1101 Overview

This chapter establishes the Department of Veterans Affairs’ (VA) financial policies regarding real property leases.

Key points covered in this chapter:

• VA will utilize General Services Administration’s (GSA’s) categorical delegation or request a general purpose delegation of lease authority from GSA to procure and enter into a lease with a non-Federal entity on a project-by-project basis. VA’s Office of Asset Enterprise Management (OAEM) oversees the delegation request process with GSA;
• VA will comply with Office of Management and Budget (OMB) Circular A-11 which mandates the proper scoring for real property leases; and
• VA will comply with Statement of Federal Financial Accounting Standards (SFFAS) 54, Leases, for real property leases. For additional information refer to Volume V, Chapter 11 – Accounting for Leases.

1102 Revisions

Section	Revision	Office	Reason for Change	Effective Date
Various	Revised title and chapter number of policy and completed full review	OFP	Implementation of new financial policy Volume V, Chapter 11 – Accounting for Leases; full review and implementation of SFFAS 54	March 2024
1103	Modified, added, and removed definitions	OFP	Updated definitions to enhance the reader’s understanding of real property	March 2024
1104	Updated roles and responsibilities	OFP	Ensured roles and responsibilities are aligned to the appropriate office	March 2024
1105	Revised lease accounting standards in accordance with SFFAS 54   Removed information regarding types and thresholds for leases	OFP	Implementation of SFFAS 54   Information is contained in new policy Volume V, Chapter 11 – Accounting for Leases	March 2024
Appendices	Updated content in Appendices	OFP	Removed content on SF-81 since form and instructions are readily available on GSA website   Removed content on Accounting Attributes   Moved prior policy revisions to Appendix   Added content to the new Appendix B: Scorekeeping Guidelines	March 2024

For a complete listing of previous policy revisions, see Appendix A.

1103 Definitions

Accounting Classification Code (ACC) – The categorization of accounting data along several dimensions allowing the retrieval, summarization, and reporting of information in a meaningful way.

Average Annual Rent – Net average annual rent for the term of the lease, including option periods and excluding the cost of services. Comprised of amortized build-out and shell rent, which includes parking, real estate taxes, insurance, building maintenance and reserves for replacement, lease commission, and management costs but excluding operating costs. Functionally equivalent to “unserviced rent.”

Capital Asset Inventory (CAI) – VA’s enterprise-wide repository of information on the Department’s real property assets, including leases, EULs, agreements, buildings, facility condition assessments data, and historical asset information. Information in CAI is used by OAEM and other Staff Offices to track real property agreements.

Capital Lease – Per OMB Circular A-11, Appendix B, a capital lease is any lease other than a lease-purchase that does not meet the criteria of an operating lease. For additional information, refer to Appendix B: Scorekeeping Guidelines, which contains information to assist in classifying a capital lease.

Fair Market Value (FMV) – An estimated value, based on a comparison with identical or similar past, actual, or expected assets/goods or services, of what a willing buyer would pay a willing seller for assets/goods or services.

Intragovernmental (IGT) Lease – A lease, as defined by SFFAS 54, between Federal entities documented via an interagency agreement. In the federal real property lexicon, the term ‘permit’ and ‘occupancy agreement’ are the commonly accepted term to describe an agency-to-agency, interagency or intragovernmental lease. For the purpose of this policy chapter, the term ‘intragovernmental lease’ is used throughout the document.

Lease–Purchase – A type of lease in which ownership of the asset is transferred to the Government at or shortly after the end of the lease term. Such a lease may or may not contain a bargain-price purchase option.

Lessee – The entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration. Lessee is also known as the tenant.

Lessor – The entity that enters into a contract to provide the right to use an underlying asset for a period of time to a lessee in exchange for consideration. Lessor is also known as the landlord.

Major Lease – The net average annual rent for the term of the lease (including option periods and excluding the cost of services) is equal to or greater than the prospectus level threshold amount for the fiscal year in which award is to be made, requiring the prior submission and approval of a prospectus. The prospectus threshold for VA is the “major medical facility lease threshold” as defined in 38 U.S.C. § 8104(a)(3)(B)(i), excluding the cost of services. All costs that are amortized, including initial build-out/tenant improvements (TI or TIs), are to be included in the net average annual rent computation. Contemplated leases calling for a stepped rent or a change in the base rent, must be “levelized” in accordance with Chapter 11 of GSA’s Leasing Desk Guide to determine whether a lease is above or below this threshold.

New or New/Replacing Lease – A lease with new terms and conditions and a new lease contract number, applicable for either a new requirement or for the replacement of an existing expiring lease.

