Chapter 4. Leasing - Direct Leases

Topics on this page: 4.1 Lease Acquisition | 4.2 Lease Administration | 4.3 Restrictions on Improvement | 4.4 Approval Thresholds

Table of Contents

A Federal lease provides specific rights to real property that has been assigned to the Government. It is both a conveyance and contract to possess and use real property for a predetermined period.

4.1 Lease Acquisition

4.1.1 Policy

The Office of the Secretary has overall responsibility for management and provision of technical and administrative services to all facility development and operations in support of HHS' mission, including real estate, acquisition services, property management, design, construction, facilities planning and environmental protection.

The Office of the Secretary, Program Support Center (PSC), Real Estate, Logistics, Operations (RLO), Real Property Management Services (RPMS), Space Management promulgates and enforces overall space policy, including, leasing, and safety policy.

PSC/RLO/RPMS/Space Management must be apprised of all space acquisitions by Divisions through the semi-annual submission of their respective Five-Year Timelines.

PSC/RLO/RPMS/Space Management must approve all a) direct leases and b) GSA-managed facilities occupied under an Occupancy Agreements (OAs) (hereafter jointly referred to as "leases"), all that exceed the established SRPO Approval Thresholds. This approval must be obtained upon completing the lease program of requirements, during the early planning stages of the lease, before proceeding to other phases of the lease acquisition process.

Additionally, the PSC Physical Security, Emergency Management, and Safety (PSEMS) office reviews all leases for physical security. Divisions which have their own security organizations (CDC, CMS, Food and Drug Administration (FDA), and NIH) are exempt from the requirement of review by PSEMS, unless the Divisions specifically request the services by this office.

Federal agencies must acquire and utilize the space in accordance with all applicable laws and regulations, including, but not limited to, the Competition in Contracting Act (CICA), Federal Management Regulations (FMR), Executive Order 12072, Executive Order 13006, Davis Bacon Act, and the Federal Acquisition Regulations (FAR) to:

  1. Protect the public interest by conservation of property and prudent management of resources;
  2. Effectively support the HHS and HHS missions by assuring facilities operation and performance of maintenance at a level of adequacy that will continually provide attractive and functional facilities and a high-quality work environment, comparable to industry, for HHS employees and the public they serve.

GSA FMR Subpart B—Acquisition by Lease of the Federal Management Regulation (FMR) contains the conditions Federal agencies with independent statutory authority to acquire lease spaces may consider direct leases of privately owned land and buildings only when needs cannot be met satisfactorily in Government-controlled space. Direct leases are not subject to GSA FMR Subpart B. The IHS uses the Office of Environmental Health and Engineering (OEHE) Technical Handbook Volume IV - Real Property Management Part 33 Leasing to provide guidance on roles responsibilities for management of leasehold interests.

In addition to Federal Regulations and Executive Orders, Divisions are required to adhere to the HHS Space Utilization Policy issued on May 20, 2011, or the 21st Century Workplace Space Planning Policy issued on February 18, 2022.

GSA may delegate authority to HHS and some of the Divisions to enter non-capital leases when the available GSA real property portfolio does not meet the mission needs. Non-capital leases are typically funded with operating funds. Agencies using special-purpose leasing delegations from GSA must comply with FMR Bulletin 2008-B1FMR Bulletin 2014-C2.

Divisions have legislative and/or regulatory authority to perform certain leasing activities as follows:

