The past few weeks have seen a flurry of new rules that have upended the federal real estate leasing landscape, with substantial impacts to landlords and the government. From changes to government policies on diversity, equity and inclusion (DEI) to changes in leased space utilization rate requirements and a return-to-office mandate, the government is dramatically changing how it does business with the commercial real estate community.
Below is an initial review of the recently passed law on leased space utilization and two recently issued executive orders: 1) Return to In-Person Work and 2) Ending Illegal Discrimination and Restoring Merit-Based Opportunity. This is an area that is rapidly developing and that merits close attention in the months to come.
Utilizing Space Efficiently and Improving Technologies Act
The first of the new developments took place in the final days of the Biden Administration. On Jan. 4, 2025, with little fanfare, President Joe Biden signed into law the Thomas R. Carper Water Resources Development Act of 2024. Included in this law are the Utilizing Space Efficiently and Improving Technologies Act (found in Section 2302) and reforms to the Federal Asset Sale and Transfer Act (found in Section 2301), both of which include new obligations for the U.S. General Services Administration (GSA) and tenant agencies and proscribe new approaches to measuring utilization and reducing unused space in government leases and government-owned buildings.
The new law includes the following mandates:
Data Collection
The new law mandates that GSA and the Office of Management and Budget (OMB) coordinate to monitor and maintain data on the utilization rate of all leased properties, and it ties that utilization rate to a benchmark of 150 usable square feet per person:
Not later than 1 year after the date of enactment of this Act, and annually thereafter, the heads of Federal agencies shall submit to the Director [of OMB], the Administrator [of GSA], the Committee on Transportation and Infrastructure of the House of Representatives, the Committee on Environment and Public Works of the Senate, and the Committees on Appropriations of the House of Representatives and the Senate a report on–
(A) the occupancy and the actual utilization rates of space in public buildings and federally-leased space occupied by the respective agency of the Federal agency head broken down by building and lease;
(B) the methodology used for determining occupancy, including the period of time and other parameters used to determine occupancy on a regular basis;
(C) the utilization percentage of each public building and federally-leased space by the respective agency of the Federal agency head, comparing the capacity to the actual utilization rate based on a utilization benchmark of 150 usable square feet per person.
S. 4367 at § 2302(c) (emphasis added)
Reduction in Space
For agencies that consistently fail to meet a 60 percent utilization rate, the law mandates that GSA take steps to reduce the tenant agency’s space allocation, whether leased or owned:
(1) Target utilization metrics.–Not later than 1 year after the date of enactment of this Act, and annually thereafter, the Director, in consultation with the Administrator, shall ensure building utilization in each public building and federally-leased space is not less than 60 percent on average over each 1-year period.
(2) Actions.–In the event that building utilization is below 60 percent on average over a 1-year period described in paragraph (1) for any particular public building or federally-leased space, the Administrator shall–
(A) provide notice to the tenant agency informing the agency of the excess in capacity along with associated costs of such excess; and
(B) notify the Committee on Transportation and Infrastructure of the House of Representatives, the Committee on Environment and Public Works of the Senate, and the Committees on Appropriations of the House of Representatives and the Senate of the excess capacity and associated costs.
(3) Subsequent failure.–If the tenant agency fails to meet the 60 percent target under paragraph (1) in the reporting period subsequent to the reporting period under paragraph (2), the Administrator shall, in consultation with the Director, take steps to reduce the space of the tenant agency, including consolidating the tenant agency with another agency, selling or disposing of excess capacity space, and adjusting space requirements, as appropriate, for any replacement space.
Id. at § 2302(d) (emphasis added)
The only exceptions for the space reduction are for “non-standard” space requirements such as “warehouse space, laboratories critical to the mission of the agency, and public customer-facing spaces driven by agency missions.” Id.
Headquarters Spaces
The new law requires that GSA and OMB work together to consolidate agency headquarters buildings in the national capital region. In the wake of a 2023 GAO report noting that “[s]eventeen of the 24 federal agencies in GAO’s review used an estimated average 25 percent or less of their headquarters buildings’ capacity,” pressure had been mounting for some time for GSA, OMB and tenant agencies to act to make more efficient use of their existing high-profile real estate. Congress has now acted to mandate change.
First, the law gives all of the relevant stakeholders one year to develop a plan to better utilize their space:
Not later than 1 year after the date of enactment of this Act, the Director, in consultation with the Administrator, shall submit to the Committee on Transportation and Infrastructure of the House of Representatives, the Committee on Environment and Public Works of the Senate, and the Comptroller General of the United States a plan to consolidate department and agency headquarters buildings in the National Capital Region that will result in building utilizations of 60 percent or greater.
The new law also mandates that “[n]ot later than 1 year after the submission of the plan under paragraph (1), the Administrator and Director shall begin implementing the plan.” Id. at § 2302(e)(1).
GAO Obligations
Finally, the law requires that GAO obtain and publish data on the utilization rates for all tenant agencies outlined in Section 2302(d):
Not later than 1 year after the date of enactment of this Act, the Comptroller General of the United States shall submit to Congress a report on the cost to each Federal agency of measuring the occupancy and actual utilization rates of space in public buildings and federally-leased space to prepare the reports required under subsection (d).
