8

leasebacks

> what is a Ieaseback?

> When should a Ieaseback be used?

w Can a Military Depatiment transfer property to an LRA and then

lease it back for its own use?

> Who is eligible to apply for a /easeback?

+ Are Federal and homeless screenings required before

transferring prope~ under a Ieaseback?

P /+OW does an LRA apply for a Ieaseback?

> HOW is /easeback property conveyed?

> what terms are required in the lease?

Section 8.1

Section 8.1

Section 8.1

Section 8.1

Section 8.2

Section 8.3

Section 8.4

Section 8.5

8.1 INTRODUCTION

8.1.1 Legislative history

Large parcels of surplus BRAC property are frequently conveyed to an LRA for

use in accordance with the LRA’s redevelopment plan. But, because Federal

users have priority claim on this property, small parcels or even individual

buildings within or adjacent to the large parcel maybe claimed by a Federal

entity. Should the Federal entity depart at some point in the future, the property

would be disposed of by the General Services Administration in accordance with

the Federal Property and Administrative Services Act. This subsequent Federal

action can disrupt local economic recovery efforts by requiring the community to

go through another lengthy Federal real property disposal process, and could

result in uses that are incompatible with the community’s redevelopment plans.

Congress recognized that this piecemeal approach could be harmful to longrange planning and development opportunities and changed the law to enable

more community control over redevelopment while still allowing the Federal

Government the ability to utilize Government property without additional costs.

Section 2837 of the National Defense Authorization Act for FY 1996 (Pub. L. 104-

106) granted the Department a new property conveyance authority called a

leaseback.

December 1997 8-1
What is a

Ieaseback? II

When should a

ieaseback be used? II

Can a Military

Department transfer

propefly to an LRA

and then lease the

property back for its

own use?

8.1.2 A new conveyance method—LRA property ownership while meeting

Federal needs

A leaseback is when the Department of Defense transfers nonsurplus BRAC

property (property that is still needed by a Federal Department or Agency) by

deed or through a lease in furtherance of conveyance to an LRA. The transfer

requires that the LRA lease the property back to the Federal Department or

Agency for no rent to satisfy a Federal need for the property. By law, only

property at BRAC ’91,’93, and ’95 sites can be transferred under this authority.

8.1.3 Appropriate uses of a Ieaseback

The leaseback authority is designed to be used in those situations where small

parcels or individual buildings needed by a Federal entity are surrounded by, or

adjacent to, a large parcel of property which will be conveyed to the local

community. This authority is not intended to be used to convey property that is

needed by DoD or another Federal entity that is easily segregated from the rest of

the property being conveyed to the community for redevelopment purposes.

The leaseback authority is especially useful when a Federal entity only requires

use of part of a building or structure. In these cases, DoD would transfer the

entire building or structure to the LFL4 and the LRA would lease back only part

of the building or structure to the Federal tenant.

A Military Department cannot transfer property to an L?&4 and then lease it back

unless it is acting in an executive agent capacity on behalf of a Defense Agency.

Or, if the Military Department transfers property it will be leasing back for its

own use, the Service Secretary must certify that the transaction is in the best

interest of the Military Department. In making this determination, the Service

Secretary should consider financial, mission, as well as property concerns. In all

cases, the leaseback transfer must be consistent with the recommendations of the

Defense Base Closure and Realignment Commission. In other words, when the

Military Departments lease property at a closing or realigning installation, it is

considered a property retention and should be treated as such. Guidance for the

Military Departments on the procedures for making determinations on property

retentions, including the size of cantonment areas, can be found in Section 3.2.1.

8.1.4 Other options to satisfy Federal property needs

The Federal Property and Administrative Services Act of 1949 gives Federal

Departments and Agencies priority on the use of excess property, including

property at base realignment and closure sites. The leaseback authority does not

eliminate this “right of first refusal” to obtain ownership of property. As a result,

the Department of Defense cannot require Federal Agencies to give up right of

ownership in favor of a leasehold interest. Accordingly, the Military Department

should not transfer property using the leaseback authority until it receives

written consent from the prospective Federal tenant that it agrees to a leaseback

arrangement. Jn addition, a leaseback will only be considered by a Federal

Department or Agency upon the request of the LRA. If a leaseback is requested

by the LRA, Federal Agencies are urged to give full consideration to leasing

instead of owning the property.

