Increased Costs Resulting from GSA's Failure To Exercise Lease Options

Gao ID: LCD-79-301 November 17, 1978

On December 3, 1971, the General Services Administration (GSA) leased 2,850 square feet of space in the Allegheny Center building in Pittsburgh, Pennsylvania. In April 1972, the lease was amended for a term of 5 years, through September 5, 1977, at an annual rent of $7.15 a square foot. The government was required to notify the lessor at least 30 days before the end of the lease term if it wished to renew the option. When the lease expired, the lessor refused to renew the lease at the option price of $7.65 a square foot because GSA did not notify the lessor 30 days before expiration of the lease. Because GSA failed to exercise its option in time, the government will incur additional rent of about $400,000 over a 5-year period plus extra costs to be incurred in relocating the tenant agency to another building. In September 1976, GSA leased 2,600 square feet of space in another building in Pittsburgh at an annual rent of $4.00 a square foot. This lease also contained an option whereby the government could renew for another 5 years at the same rent, provided notice was given to the lessor at least 90 days before the lease term expired. GSA failed to give the required 90 days notice, necessitating negotiation of a new 3-year lease at an annual rent of $5.15 a square foot. It will cost the government an estimated $22,000 in additional rent and service costs because of failure to exercise the renewal option in time. The Central Office of GSA, in its periodic leasing reviews, should evaluate the adequacy of controls established by the regions for administering lease options.

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