15 FAM 320
LEASE WAIVER/APPROVAL PROCEDURES
(Office of Origin: OBO)
15 FAM 321 Lease waivers
a. Posts must use the Electronic Lease Waiver Request (e-LWR) system to request any required lease waivers for nonmajor leases. The e-LWR system automatically transmits lease waivers to the Office of Real Property Leasing, Directorate for Planning and Real Estate, Bureau of Overseas Buildings Operations (OBO/PRE/RPL) or to the Overseas Management Division, Office of Management Services, Bureau for Management, USAID/Washington (USAID/W - M/MS/OMD) for USAID-leased properties. Information and instructions on accessing the e-LWR are located on the OBO intranet website under OBO/PRE/RPL’s links.
b. Posts must prepare e-LWRs following the prescribed format, and support requests with strong rationales and precise, complete data. As waivers are approved, posts must immediately update the Real Property Application (RPA) to reflect new or updated information.
c. Waivers are required for all:
(1) New or renewal leases exceeding the post’s rental benchmark maximum annual dollar amount at any time during the term of the lease, or $25,000 at posts without benchmarks;
(2) New or renewal leases exceeding the annual dollar amount of $50,000 at any time during the lease term, regardless of benchmark;
(3) Residential properties that are or will be vacant or unassigned for periods exceeding 90 days;
(4) Nonresidential properties that do not contain shops or offices; and
(5) Leases or housing assignments exceeding the occupant’s maximum space standards.
e. If a USAID contracting officer executes a lease for USAID, it must be submitted to USAID/W - M/MS/OMD.
f. OBO, the paying agency, or USAID/W-M/MS/OMD must receive approval requests for renewals at least 3 months before the lease’s deadline for renewal notification.
15 FAM 322 WAIVERS FOR LEASES EXCEEDING SPACE STANDARDS
a. Using the e-LWR application, direct any waiver/approval requests for leases (new and renewal) exceeding space standards in 15 FAM 264 to either OBO (Department of State), USAID/W-M/MS/OMD (USAID), or to the appropriate parent agency. Posts must request waivers/approval for residential leases exceeding space standards in the following situations:
(1) At posts where the only available housing exceeds the space standards for the proposed occupant, or where it is in the best interest of post housing program to utilize a residence already in the housing pool; and
(2) In cases where an agency believes the space standard will adversely affect an employee’s ability to perform his or her official responsibilities. The justification for such requests must document the representational requirements for the employee and provide any supporting information from the current or previous incumbent. To justify a waiver, the representational requirements must exceed the estimates outlined in 15 FAM 264.3-3. The Single Real Property Manager (SRPM) and the post interagency Housing board (IAHB) must approve such requests first. The chief of mission (COM) subsequently approves the request.
b. OBO must give prior approval for a change of occupancy during the basic or renewal term of a lease. OBO (for Department of State), M/MS/OMD (for USAID), or the parent agency must approve a change of occupancy if the units are over the space standard. If the lease is under $25,000 per year and it expires during an employee tour, it may be extended or renewed until the end of the tour without OBO’s or USAID/W-M/MS/OMD’s prior approval. Approval is only for a specific occupant and/or family, and the lease cannot be extended beyond a current occupant’s tour without OBO approval.
15 FAM 323 ADVANCE LEASE PAYMENTS
a. An advance lease payment is one for which the U.S. Government is obligated to make rental payments in advance for a rental period greater than that for which local market rents are customarily quoted. For example, in U.S. real estate markets, rents are typically paid on a monthly basis (with payments due at the beginning of each month). If a U.S. landlord required payments for the first 12 months at the onset of the lease, this would be considered an advance payment. Advance payments for periods greater than 12 months (18 months for USAID) require justification; OBO and parent agencies approve advance payments on a case-by-case basis. Advance payments are considered the exception, not the rule, in lease negotiations.
b. Whenever possible, lease payments should be made monthly or quarterly. Posts may negotiate leases with advance payments up to 12 months in advance without prior OBO and parent agency approval, as long all other model lease criteria are met. In the event that the landlord requires an advance payment of more than 12 months, post must obtain OBO approval before executing the lease. For USAID, advance payments of up to 18 months or to the end of the next fiscal year (whichever is the shorter period) do not need prior approval from USAID/W - M/MS/OMD. However, OBO must approve a USAID lease if it is part of the embassy housing program.