  1. 41 CFR 102-73.195 - authorized HHS agencies to lease laboratories for periods of up to five years (including options);
  2. Public Law 94-437, 804, as amended, Indian Health Care Improvement Act, authorizes the IHS to enter into leases with Indian Tribes for periods of up to 20 years;
  3. Public Law 93-638, 105(l), Indian Self-Determination and Education Assistance Act, requires IHS to enter leases (upon request) with Indian Tribes and tribal organizations for tribally- operated programs;
  4. Public Law 100-690, 1987 OMNIBUS Drug Supplemental Appropriations Act, authorizes IHS to lease space for Youth Regional Treatment Centers for American Indians and Alaska Natives (in- patient services);
  5. Delivery of National Institutes of Health (NIH): The Director of NIH, for the national research institutes and administrative entities within the National Institutes of Health, may lease through the Administrator of General Services, buildings or parts of buildings in the District of Columbia or adjacent communities for use for a period not to exceed ten years; and enter into rental or lease purchase agreements for the provision of day care services (42 USC Sec. 282). See NIH Policy Manual, 26101-18-1P - Acquisition of Real Property by Purchase.
  6. The Secretary, through the Agency for Healthcare Research and Quality, the National Center for Health Statistics, the Ruth L. Kirschstein National Research Service Awards, or other appropriate authorities - Authority to acquire, construct, improve, repair, operate, and maintain laboratory, research and other facilities, and real or personal property necessary for health statistical activities and health services research, evaluation, and demonstrations, in the District of Columbia or adjacent communities, through the Administrator of General Services (Section 304(b)(4) of the PHS Act (42 U.S.C. 242b)).)).
  7. The Secretary, through the Public Health Service (PHS) - Authority to manage and operate all institutions, hospitals, and stations of the and provide for the care, treatment, and hospitalization of patients; and from time to time, with the approval of the President, select suitable sites for and establish such additional institutions, hospitals, and stations in the States and possessions of the United States necessary to enable the Service to discharge its functions and duties ((Section 321 of the PHS Act (42 U.S.C. 248a)).
  8. National Heart, Lung, and Blood Institute - Authority to acquire real property in the District of Columbia or adjacent communities for the use of the Institute for a period not to exceed ten years; without regard to 40 U.S.C. 8141 - Contract to Rent Buildings in The District Of Columbia Not To Be Made Until Appropriation Enacted (Section 413(a) of the PHS Act (42 U.S.C. 285b-3)).
  9. National Library of Medicine - Section 386 of the PHS Act (42 U.S.C. 286a-1) authorizes the Administrator of General Services to acquire suitable sites, selected by the Secretary of HHS in accordance with the directions of the Board of Regents of the National Library of Medicine and to erect, furnish, and equip suitable and adequate buildings and facilities for NLM. 
  10. National Cancer Institute (NCI) - Authority to acquire, construct, improve, repair, operate, and maintain laboratories, research facilities, equipment, and other real or personal property in the District of Columbia or adjacent communities for the use of the Institute for a period not to exceed ten years; without regard to 40 U.S.C. 8141 - Contract to Rent Buildings In The District Of Columbia Not To Be Made Until Appropriation Enacted (Section 413(b)(6)(A) of the PHS Act (42 U.S.C. 285a-2)).
  11. National Institute of Drug Abuse (NIDA) - Section 464P(b)(3) of the PHS Act (42 U.S.C. 285o-4(b)(3)) provides land acquisition authority to the Director of the National Institute of Drug Abuse (NIDA) in certain

4.1.2 Administrative Requirements

Lease acquisition and administration procedures can be found in the GSA Leasing Desk Guide (Desk Guide).

HHS leases must comply with state and local codes as referenced in 2 Delegations of Authority.

4.1.3 Guidance and Information

The following web sites, internet links, and references provide guidance and information relevant to federal leasing.

4.1.4 Reporting

Space Budget Justification - OMB Circular A-11 requires agencies to complete "Space Budget Justification" electronic report for rent payments to GSA or to others (i.e., other Federal agencies or commercial landlords) in excess of $5 million annually for space, structures, and facilities, land and building services. A separate report is required for each subordinate organization that makes rental payments above $5 million annually, therefore Divisions that obligate more than $5 million annually for rental payments are required to submit a space budget justification.

This report provides a justification to OMB of the agency's budget request for rent.

4.2 Lease Administration

4.2.1 Policy

For administration of direct leases, HHS requires Divisions to follow the GSA Leasing Desk Guide (Desk Guide)(LDG), which contains authorities, policies, technical and procedural guides, and administrative limitations governing the acquisition by direct lease of real property.

Lease administration policy and procedures only apply to leases entered directly by Divisions and not to GSA-OAs. Divisions occupying GSA-leased spaces under OAs agree to pay rent and fees to GSA for the associated underlying leases, and compensate GSA for, among other things, its cost for administering the leases and the associated real estate risk.

