Landlords Must Disclose Foreign Ownership to Federal Lessees

Some federal lessees now must require their landlords to identify and disclose certain foreign owners, under a new interim rule from the General Services Administration (GSA). The rule — effective June 30, 2021 — is yet another example of the U.S. government’s concern about foreign ownership and control, especially as related to national security. Bradley has previously written about numerous similar developments.

The rule implements Sections 3 and 5 of the Secure Federal LEASEs Act of 2020. One of the last bills passed under the Trump administration, the act responded to a report that most federal tenants — including high-security federal agencies — were oblivious to the foreign ownership and control of their buildings. In implementing a portion of the act, the rule establishes for high-security leased spaces (1) new disclosure requirements and (2) additional lease language.

High-security leased space

The act defined high-security leased space to mean “a space leased by a Federal lessee that— (A) will be occupied by Federal employees for nonmilitary activities; and (B) has a facility security level of III, IV, or V … .” Roughly, this covers buildings with more than 80,000 square feet, more than 150 federal employees, and moderate-to-high public access. Importantly, the act (and the rule) does not reach leases held by the Department of Defense (DOD) or the intelligence community. (Such leases are subject to similar requirements, but under the FY 2018 National Defense Authorization Act.)

New disclosure requirements

The rule implements four disclosure requirements:

• Federal lessees for high-security leased spaces must require the landlord to identify and disclose whether the owner — including a financing entity — is foreign before entering a lease agreement, an assignment of the lease, an extension of the lease, a lease novation, or exercising any option in a lease.
• The landlord must provide that information when first submitting proposals in response to a solicitation for offers issued by the lessee.
• The landlord must again provide that information annually.
• The Federal lessee must notify the Federal tenant if such a disclosure is made and consult with the tenant regarding security concerns.

Both the “immediate owner” and the “highest-level owner” must be disclosed. The immediate owner is the entity with “direct control” of the offeror of a lease. The highest-level owner is the entity that owns or controls either the immediate owner or entities that control the immediate owner. In addition, the “beneficial owner” of any immediate owner or highest-level owner must be disclosed. This includes both majority and minority interest holders in the immediate owner or highest-level owner. The rule also requires disclosure of foreign entities involved in financing the leased space.

Additional lease language

The rule implements one new GSAR representation (552.270-33) and one new GSAR clause (552.270-34). The new representation supplements the new disclosure requirements by requiring offerors to identify whether an immediate owner, highest-level owner, or financing entity are foreign owned.

The new GSAR clause limits access to the high-security leased space. Specifically, a federal lessor shall not access the space without prior approval of the U.S. government — not even for operations or maintenance. The government may allow access only if “consistent with the Government’s mission and responsibilities.” This includes any access for a third-party property management company. The clause also requires that written access procedures be included in the government’s Occupant Emergency Plan.

What this means for federal lessors, lessees, and tenants

Because the act passed late last year, affected parties might already have known about the requirements now implemented and effective. Federal lessors should be prepared to identify and disclose any foreign ownership. Federal lessees should gather the required information and prepare written access procedures. Tenants of high-security leased spaces should prepare for potential disruptions to operations and maintenance if foreign owners have been performing that onsite and now must be excluded from access.

Contact Andrew Tuggle, Collin Keller, David Vance Lucas, or Benjamin W. Hutton with any questions about the rule’s impact on your operations.

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Bradley is a full-service law firm with offices in Alabama, Florida, Mississippi, North Carolina, Tennessee, Texas, and D.C. and nearly 550 lawyers who represent regional, national and international clients in various industries. The firm’s Real Estate Practice Group is deeply embedded in the real estate industry and serves every sector of the market, including acquisitions, financing, lending, leasing, construction, regulatory, tax, and other matters. Bradley’s International and Cross Border team features a deep bench of seasoned attorneys who work with domestic clients who are active in overseas business and foreign clients with operations in the U.S. or who work with U.S. agencies abroad.