Take Precautions When Renting Space to Foreign Government Tenants

April 30, 2004

As international commerce continues to expand, more office building owners are seeking foreign government tenants. Although consulates or other foreign government agencies can be desirable tenants, they can also pose some unforeseen risks and headaches. For example, it can be tough to evict a foreign government tenant. And a foreign government tenant that's a target of protesters or terrorists may raise special safety and security concerns.

As international commerce continues to expand, more office building owners are seeking foreign government tenants. Although consulates or other foreign government agencies can be desirable tenants, they can also pose some unforeseen risks and headaches. For example, it can be tough to evict a foreign government tenant. And a foreign government tenant that's a target of protesters or terrorists may raise special safety and security concerns.

There are safeguards you can add to your lease to protect yourself, your building, and your other tenants if you rent space in your office building to a foreign government tenant. CLLI, with the help of Chicago attorneys Thomas R. Jensen, Daniel J. Kopp, and Neil T. Neumark, has put together a checklist of five safeguards. We also provide Model Lease Language that you can adapt for your lease to deal with the problems that foreign government tenants can cause. CLLI0020

FIVE SAFEGUARDS FOR FOREIGN GOVERNMENT TENANT'S LEASE
* Require Waiver of Immunity

Require the foreign government tenant to waive its immunity protections under certain international treaties and federal laws, such as:

Vienna Convention. The Vienna Convention on Consular Relations, an international treaty that applies only to foreign consulates (not to embassies) and their staffs, considers a foreign consulate's space “inviolable,” says Kopp. That means that you may not have the right to enter a foreign consulate's space and evict it if it violates the lease, he explains.

The Vienna Convention also gives the foreign consulate's staff immunity from the jurisdiction of U.S. courts, says Neumark. That means it may be tough to enforce a lease that's signed by, for example, the consul of a foreign government acting as an individual.

FSIA. The Foreign Sovereign Immunities Act of 1976 (FSIA), a federal law, says that foreign governments and their property are immune from the jurisdiction of the U.S. courts, notes Neumark. That means that if a foreign government agency is the tenant named in the lease, you may have difficulty enforcing the lease against it, he warns.

To get a foreign government tenant to waive its rights under the Vienna Convention, FSIA, and any other laws granting it immunity, add the following language to your lease, says Kopp. (If the tenant isn't a foreign consulate or a staff member of a foreign consulate, delete par. a.)

Model Lease Language

For purposes of Landlord's enforcement of its remedies set forth in this Lease upon a breach or default by Tenant under this Lease, Tenant hereby explicitly waives and relinquishes:

  • a. Any rights granting Tenant or Tenant's property immunity from the jurisdiction of the courts of the United States under the Vienna Convention of Consular Relations, 21 UST 77, TIAS 6820 (1963) and any rights set forth under Articles 30, 31, 43, 50, and 61 thereof that might limit or diminish Landlord's remedies or the enforcement of Landlord's remedies upon a breach or default by Tenant under this Lease;

  • b. Any and all immunity of Tenant's property from attachment in aid or execution, or from execution, upon a judgment entered by a court of the United States, under the Foreign Sovereign Immunities Act of 1976, 28 USC Sections 1602–1611, or under any other statute or law granting immunity to Tenant or Tenant's property or limiting the jurisdiction of courts of the United States over Tenant; and

  • c. Any and all immunity from the jurisdiction of the courts of the United States.

Practical Pointer: Although there's no guarantee that a court will enforce this entire provision, adding it to your lease may put you in a much better position should a problem arise with a foreign government tenant, says Kopp.

* Require Tenant to Have Proper Governmental Approvals

Require the foreign government tenant to give you, when it signs the lease, copies of all authorizations, approvals, permits, and licenses from the U.S. government that grant this tenant the right to rent and occupy space in your building, says Jensen. And have the foreign government tenant state in the lease that all its authorizations and approvals are valid and complete, he says. Also require the foreign government tenant to agree to satisfy any additional requirements imposed by the U.S. government to keep those authorizations and approvals in effect, he adds.

Getting copies of these documents is necessary because you want assurances that the foreign government tenant has U.S. government approval to operate in your building. If it doesn't, the U.S. government might try to shut it down—and you'll be out a tenant.

Model Lease Language

  • a. Delivery of Approvals. Simultaneous with the execution hereof, Tenant shall deliver to Landlord any authorizations, approvals, permits, licenses, and any other documentation issued by the government of the United States (“Government Approvals”) as a requirement or precondition under the laws of the United States for [insert foreign government tenant's country of origin] to occupy, operate, lease, or use property located in the United States.