Id. at § 2302(g)(1)
Executive Order: Return to In-Person Work
In a brief memorandum, the White House issued a directive to all executive branch agencies to terminate remote work agreements and require in-person work as soon as practicable. The memorandum reads as follows in its entirety:
Heads of all departments and agencies in the executive branch of Government shall, as soon as practicable, take all necessary steps to terminate remote work arrangements and require employees to return to work in-person at their respective duty stations on a full-time basis, provided that the department and agency heads shall make exemptions they deem necessary.
This memorandum shall be implemented consistent with applicable law.
Immediately following the issuance of this memorandum, the Office of Personnel Management (OPM) issued its own Guidance on Presidential Memorandum Return to In-Person Work, with the following instructions for executive branch agencies:
No later than 5:00 pm EST on Friday, January 24, 2025:
- The agency head or acting agency head should revise their agency’s telework policy issued under 5 U.S.C. § 6502(a)(1)(A) to state that eligible employees must work full time at their respective duty stations unless excused due to a disability, qualifying medical condition, or other compelling reason certified by the agency head and the employee’s supervisor.
- The agency head or acting agency head should email all employees notifying them of President Trump’s PM Return to In-Person Work, attach a copy of the PM, and notify employees of the agency’s intention to fully comply with the PM. (A copy of the PM is attached as Appendix 1).
- The agency should notify OPM of the agency’s Telework Managing Officer, and assign that individual responsibility for complying with the guidance herein.
OPM concluded its guidance with a recommendation that “agencies set a target date of approximately 30 days for full compliance with the PM, subject to any exclusions granted by the agency and any collective bargaining obligations.”
It is far from clear at this point what the ultimate impact of this memorandum will be. The memorandum is, by its own terms, limited to implementation “consistent with applicable law.” OPM’s guidance similarly referenced compliance with any “collective bargaining obligations” and agency-specific exclusions. Additional exceptions may be allowed.
Executive Order: Ending Illegal Discrimination and Restoring Merit-Based Opportunity
Through an executive order (EO), the president has eliminated the requirement for federal contractors and lessors to maintain affirmative action programs. His order, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (the Order), revokes EO 11246 (Equal Employment Opportunity), which was signed by President Lyndon Johnson in 1965. Holland & Knight has put together an extensive analysis of the direct impacts of this executive order, but some of the primary takeaways impacting lessors are as follows:
- “Federal contractors and subcontractors shall not consider race, color, sex, sexual preference, religion, or national origin in ways that violate the Nation’s civil rights laws.”
- Contractors, lessors and grant recipients will be required to agree that they will comply “in all respects with all applicable Federal anti-discrimination laws” as a condition of all future contracts and grant awards.
- Contractors, lessors and grant recipients will be required to certify that they “do[] not operate any programs promoting [diversity, equity, and inclusion] DEI that violate any applicable Federal anti-discrimination laws.”
Lessors that operate as single purpose entities (SPEs) without employees or employee policies may have reduced risk for compliance with these requirements, but lessors should ensure that parent company policies that are applicable to lessor entities are compliant with these requirements.
Please note that in response to these new rules, lessors are receiving auto-generated notifications from the System for Award Management (SAM.gov, the government’s online registration and payment portal for GSA landlords) that provide as follows:
[T]he General Services Administration (GSA) intends to take immediate action to begin forbearing enforcement of all contract clauses, provisions, terms, and conditions, related to “diversity, equity, and inclusion” (DEI). . . .
This forbearance may include, but is not limited to, any clauses that mandate diversity-related obligations, any reporting or record keeping requirements specifically related to the same and to requirements imposed on contractors on a firm-wide basis, in each case not otherwise mandated by law.
The most likely application of this guidance will be non-enforcement of certain clauses found in the General Clauses (GSA Form 3517B) incorporated by reference into GSA leases. Specifically, the General Clauses include a number for Federal Acquisition Regulation (FAR) clauses that mandate the development and maintenance of Affirmative Action Plans (AAPs) for government contractors and lessors.
Conclusion and Takeaways
The first and most important takeaway for all federal real estate professionals is that this is a rapidly shifting landscape, and lessors, agencies and all others that work in this space should keep a close eye on developments. Legal challenges are likely for many of these executive orders, and different jurisdictions may come to different conclusions. The only way to know and understand individual rights and obligations is to closely monitor the implementation of these new rules and the courts’ review of the executive branch’s actions. Holland & Knight will continue to provide updates as appropriate.
The second takeaway is that lessors and corporate parent companies should closely follow the restrictions on DEI programs for government contractors and lessors. Many government leases are held by SPEs without employees, which may limit the potential liability, but these rules may be extended or interpreted to apply to corporate families, which could impact many government lessors.
Finally, for current and pending procurements, the rules governing telework and the new law governing utilization may make it difficult, if not impossible, for agencies to determine with any specificity their space requirements in the near term. Pauses and even cancellations of existing solicitations may occur in some instances, and dramatic amendments to space requirements may occur in others. Lessors with expiring leases should prepare for extension requests and potential holdovers as tenant agencies come to terms with the new normal.