In some cases, the LRA will not request a leaseback transfer or the Military

Department or Federal Agency will not agree to a leaseback arrangement. If

8-2 December 1997
DoD Base Reuse Implementation Manual

property that will be used by a Federal Department or Agency is not transferred

to the LRA under a leaseback and then leased back to the Federal entitv, the

Military Department will retain the property, or transfer it directly to another

Federal entity under the normal Federal-to-Federal transfer procedures, as

appropriate.

8.1.5 Eligible Ieaseback recipient II Who is eligible to

A recognized LRA is the only entity eligible to receive property under a apply for a

leaseback. After receiving property under a leaseback, an LRA is authorized to Ieaseback?

transfer ownership rights to one of the political jurisdictions that comprise the

LIU. An LR4 may also transfer ownership rights to other entities after obtaining

the written consent of the Federal Agency occupying the property.

Transferring ownership to another entity maybe useful in those situations when

the leaseback property lies within or adjacent to property that has been conveyed

to an entity other than the LRA (e.g., an airport authority or private developer).

8.2 D ETERMINING P OSSIBLE L EASEBACK T RANSFER S

II

Are Federal and

homeless

8.2.1 Step 1- Federal screening II screenings required

Any property conveyed under a leaseback must first be screened for other DoD before transferring

prope~ under a

and Federal uses in accordance with 32 CFR Part 175, because only property that Ieaseback?

has been approved by the applicable Military Department for use by another

Federal Department or Agency is eligible to be transferred under a leaseback.

Property retentions at realigning installations are also eligible for leaseback

conveyance provided the retention is consistent with the recommendations of the

Defense Base Closure and Realignment Commission. For more information on

the DoD and Federal screening process, see Chapter 3.

Federal Agenaes that express an interest in BRAC property outside of the

Federal screening process may, if the LIU is interested, lease property from the

LIL4 that has been leased or transferred to the LRA under other authorities. In

these cases, none of the lease restrictions associated with a leaseback apply. The

Federal Agency must have the authority to lease property from the LRA.

8.2.2 Step 2- Excess and surplus determination

As part of the Federal screening process, the Military Department makes the

excess and surplus determinations, as appropriate. Normally, property that will

be conveyed to the community for redevelopment purposes is declared surplus.

But, by definition, property identified in the screening process as needed by

another Federal entity is not surplus property. Accordingly, property that will

transferred to an LR4 under the leaseback authority should not be declared

surplus by the Military Department. Due to a lack of clear guidance on this issue

prior to the publication of the proposed rule implementing this authority, some

Military Department officials determined that property to be transferred under a

leaseback should be declared surplus. If the property to be transferred has been

declared surplus, the Military Department may withdraw the surplus

December 1997 8-3
Leasebacks

declaration. For information about the procedures for withdrawing an

excess /surplus declaration, see Section 3.2.3.

8.2.3 Step 3- Initial discussions

The excess/surplus determination marks the start of the LRA’s local reuse

planning process as described in Chapter 3. During this time, the LIL4 should

decide which parcels of property that are still needed by the Federal

Government, if any, the LRA would like conveyed through a leaseback. The

LRA should approach the applicable Federal Agency regarding its desire to lease

back property and begin preliminary discussions on the terms of the lease

agreement.

8.2.4 Step 4- The Redevelopment Act process

In its application to HUD, as required by the provisions of the Redevelopment

Act, the LR4 should outline any information available regarding what parcels

the LRA plans to request be transferred under a leaseback. This should include

any preliminary information regarding the terms of the lease that have been

agreed upon by both the LRA and Federal Agency. HUD will take a possible

leaseback of property into consideration during its review of the LRA’s

application. The Redevelopment Act process, including the State and local

screening process, the development of the redevelopment plan, and the LRA’s

application to HUD, is discussed in more detail in Sections 3.4 and 3.5.