c. Although it is recognized that in some real estate markets that advance payments exceeding 12 (or 18) months of rent may be the only means to obtain a lease, advance payments for extended periods should be avoided for the following reasons, among others:
(1) Landlords have a reduced incentive to honor their obligations under the lease once lengthy advance payments have been made. This leaves post with no meaningful recourse for needed maintenance and repairs between lease payments;
(2) In the event of force majeure, e.g., an act of God or war, where the premises are left uninhabitable through partial or total destruction, it is difficult or impossible to obtain either (a) an immediate and satisfactory restitution of the premises or (b) a rebate of the unearned portion of the rent;
(3) In the event of the U.S. dollar’s devaluation, the U.S. Government is precluded from taking advantage of the more favorable exchange rate;
(4) In the event of a decline in market rental values, the U.S. Government is precluded from taking advantage of the more favorable market rental terms; and
(5) Financially, it is prudent to withhold payments as long as possible so that such money is available for other opportunities. Providing advance payments commits a larger than usual sum of money, can be riskier, and is typically not the most efficient use of funds.
d. When negotiating with landlords, posts must use the “time value of money” reasoning when calculating the value of an advance payment and seeking discounts in exchange for advance payments. “Time value of money” is the concept underlying compound interest. It holds that one dollar received today is worth more than one dollar received in the future due to opportunity cost, inflation, and the certainty of payment. (See 15 FAM Exhibit 323(1) for further details on calculating advance payments using the time value of money concept.) In other words, the landlords receive a financial windfall from advance payments, and posts should negotiate to recover some or all of that value through reduced rent or material benefits in other articles of the lease. The Evaluations Division, Office of Master Planning and Evaluations, Directorate for Planning and Real Estate, Bureau of Overseas Buildings Operations (OBO/PRE/MPE/EV) can assist the post in calculating the “time value of money” to negotiate for discounts when post is asked to make large advance payments.
e. Approval requests for advance payments for periods greater than 12 months (18 months for USAID) must follow the instructions in 15 FAM Exhibit 323(2).
15 fam 324 LEASES WITH OFFSHORE PAYMENTS OR PAYMENTS IN OTHER THAN LOCAL CURRENCY
It must be permissible under local law to make rental payments made to landlords (individuals or financial institutions) in other than local currency. Any offshore payment requires separate OBO approval from the Office of Real Property Leasing, Directorate for Planning and Real Estate, Bureau of Overseas Buildings Operations (OBO/PRE/RPL).
15 FAM 325 LEASES FOR SPACE TO BE CONSTRUCTED TO U.S. GOVERNMENT SPECIFICATIONS
To have a landlord construct or alter leased or proposed leased space, post must submit proposals to OBO and the parent agency for review and approval. For leases signed by USAID, post must submit proposals to USAID/W - M/MS/OMD for review and approval. A complete justification must accompany the request.
15 FAM 326 Clauses EXPRESSLY Prohibited in OBO Leases
15 FAM 360 describes the standard clauses that must be included in U.S. Government lease agreements. OBO or USAID/W - M/MS/OMD (for USAID leases signed by USAID contracting officers) must approve all exceptions. In general, no OBO leases can contain the following provisions:
(1) The U.S. Government payment of insurance charges on buildings or other appurtenances to the realty or on personal property, whether privately or publicly owned;
(2) The U.S. Government assumption of responsibility for damage occasioned to or by visitors through the use of common or public halls, stairways, lobbies, elevators, or other conveniences and areas at their disposal;
(3) A lien in favor of the landlord upon U.S. Government-leased property;
(4) The payment of a bonus or premium in connection with the procurement of quarters;
(5) The submission of disputes to boards or panels for arbitration, or to the jurisdiction of the local courts (the Department of State must specifically authorize post to waive such rights); and
(6) Any form of agreement to indemnify (hold harmless) the landlord for any liability or financial loss, regardless of cause related to the premises.
15 FAM 327 ADVANCE LEASE AGREEMENTS PRIOR TO OCCUPANCY
a. OBO and the parent agency must approve leases for premises:
(1) Under construction;
(2) To be constructed;
(3) In need of additional work prior to occupancy;
(4) Without an established occupancy date; or
(5) For which the occupancy date is more than 3 months after the lease signing.
b. The information needed by parent agencies varies, depending upon the circumstances. Posts should contact OBO, USAID/W - M/MS/OMD for USAID leases, or the appropriate parent agency when considering such leases.
