.            In addition to all documents required by FAR 42.1204, the
LCO may request additional information (e.g. copy of the deed, bill of
sale, certificate of merger, contract, court decree, articles of
incorporation, operation agreement, partnership certificate of good
standing, etc.) from the Transferor or Transferee to verify the parties’
representation regarding the transfer, and to determine whether the
transfer of the Lease is in the Government’s interest.

E.            If the LCO determines that recognizing the Transferee as the
Lessor will not be in the Government’s interest, the Transferor shall
remain fully liable to the Government for the Transferee’s performance of
obligations under the Lease, notwithstanding the transfer. Under no
condition shall the Government be obligated to recognize the Transferee as
its Lessor until (a) the payment of rent has commenced; and (b) any
amounts due and owing to the Government under the Lease have been paid in
full or completely set off against the rental payments due under the
Lease.

F.             As a condition for being recognized as the Lessor and
entitlement to receiving rent, the Transferee must complete a Central
Contractor Registration (“CCR”) (See FAR 52.232-33), provide the
information to be substituted in Exhibit A, Section III, and complete and
sign GSA Form 3518A, Representation s and Certifications (to substitute
Exhibit D).

G.            If title to the Property is transferred, or the Lease is
assigned, rent shall continue to accrue, subject to the Government’s
rights as provided for in this Lease. However, the Government’s obligation
to pay rent to the transferee shall be suspended until the Government has
received all information reasonably required by the LCO under subparagraph
4, the Government has determined that recognizing the Transferee as the
Lessor is in the Government’s interest (which determination will be prompt
and not unreasonably withheld), and the Transferee has met all conditions
specified in subparagraph 6. So long as any delays in effecting the
recognition of Transferee as Lessor are not the responsibility of the
Government, no interest shall accrue on suspended rent.

Has anyone gone through this transfer approval process?  How long does the
approval process typically take?  Is it just a mere formality or are there
any particular pitfalls or unexpected burdens our client should be wary
of?

Any insights or suggestions with respect to either of these provisions
would be appreciated.

Thanks.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. 

Travis Thornton

FIKSO KRETSCHMER SMITH DIXON ORMSETH PS

2025 First Avenue, Suite 1130 • Seattle WA 98121-2100 •
<http://fksdo.com> http://fksdo.com  

(206) 448-1818 main
(206) 441-2958 direct
(206) 448-3444 fax
(206) 370-9135 mobile

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