8.3 R EQUESTING A L EASEBAC K

LR4s that are interested in obtaining property under a leaseback should, as soon

How does an LRA II as possible after the Military Department’s excess/surplus determination, discuss

apply for a this option with the applicable Military Department and the Federal Department

/easeback? or Agency which requires use of the property. In addition, as discussed above,

the leaseback should be incorporated into the LIW’S redevelopment plan. h

LRA that has already submitted a redevelopment plan may still be able to take

advantage of a leaseback if the LR4 can reach an agreement with the Federal

Department or Agency, and the Military Department has not progressed too far

toward conveyance of the property under another authority.

LIUs should make a formal request for a leaseback transfer as soon as possible

after submission of the redevelopment plan to DoD and HUD. The content of

this request will be based upon whether the LRA is pursuing an EDC.

8.3.1 LRAs that are pursuing an EDC

If the LRA is pursuk~an EDC, a leaseback transfer should be requested as part

of the LR4’s EDC application. To address the leaseback of property, the LFL4

will be required to include several items in addition to the EDC application items

outlined in Chapter 7, Section 7.2. These items are:

. A description of the parcel or parcels the LR4 proposes to have transferred to

it and then lease back to a Federal Department or Agency.

. A written statement signed by an authorized representative of the Federal

entity that it agrees to accept a leaseback of the property.

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DoD Base Reuse Implementation Manual

● A statement explaining why a leaseback is necessary for the long-term

economic redevelopment of the installation property.

8.3.2 LRAs that are not pursuing an EDC

If the LRA is not pursuing an EDC, the LRA will be required to submit a request

for a leaseback to the applicable Military Department. The request should

contain, at a minimum, the items listed in Section 8.3.1. If necessary, the Military

Department may impose additional requirements.

8.4 P ROPERTY C ONVEYANC E

After a disposal Record of Decision has been issued for the property, but before

deed transfer, the leaseback property can be leased (using a lease in furtherance

of conveyance) to the LRA who would then sublease it back to the Federal

Department or Agency. Alternatively, the Military Department can grant the

Federal Department or Agency a permit to use the property until deed transfer

can be accomplished. When deed transfer can be accomplished, leaseback

property can be conveyed in one of two ways:

● An EDC kmeback conveyance where leaseback property is conveyed as part of

an EDC.

● A stand-alone leaseback conveyance where leaseback property is conveyed as a

stand-alone parcel.

8.4.1 EDC Ieaseback conveyance

As described in Section 8.3.1, LRAs that are pursuing an EDC should request a

leaseback transfer in the EDC application. The leaseback property will be

appraised as a package with the EDC property and consideration will be

determined following existing EDC guidelines.

8.4.2 Stand-alone Ieaseback conveyance

For those sites where the LRA is not pursuing an EDC, the Department

recognizes that the LRA may still be interested in taking advantage of a

leaseback. Since the leaseback authority is a transfer authority, the Military

Departments have the ability to transfer leaseback property as a stand alone

parcel or parcels not tied to any other conveyance.

For stand-alone leaseback conveyances, the Military Department is required to

determine the estimated present fair market value of the property before it is

transferred to the LRA. Consideration maybe at or below the estimated present

fair market value and payments may be in cash or in-kind. As with EDCS, if the

installation is in a rural area, the transfer shall be without consideration if the

base closure will have a substantial adverse impact on the economy of the

communities in the vicinity of the installation and on the prospect for their

economic recovery.

The exact amomt of consideration, or the formula to be used to determine the

amount of consideration, as well as the schedule for payments, must be agreed

upon in writing before the transfer.

How is Ieaseback

propetiy conveyed?

December 1997 8-5
Leasebacks

8.5 LEASE TERM S

8.5.1 General guidance

The terms of a lease under the leaseback authority should be negotiated between

What terms are

II

the LRA and the Federal entity. It is the responsibility of the LRA to offer the

required in the Federal Department or Agency lease arrangements that encourage choosing the

lease? leaseback option. The goal should be to offer terms that afford the Federal tenant

rights as close to those associated with ownership of the property as is

practicable. If the Federal Agency is a current tenant, the lease should, to the

greatest extent possible, maintain the roles and responsibilities of the Federal

government that existed prior to transfer of title to the LFLA.