4.3 Restrictions on Improvement

4.3.1 Policy

The Government Accountability Office (GAO) has declared that generally, unless authorized by law, appropriated funds may not be used to make permanent improvements to property not owned by the Federal Government, which is documented in GAO file B-198629. The Government is authorized by 40 U.S.C. §278a to expend up to 25 percent of the first year's rent for Repairs, Alterations, or Improvements (see 3 Real Property Planning - Owned for applicable definitions). However, this rule does not prohibit temporary improvements to a leased facility that are required to convert a demised premise into functional space (known as tenant improvements), so long as the improvements have a useful life equal to the term of the lease and add no trivial or de minimis value to the underlying real property. Therefore, appropriated funds may be used to fund tenant improvements in leased space if ownership of fixtures, removable alterations, or structures placed on the premises by the Government remain the property of the Government.

Depending on the clauses included in the lease agreement, the Government may be liable for damages to the premises when removing alterations, fixtures, structures, etc. and may be required to restore the premises to its original state in accordance with the existing conditions survey. Whenever possible, a specific provision should be made in the lease giving the Government the right to remove the equipment or material, or to abandon it in place, without restoration payment.

While appropriated funds may be used to fund tenant improvements, the Building and Facilities (B&F) fund is not the proper funding source for this activity. It has been HHS' long-standing practice to use B&F appropriations to fund construction of and permanent improvements to Government-owned facilities and to use operating funds or funds specifically allotted for the purpose, such as Non-Recurring Expenses Fund resources, to fund tenant improvements in leased facilities. The General Law Division (GLD) of HHS's Office of the General Counsel believes this practice is legally justified and cannot be waived, unless there is specific language in the B&F appropriation that provides funding for tenant improvements in leased facilities.

Additionally, the cost of tenant improvements may be financed, in whole or in part, through allowances in the lease amortized as part of the periodic rental payment.

Equipment in leased facilities is considered moveable or special-purpose and is funded using operating funds, or with funds specifically identified by statutory authority for use in leased facilities. See 3 Real Property Planning - Owned for definitions of moveable and special-purpose equipment.

4.4 Approval Thresholds

4.4.1 Policy

4.4.1.1 Prospectus Thresholds

Prospectus projects (construction, alterations, or leases) are subject to Congressional review and approval; the estimated approval time for prospectus projects is approximately three years, therefore proper planning and resources are required before pursuing these types of projects.

Prospectus projects are those projects which Estimated Cost of Construction (ECC) (plus site costs when applicable) exceed the respective prospectus thresholds during the fiscal year of anticipated award. The ECC to arrive at the thresholds must be calculated using the GSA LDG methodologies.

Prospectus thresholds are different for projects in Federal Buildings (projects in GSA Owned facilities) and in Leased Buildings (projects in facilities leased by GSA on behalf of an agency). Prospectus thresholds are published annually by GSA and can be found here: https://www.gsa.gov/real-estate/design-construction/gsa-annual-prospectus-thresholds

Prospectus construction, alteration and lease are specifically defined by GSA in the LDG. As broad-based guidance for this FPM, prospectus construction should be interpreted as all new construction inclusive of site plus building acquisition; prospectus alteration should be interpreted as any alteration or renovation of spaces independent of the existing or future type of use or space; prospectus lease should be interpreted as the net annual rent (fully serviced rent minus operating expenses).

4.4.1.2 PSC Oversight Thresholds

PSC exercises oversight over all leases and occupancy agreements across the entire HHS portfolio. For leases spanning ten (10) or more years, increased oversight by PSC is required when the estimated costs, tenant improvements plus the total net annual rent, for the first ten (10) years of the lease exceed established thresholds.

Given that leases create program space much like construction projects, the established SRPO Approval thresholds for construction projects (see 3 Real Property Planning - Owned) will be used to determine the applicability of PSC Oversight.

PSC Oversight constitutes of discreet notification to PSC of the specific lease intent, inclusive of a detailed breakdown of the estimated costs described above. This discreet notification must be communicated prior to, or immediately upon, completing the lease program of requirements, and it must be reviewed and/or approved by PSC before proceeding to other phases of the lease acquisition process.

Leases which estimated costs remain below the SRPO Approval threshold are not subject to PSC Oversight. Leases exceeding the SRPO Approval thresholds are subject to PSC Oversight; in addition, leases exceeding the CIRB approval thresholds are subject to CIRB and/or SRPO review and approval before proceeding to other phases of the lease acquisition process.

The HHS-300 form used for Facility Project Approval Agreements (FPAA) and process may be used to perform the required reporting and/or receive approval (see 5 Project Planning).

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