Photo | WBJ File
Paul Bauer, partner at Bowditch & Dewey
9 hours ago
Attorney: Landlords hit by Trump’s federal lease cancellations have little legal recourse
Photo | Eric Casey
The Glass Tower at 446 Main St. in Worcester is one of several Central Massachusetts properties impacted by federal lease terminations.
Property owners impacted by the federal government’s sudden termination of seven Central Massachusetts leases for facilities used by agencies like the Internal Revenue Service and the U.S. Department of Agriculture likely have few options for recourse, according to a local real estate attorney.
Leases negotiated by U.S. General Services Administration generally include a soft period in the second half of the lease where the government can terminate the deal at will, said Paul Bauer, partner at Worcester-based law firm Bowditch & Dewey.
“As I understand it, a lot of these GSA leases will have a firm term and then after five [or so] years, they have the right to terminate with some notice,” Bauer said.
Bauer said he suspects the President Donald Trump Administration and Elon Musk’s Department of Government Efficiency are focusing on leases which are in that soft period. Six of the seven leases impacted in Central Massachusetts have passed their termination right date, according to data available on GSA’s website.
The one exception is 5,506 square feet of office space utilized by the U.S. Trustee Program, a component of the Department of Justice, at 446 Main St. in Worcester. That office’s lease doesn’t hit its termination right date until December.
A lease for 14,511-square-foot of office space by GSA at 120 Front St. in Downtown Worcester’s Mercantile Center includes a provision allowing for the government to terminate the leases in whole or in at part at any time on or after the fifth year of the agreement, according to a copy of the lease available on GSA’s website. No rent accrues after the termination date.
Bauer said a termination period of 90 to 120 days is typical with GSA leases. This means — barring a sudden reversal from the federal government — impacted office space could be available for lease within the next three to four months.
A spokesperson for Mercantile Center said the firm later received a notice rescinding the termination. Termination notices are supposed to be final, but property owners might be willing to accommodate a reversal anyways, Bauer said.
“When you give a [termination] notice, you can't just rescind it,” he said. “But now maybe the landlord’s office market is soft, so they may well entertain that and accommodate the withdrawal of the notice.”
Even if a lease hasn’t hit its soft period, other provisions may allow for the federal government to vacate the premises with a reduced rent for the duration of the rest of the agreement, Bauer said. This is the case with the lease for 120 Front St., where a provision allowed for a reduced rent payment if the space was vacated.
While the ability to terminate a lease may be a negative in regards to renting office space to the federal government, leases with GSA generally include longer terms and a 1-3% higher investment return, according to the website for Montana-based Top Hand Realty Advisors. The federal government has generally been seen as a very reliable tenant for property owners, a notion which may no longer be true under the Trump Administration.
Given the speed at which the federal government is terminating leases, Bauer’s advice for property owners who have yet to receive a notice is to review their lease and be prepared.
“The takeaway I'd have is to really look closely at your leases, because they're moving so fast that you really want to understand what the termination rights are,” he said.
Bauer noted the impact of federal cuts impacting 60,182 square feet in the region are unlikely to have a large impact on the overall office space market, but certainly won’t help what is already a soft market, particularly in the suburbs.
For now, 12 sites featuring 103,725 square feet of space remain leased by various federal agencies in Central Massachusetts, according to GSA data. Only four of these leases have yet to hit their termination right date, potentially leaving owners of the other properties vulnerable to future terminations.
In other real estate actions by the federal government, the GSA website briefly said on Tuesday the Philip J. Philbin Federal Building in Fitchburg could be put up for sale. The federally-owned building used by the U.S. Postal Service and other federal agencies was deemed as non-core to federal operations, according to the GSA listing.
However, by Wednesday, that non-core list including the Philbin Building and 439 other federal properties across the country was removed from GSA’s website, replaced with a note that a new list would be coming soon.
Eric Casey is the managing editor at Worcester Business Journal, who primarily covers the manufacturing and real estate industries.
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