8.5.2 Statutory and regulatory requirements

The following statutory and regulatory requirements apply with respect to the

LRA’s lease to the Federal tenant:

● Lease term: The I&4’s lease to the Federal entity maybe for a term of no

more than 50 years, but may provide for options to renew or extend the term

of the lease at the request of the Federal entity. Within these statutory

limitations, the length of the lease term should be tied to the needs of the

Federal tenant.

. End of Federal need before end of lease term All leases must include a

provision specifying that should the Federal tenant no longer need the

property before the end of the lease term, the remainder of the term maybe

satisfied by another Federal Department or Agency. The use of the property

by the new Department or Agency must be similar to the use under the

original lease and, like the use under the original lease, be compatible with

the LR4’s redevelopment efforts.

● Renk The LRA may not charge rent.

● Transfernng ownership: The Iease must include a provision prohibiting the

LRA from transferring ownership rights to another entity (other than one of

the political jurisdictions that comprise the LRA) during the term of the lease

without the written consent of the Federal Department or Agency occupying

the leaseback property.

. Municipal services: The Federal Government cannot be required to pay for

municipal services (e.g., fire protection, police protection, snow removal) that

are normally provided by the locality using tax revenues.

● Other services: The Federal entity may pay for other services such as

maintenance and repair, utihties, janitorial, grounds keeping, and similar

services often provided by a landlord. If these semices are the responsibility

of the Federal tenant, they must be acquired in accordance with standard

Federal Acquisition Regulation procedures or otherwise in accordance with

applicable statutory and regulato~ requirements. Such charges must be for

services actually provided to the Federal tenant and at rates no higher than

for non-Federal entities.

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DoD Base Reuse Implementation Manual

● State and local code= The LRA will be responsible for building

modifications or other actions necessary to meet local building codes or other

state or local laws. The Federal tenant may pay for the modifications only to

the extent that such modifications would be necessary if the Federal tenant

owned, rather than leased, the property.

● Improvements: The lease shall provide that the Federal tenant may repair

and improve the property at its expense after consultation with the I&4.

8.5.3 Applicability of existing Federal leasing authorities and

requirements

The General Services Acquisition Regulation (GSAR) does not apply to a lease

under the leaseback authority. However, to the extent these regulations are not

inconsistent with the intent of the leaseback authority and the guidance provided

in this Chapter, they may serve as a useful source of information and guidance.

The leaseback authority is a property transfer authority. It does not affect a

Federal Deparbnent or Agency’s leasing authorities. Those Federal entities who

do not have the authority to lease property, but would like to lease back property

transferred under this authority, must work through GSA to negotiate and secure

a lease with the LRA. As an alternative, a Federal entity may request a

delegation of authority from GSA to enter into a lease with the LRA. Leasing

authority will be delegated from GSA to Federal entities on a case-by-case basis.

In addition, a Military Department, acting in an Executive Agency capacity, may

lease property on behalf of a Defense Agency.

8.6 END OF FEDERAL USE

When the Federal entity that is occupying the leaseback property no longer

requires use of the property, one of two things will happen:

(1) If the Federal entity no longer requires use of the property twjfore the end of the

lease term, another Federal entity can serve out the term of the lease. Although no

formal screening is required, the GSA will assist in identifying other Federal

interest in leasing the property. In this case, the Federal entity serving out the

remainder of the lease term must use the property for a use similar to the original

Agency’s use of the property. Before exercising this option, the Federal tenant is

required to consult with the LRA or the elected body with jurisdiction over the

property if the LW-3 no longer exists. If ownership of the leaseback property has

been transferred to another entity, the Federal tenant must consult with that

entity.

(2) If the Federal entity no longer requires use of the property afier sm”ng out the

leuse term and any possible renewals, there is no requirement to screen for

additional Federal interest. Instead, the property would immediately become

available for use by the LFL4.

December 1997 8-7
Leasebacks

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8-8 December 1997