  • b. Tenant's Warranty. Tenant warrants that all such Government Approvals it delivers are validly obtained and constitute all such Government Approvals required by the government of the United States. Tenant agrees that it shall satisfy any requirement imposed on it by the government of the United States to maintain such Government Approvals throughout its tenancy and further agrees to provide evidence of such Government Approvals to Landlord upon Landlord's reasonable request, from time to time.

* Get Right to Terminate Lease over Security Concerns

Make sure you have the right to terminate the lease if the tenant's presence at your building raises serious safety and security problems, says Neumark. For example, a foreign consulate or other foreign government agency may be the target of demonstrators and terrorists who disapprove of that government's policies, he explains. Also, the foreign government tenant could have special security needs that inconvenience or even endanger you and your tenants or interfere with the operations and management of your building, he adds. The tenant will very likely demand that you agree to give advance notice if you choose to terminate the lease, says Neumark. You'll need to negotiate how much advance notice you should give, he says.

It's a good idea to clarify in the lease that the tenant must pay all minimum rent and additional rent that's due up to the termination date, says Neumark. You should also clarify that all of your and the tenant's lease obligations and rights will end on the termination date, except for those that are meant to survive the lease, he adds. Otherwise, the tenant may argue that its obligations stop after you've notified it that you're terminating the lease.

Model Lease Language

  • a. Termination Right. If Landlord determines, in its sole and absolute discretion, that Tenant's presence in the Building has resulted in:

    • (i) Public demonstrations in or near the Building;

    • (ii) Increased security risks for the Building and/or its occupants; or

    • (iii) Interference with the operation or management of the Building;

    then Landlord shall have the right to terminate this Lease upon [insert #, e.g., 60] days' prior written notice to Tenant.

  • b. Rent/Release. If Landlord shall exercise the termination right under Paragraph a hereof, then:

    • (i) Tenant agrees that it shall pay Minimum Rent, Additional Rent, and any other costs due under the Lease through and apportioned as of the effective date of such termination; and

    • (ii) Neither Landlord nor Tenant shall have any rights, estates, liabilities, or obligations under this Lease accruing after the effective date of such termination, except for such rights, estates, liabilities, and obligations which, by the terms of this Lease, survive the expiration or sooner termination of the Lease.

* Make Tenant Reimburse You for Extra Insurance Costs

Consider getting your own liability and property insurance to cover the foreign government tenant's space, says Neumark. Even though a typical tenant would get its own insurance, you may find that the foreign government tenant refuses to agree in the lease to get its own insurance or to name you as an additional insured on its policies, says Kopp. Or the foreign government tenant may insist that it use an insurer in its own country, not a reputable domestic insurer, he adds. If you take out the insurance, require the foreign government tenant to reimburse you for its cost through additional rent, says Neumark.

Model Lease Language

  • a. Insurance by Landlord. Landlord may choose, in its sole discretion, to carry a policy of insurance which insures the Premises and all of Tenant's property therein against loss or damage by any casualty from which Landlord may seek insurance protection. In addition, Landlord may carry general liability insurance with respect to Tenant's activities at the Building in amounts and with coverages deemed prudent by Landlord. All such insurance shall be for the sole benefit of Landlord.

  • b. Payment of Insurance Premiums. All such insurance described in this Clause shall be kept in force at the discretion of Landlord, and any amounts paid therefor by Landlord shall be payable by Tenant as Additional Rent.

Practical Pointer: The foreign government tenant may demand that the cost of your insurance not exceed a certain amount, says Neumark. You may have to negotiate this point.

* Get Largest Security Deposit Possible

Get the largest security deposit possible from the foreign government tenant, says Neumark. Owners sometimes have a hard time getting reimbursed by a foreign government tenant if, for example, they've had to repair the space after the tenant moved out, he explains. The higher the security deposit, the less likely you are to have to chase after the foreign government tenant for any such reimbursement, he says.

What form should the security deposit take? Neumark suggests getting the security deposit in cash. A letter of credit isn't necessary, he says, because the foreign government tenant won't be subject to U.S. bankruptcy laws. So you won't have to worry that the cash will be off-limits without approval from a U.S. bankruptcy court.

CLLI Sources

Thomas R. Jensen, Esq.: Schwartz, Cooper, Greenberger & Krauss, 180 N. La Salle St., Ste. 2700, Chicago, IL 60601; (312) 346-1300.

Daniel J. Kopp, Esq.: Member, Schwartz, Cooper, Greenberger & Krauss, 180 N. La Salle St., Ste. 2700, Chicago, IL 60601; (312) 346-1300.

Neil T. Neumark, Esq.: Member, Schwartz, Cooper, Greenberger & Krauss, 180 N. La Salle St., Ste. 2700, Chicago, IL 60601; (312) 346-1300.

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