September 1, 2010
When a lender considers foreclosure or exercising its rights to receive an assignment of the rents on a commercial property with traditional tenants, the following checklist for pre-foreclosure due diligence is fairly standard:
However, when one or more of the leases is a lease with the federal government through the General Services Administration (GSA), the process is more complicated. A typical GSA lease, which offers the landlord – and by extension the lender before and after a landlord default – a more stable and secure rent stream, comes with additional "costs" and is written on a standard GSA lease form (which incorporates various federal regulations). These "costs" and the GSA lease may include atypical responsibilities for the landlord. After the landlord's default, the lender must also take into account the special considerations discussed below.
For example, in addition to some of the checklist items noted above, a lender contemplating foreclosure or the exercise of its assignment rights for a building with a GSA tenant should consider at least the following, which are typical in the GSA lease:
Leasing to the GSA, is prevalent in all three of our local jurisdictions and has many advantages, especially in the current economy. The GSA typically is a safe, secure stream of income. However, GSA leases come with their own quid pro quo and a lender contemplating its remedies (or a new GSA lease in a building on which the lender has a loan) should be aware of some of the considerations and consult knowledgeable counsel.
This alert was authored by Dorothea W. Dickerman and E. Kristen Moye. For more information, visit our Greater Washington-Baltimore Region Transactional Real Estate.