15 FAM 320
LEASE WAIVER/APPROVAL PROCEDURES
(CT:OBO-88; 06-18-2019)
(Office of Origin: OBO)
15 FAM 321 Lease waivers
(CT:OBO-60; 11-02-2017)
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/RPLs
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 posts 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
occupants 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 leases
deadline for renewal notification.
15 FAM 322 WAIVERS FOR LEASES EXCEEDING
SPACE STANDARDS
(CT:OBO-60; 11-02-2017)
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 employees 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 OBOs or USAID/W-M/MS/OMDs prior
approval. Approval is only for a specific occupant and/or family, and the
lease cannot be extended beyond a current occupants tour without OBO approval.
15 FAM 323 ADVANCE LEASE PAYMENTS
(CT:OBO-60; 11-02-2017)
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. dollars 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
(CT:OBO-60; 11-02-2017)
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
(CT:OBO-60; 11-02-2017)
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
(CT:OBO-88; 06-18-2019)
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
(CT:OBO-60; 11-02-2017)
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
(CT:OBO-60; 11-02-2017)
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
Budgets (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
(CT:OBO-60; 11-02-2017)
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
(CT:OBO-60; 11-02-2017)
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 years
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) Todays 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 landlords 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 USAIDs
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).