Impact of Government Shutdown on Leases with the U.S. General Services Administration

Effective October 1, 2013, the U.S. Government shut down. Of particular concern to professionals in the leasing and property management field is the impact of this shutdown on leases with the U.S. General Services Administration (the “GSA”), the government entity that owns or leases approximately 354 million square feet of space.

Of primary importance to many landlords and their property managers leasing space to the GSA is whether rent (base rent, common area maintenance, taxes, other additional rent, etc.) will be paid on time. Although the GSA has not indicated whether rents will be paid during the shutdown, it is doubtful rents will be paid. Without an appropriations act, or a Continuing Resolution that permits at least a short-term funding of the government, the GSA is unlikely to violate the Antideficiency Act (i.e., the law preventing the government from making expenditures greater than amounts appropriated by Congress) and use readily available funds—to which it does not have access during a shutdown—for the payment of rents. The government pays rent in arrears; thus, whether October rents will be paid on time may hinge on whether the shutdown ends before November 1, 2013. With respect to leases with U.S. Government entities other than the GSA, the result will be the same if the applicable government tenant relies on annual appropriations to make rent payments. Ultimately, the lease language may determine the outcome, and if the GSA lease is expressly contingent on appropriations, then the tenant may not have an obligation to pay rent.

The ongoing government shutdown, particularly the unavailability of GSA personnel (other than those individuals compensated by permanent and no-year appropriations), will also contribute to consistent delays in otherwise routine leasing tasks, including (i) determining commencement dates, as GSA personnel are unavailable to participate in tenant improvement and inspection decisions, (ii) completing offers or letters of intent, as GSA personnel are unavailable to engage in negotiations (if a national broker is handing the matter for the GSA, this then becomes a non-issue), and (iii) drafting novation agreements or estoppel certificates in connection with sales of government-leased properties, as GSA personnel are unavailable to provide such deliverables. Even if the shutdown ceases in the next few days, the consequences of the past several days will be felt for some time as furloughed employees will have to complete the old work that has piled up during the shutdown, in addition to the new work coming in the door, which will result in further delays.

Please contact Matthew S. Raczkowski in Chicago (mraczkowski@dykema.com; 312-627-2594) or Robert C. Linton in Chicago (rlinton@dykema.com; 312-627-2274), if you have any questions.

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