Occupancy Agreement (OA) – A written agreement descriptive of the financial terms and conditions under which GSA assigns, and a customer agency occupies, the GSA-controlled spaced identified therein. An OA is an administratively binding assignment of space.

Operating Lease – A lease that meets all the criteria listed in OMB Circular A-11, Appendix B. Refer to Appendix B: Scorekeeping Guidelines, which contains information to assist in classifying an operating lease.

Outleases – Convey a leasehold interest in VA real property to a tenant pursuant to the terms of the agreement. Outleases issued to any public or nonprofit organization may provide for the maintenance, protection, or restoration of the leased property by the lessee as a part or all of the consideration for the lease.

Permit – A revocable license granted by one Federal agency to another. A permit may be issued to a Federal entity to use VA real property or issued to VA to use another Federal entity’s property. Allows a permit holder to use another entities space or land without acquiring a real estate interest.

Quarters Agreements – Real property agreements that allow VA employees to be housed within designated quarters buildings on VA property.

Real Property – Land, buildings, facilities, or other structures, firmly attached, including integrated equipment (i.e., items permanently installed or attached that have become a part of the building or structure for the purpose of making the building habitable or usable). Executive Order 13327 defines Federal Real Property as any real property owned, leased, or otherwise managed by the Federal Government, including improvements on Federal lands irrespective of the property’s location.

Real Property Lease – A conveyance to the Government of the right of exclusive possession of real property for a definite period of time by a landlord. It may include operational services provided by the landlord. A real property lease is also referred to as a leasehold interest in real property. Excludes Enhanced-Use Leases (EULs) and other types of real property agreements such as Outleases, Historic Outleases, Occupancy Agreements (OAs), Quarters Agreements, Revocable Licenses, Permits, and other space agreements.

Real Property Lease Renewal (Options) – The right, but not the obligation, of the Government to continue a lease upon specified terms and conditions, including lease term and rent without conducting a competitive procurement.

Real Property Leasehold Improvements – The finishes and fixtures that transform space from its shell condition to a finished, usable condition. Improvements can be made to real property acquired through either a capital or operating lease. Improvements may also be referred to as build out costs or tenant improvements.

Revocable Licenses – Allow the use of a licensor’s space without acquiring any real estate interest. Commonly referred to as a license. It may be issued for VA’s use of non-Federal property or for a non-Federal entity to use VA real property. Typically, a license is personal, non-assignable, and revocable. Duration is temporary with non-federal entities.

Right-To-Use (RTU) Lease – Per SFFAS 54, is a non-intragovernmental lease that exceeds a 24-month term. If the RTU meets or exceeds the lease capitalization threshold, the lease will be capitalized. RTU leases that do not meet the lease capitalization threshold are considered immaterial and will be expensed.

Short-Term Lease – Per SFFAS 54, is a non-intragovernmental lease with a lease term of 24 months or less.

Standstill Agreement – Temporary measure used when the procurement for an expiring lease cannot be completed before the end of its term. The lessor will maintain Government tenancy and VA will continue making rent payments until a new or succeeding lease is executed. The standstill agreement does not imply a new lease, extension, or succeeding lease will be offered to the incumbent lessor.

Strategic Capital Investment Planning (SCIP) – A Department-wide annual process that integrates planning for major construction, minor construction, non-recurring maintenance (NRM) and leasing programs. The SCIP process results in two primary annual planning products: a comprehensive long-range action plan, consisting of specific capital investments necessary to address infrastructure performance gaps in safety, security, access, condition, utilization and space to improve the quality, access and cost-efficiency of the delivery of VA benefits and services over a 10-year period; and a prioritized list of projects used to create the fiscal year’s capital budget.

Unserviced Rent – The amortized build-out and shell rent, which includes parking, real estate taxes, insurance, building maintenance and reserves for replacement, lease commission, and management costs, but excluding operating costs. More commonly used, functional equivalent to “average annual rent” which is the term used in 38 U.S.C. § 8104.

1104 Roles and Responsibilities

Secretary of Veterans Affairs (SECVA) is responsible for approving leases that exceed the major medical facility lease threshold as defined in 38 U.S.C. § 8104 and for approving all non-medical leases exceeding $1 million in annual unserviced rent in accordance with VA Directive 7815.

The Assistant Secretary for Management/Chief Financial Officer (VA CFO) oversees management of all financial and capital asset activities.

