The Trump administration has initiated aggressive cost-cutting measures targeting federal office space, aiming to reduce the government’s commercial real estate footprint by 50%. Within the first week of the new administration, the Department of Government Efficiency announced it had already terminated three GSA leases as initial steps toward right-sizing the federal government’s portfolio of over 7,500 leases. While ambitious, this effort follows a long history of attempts to reduce GSA’s leasing obligations and save taxpayer money.
However, the government cannot simply walk away from these leases without consequences. GSA leases differ from most federal contracts—they typically don’t include the standard “termination for convenience” clauses that allow the government to cancel deals at any time, covering wind-down costs. This means that attempting to terminate leases during their “Firm Term”—the period without termination rights—would constitute a breach of contract and expose the government to damages claims from property owners. The government does have some legitimate pathways to early lease termination. Many GSA leases contain two distinct periods: the Firm Term, which has limited termination rights, and a subsequent period during which the government can terminate with advance notice, typically three to four months in advance.In some cities, the government may already have termination rights for over 25% of its leases, with estimates reaching as high as 45% in major markets, such as Atlanta, this year. The government can also terminate leases before the Firm Term expires if the landlord defaults on their obligations. GSA lease requirements include provisions that allow for termination if property owners fail to maintain the premises or meet other contractual requirements. This creates an urgency for landlords to ensure compliance with all lease terms, maintain comprehensive documentation of repairs and maintenance activities, and carefully track their responses to tenant complaints. Landlords must pay particular attention to special requirements beyond standard maintenance, such as security measures or specific services, as the government may use any non-compliance as justification for early termination.
Unique Clauses in GSA Lease
Additionally, GSA leases contain unusual vacancy clauses that allow for reduced rental payments when the government vacates a property, potentially giving the government leverage even during the Firm Term. However, regardless of the termination basis, the government must establish and meet firm vacancy deadlines.
If federal tenants miss their move-out deadlines, property owners can invoke holdover rights, which allow them to charge market-rate rent instead of the typically lower negotiated lease rates. With the administration moving so quickly on GSA lease terminations, federal agencies may well struggle to relocate on schedule. That puts landlords in a stronger position, giving them leverage and potential upside when negotiating with their government tenants.
Landlords need to familiarize themselves with their lease terms, keep track of developments at their federally leased properties, and be prepared to sit down at the bargaining table. There may be ways to mitigate the impact of threatened terminations through negotiation or other strategies. Still, one thing is clear: the commercial real estate industry is navigating entirely new terrain when it comes to federal leasing.