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Requirements for Assigning and Transferring Government Leases

Client Alert

Author: Malinda R. Steeb

4/29/2020
Requirements for Assigning and Transferring Government Leases

When selling a multitenant property, it is common for sellers and purchasers to enter into a basic assignment and assumption agreement to assign the seller’s interest, as landlord, in all of the leases at the property to the purchaser. However, if any of the building tenants are government entities, there may be additional processes or specific forms that sellers and purchasers will need to use to properly transfer the lease from the seller to the purchaser. These forms and processes are often specific to the government entity. The processes for transferring a U.S. federal government lease, a U.S. Postal Service (USPS) lease and a Pennsylvania state government lease are described below.

U.S. Federal Government

The U.S. General Services Administration (GSA) handles lease administration for the majority of federal government agencies. GSA requires that its landlords enter into a novation agreement with GSA and the purchaser, as the new landlord, in order to transfer a lease. The novation agreement itself is similar to an assignment and assumption agreement that requires a third-party consent; however, the seller and the purchaser must submit additional documentation to GSA before GSA will agree to sign the novation agreement. This novation process typically occurs post-closing and is governed by 48 C.F.R. § 42.1204.

The first step is finalizing the form of novation agreement. GSA has a standard form of novation agreement, which can be found at 48 C.F.R. § 42.1204(i). If the seller or the purchaser would like to make any changes to the form agreement, the changes must be submitted to GSA for approval.

Once the form of novation agreement has been finalized (or, if the seller and the purchaser do not have any requested revisions to the standard form of novation agreement, as soon after closing as the seller and the purchaser are able), the seller and the purchaser must submit the following documentation, along with the signed novation agreement, to GSA:

  • documentation describing the transfer of property (e.g., deed or agreement of sale)

  • a list of all leases, as applicable to GSA, to be assigned/transferred to the purchaser

  • evidence of the purchaser’s ability to perform as landlord under the lease(s) (e.g., balance sheets of the purchaser immediately before and after the transfer of the property)

  • entity documents for the purchaser and the seller (i.e., the typical entity documents and authorizing resolutions required by the title company for closing)

  • consent of sureties if bonds are involved in the transaction

  • evidence that any required security clearances will be met by the purchaser

  • a statement that the purchaser has registered in the System for Award Management (the GSA system for managing contracts).

GSA will continue to make rent payment to the seller until all of the required documentation has been submitted and GSA has signed the novation agreement. As this process can take some time and occurs following the closing and the transfer of the property, the purchaser should be certain that seller is obligated to cooperate with the purchaser and to remit any post-closing rent payments received from GSA promptly to purchaser.

U.S. Postal Service

USPS is one of the few federal government agencies that handles its own leasing. The process to assign a USPS lease will be set forth in the USPS lease and the seller and the purchaser should review the lease to confirm assignment requirements. The standard form USPS lease requires USPS consent for a landlord to assign a USPS lease; however, it is common for USPS to agree to waive the consent requirement when the lease is negotiated. If the specific lease does not require USPS consent for the landlord to assign the lease, the seller and the purchaser are only required to execute the USPS form Certificate of Transfer of Title to Leased Property and Lease Assignment and Assumption form agreement, available here, in order to transfer the lease from the seller to the purchaser. The agreement does not have to signed by USPS. If the specific lease does require USPS consent for the transfer, the seller and the purchaser should request consent as far in advance of closing as possible, and will likely still be required to execute the Certificate of Transfer of Title to Leased Property and Lease Assignment and Assumption at closing.

Pennsylvania Department of General Services

The Pennsylvania Department of General Services (DGS) manages leasing of office space, liquor stores and warehouse space for the Commonwealth of Pennsylvania and its various agencies and departments. The DGS standard lease form requires DGS consent for the landlord to assign the lease. As with USPS leases, sellers and purchasers should review the specific DGS lease to be assigned in order to determine if government consent is needed and should request this consent, if required, far enough in advance of the anticipated closing date to ensure that consent is granted before closing. Additionally, the purchaser will need to complete a Lessor Identity Disclosure form (available here) and, if the purchaser will be using a property management company to manage the lease, an Agency Agreement form (available here).

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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