15 FAM 328 LEASES CONTAINING AN OPTION TO PURCHASE
a. If advantageous to the U.S. Government and allowable under local law, leases should contain an option to purchase. (See 15 FAM 440 for guidance.) OBO must give prior approval if the lease/purchase or purchase option agreement requires lease payments in excess of market rental rates. OBO requires both extensive due diligence on the proposed property and confirmed funding before a decision is made to exercise an option to purchase.
b. For USAID leases, USAID missions must obtain approval from USAID/W - M/MS/OMD before including an ‘option to purchase’ clause in leases. USAID/W - M/MS/OMD will seek the Office of Management and Budget’s (OMB) approval for such leases.
15 FAM 329 unassigned
15 FAM Exhibit 323(1)
Using the "Time Value of Money" Concept to Calculate Advance Payment of Rent
Posts must consider the “time value of money” concept when calculating the amount of an advance payment. The principles below explain this concept.
(1) Advance payments must not be calculated by merely multiplying the rental value by the number of rental periods or the term. For example, in calculating the advance payment for a $1,000 per month rental for 12 months, it is incorrect to simply multiply the term (12) by the rental value ($1,000) and realize a value of $12,000, since it does not consider the “time value of money.”
(2) To properly consider the “time value of money,” the present value cost of the proposed advance payment ($12,000 in day 1 of the rental term) must be compared to the present value of a routine stream of rental payments (for example, $1,000 per month for 12 months). The difference between the two present values represents the “time value of money” or, alternatively, the premium cost to the United States for the advance payment. Present value calculations are typically performed through the use of financial calculators, computer programs, or financial tables.
(3) When the “time value of money” is considered, as in the example above, and an appropriate discount rate is selected, the advance payment for the example above would be less than $12,000. The discount rate is never less than the interest rate at which the U.S. Government would borrow the money used to pay the advance.
(4) If an annual discount rate of 8 percent were selected, and the standard monthly lease required prepayment at the beginning of each month, the correct advance payment satisfying the 12-month rental would be $11,572. The difference between the incorrect method of developing an advance payment (multiplying the rental value by the term―$12,000) and the correct way (considering the time value of money―$11,572) would be a savings to the U.S. Government of $428.
(5) The Evaluations Division, in the Office of Master Planning and Evaluations, in the Directorate for Planning and Real Estate in the Bureau of Overseas Buildings Operations (OBO/PRE/MPE/EV) can provide technical assistance to post personnel in calculating advance payments.
15 FAM Exhibit 323(2)
Requests for Approval of Advance Payments
Requests for approval of advance payments for periods greater than 12 months must specify:
(1) Whether a discount for the advance payment has been agreed upon during lease negotiation. If a discount has been agreed upon, explain the terms of the discount, e.g., “the landlord agreed to a ten percent discount of normal routine terms in return for an advance payment of 1 year’s rent”;
(2) The Real Property Application (RPA) Property Identification Number (PropID);
(3) The property use code (e.g., OFFOBC, OFFCOB, RESCMR);
(4) The term and the amount of the proposed advance payment (specified in local currency);
(5) The total amount and terms of the lease (if different than item (4) of this exhibit);
(6) The monthly rent and the annual escalation rate for comparable properties for a similar period;
(7) Whether advance payments are customary in the local real estate market and the period of the advance payment (in months);
(8) The customary time period for lease terms in the local real estate market, e.g., 1 year, 2 years, 3 years;
(9) Today’s exchange rate;
(10) The interest rates at which the landlord can safely borrow or invest money within the host country;
(11) The reason given for requiring advance payments, or the landlord’s motivation; and
(12) The benefits to be gained by the U.S. Government from an advance payment.
Post should direct requests to the Office of Real Property Leasing, Directorate for Planning and Real Estate, Bureau of Overseas Buildings Operations (OBO/PRE/RPL) for Department of State. For leases signed by USAID’s Contracting Officer, post should direct requests to the Overseas Management Division, Office of Management Services, Bureau for Management, USAID/Washington (USAID/W - M/MS/OMD).