Under Secretary, Assistant Secretary, Other Key Officials, Administration and Staff Office CFOs ensure compliance with the policies set forth in this chapter. These officials have the responsibility and authority to approve non-medical lease procurements of $1million or less in annual unserviced rent. The Under Secretary, Assistant Secretary, and Other Key Officials may delegate approval authority to an appropriate member of the Senior Executive Service (SES).

Office of Construction & Facilities Management (CFM) within Office of Acquisition, Logistics and Construction, is responsible for the management and oversight of VA’s real property and real property leasing programs, including development of policies, providing oversight of real property services, executing non-delegated land management activities, serving as VA’s Leasing Head of Contracting Activity (HCA), and executing leases in accordance with VA Directive 7815.

Office of Asset and Enterprise Management (OAEM) is responsible for overseeing the SCIP process, managing the CAI system and VA’s capital asset portfolio, acting as the liaison between VA’s contracting offices and GSA, and overseeing the delegation program with GSA.

Lease Contracting Officers (LCOs) are responsible for entering, amending, administering, and/or terminating a lease within their warrant authority. LCOs will seek GSA delegation or confirmation from OAEM that use of the categorical delegation is appropriate and score leases as a lease-purchase, capital lease, or operating lease (per OMB Circular A-11, Appendix B). LCOs will work with Local Finance Offices to ensure the appropriate budget object class code is used to classify real property leases and any associated leasehold improvements.

Director, Veterans Affairs Medical Center (VAMC), Veterans Integrated Service Network (VISN), or independent VA outpatient clinic have the responsibility and authority to initiate medical lease procurements meeting but not exceeding the dollar threshold of major medical facility lease as defined in 38 U.S.C. § 8104.

Facility Manager/Engineer, or designee, is responsible for entering and maintaining real property agreement data in the CAI database and certifying on an annual basis that real property data for their respective station in CAI is up-to date and accurate.

Local Finance Offices are responsible for reviewing and confirming availability of funds to support real property leases and any associated leasehold improvement costs along with annual lease payments, ensuring the agreement identification number, accounting classification codes and budget object class codes are correct in VA’s accounting systems, and for coordinating with local facilities management or engineering offices to update CAI for new and expiring leases.

1105 Policies

110501 General Policies

1. In accordance with 40 U.S.C. § 585, GSA is:
   • Authorized to enter into lease agreements on behalf of Federal agencies for real property that is in existence or will be erected by the lessor; and
   • Authorized to enter into real property leases for a period of up to 20 years while obligating only those payments due in the current fiscal year without regard to limitations under 31 U.S.C. § 1341(a)(1)(B) for expending and obligating funding.
2. VA may lease medical and parking facilities in accordance with 38 U.S.C. § 8103, and § 8109. While VA has the authority to undertake leasing under these authorities, VA does not have the authority to obligate lease funding without a project-specific delegation of authority from GSA or validation of appropriate use from OAEM to utilize GSA’s standing categorical delegation of authority.
3. VA will request a delegation of lease authority from GSA no less than 18 months in advance of lease expiration if there is a continuing need for the space and VA would like to obtain a new delegation to satisfy its space requirements on a project-by-project basis. GSA’s categorical and general-purpose delegation of authority are supported by GSA’s Federal Buildings Fund (FBF), which allows VA to:
   • Obligate funds annually for a multi-year lease ; and
   • Lease space without a cancellation clause while still qualifying as an operating lease. See Appendix B: Scorekeeping Guidelines.
4. VA must obligate appropriated funds on a yearly basis regardless of the length of the lease.
5. VA will ensure all real property leases meet the established requirements in VA Directive 7815 and VA Directive 7816.
6. All executed VA leases or real property agreements must be entered into CAI by the facility manager/engineer, or designee, and updated and maintained in accordance with VA Directive 4085.
7. In accordance with OMB Circular A-11, VA will score real property leases. Refer to Appendix B: Scorekeeping Guidelines.
8. In accordance with SFFAS 54, VA will capitalize leases exceeding the VA lease capitalization threshold. Leases that do not meet the lease capitalization threshold are considered immaterial and will be expensed. In addition, for Right-To-Use (RTU) leases, VA is required to provide a clear breakout of rent on all annual funding amendments with sufficient financial details for SFFAS 54 compliance. For additional information, refer to Volume V, Chapter 11 – Accounting for Leases. SFFAS 54 is effective September 30, 2023 (early adoption is not permitted).

110502 Identification and Approval

1. The VA Office that identifies a need for any leased space will submit a business case including supporting documentation to OAEM prior to obtaining approval through the SCIP process to enter into a lease.
2. The SCIP process provides a structured methodology to create a business case for each lease and to prioritize VA’s capital projects annually.
3. LCOs are required to obtain a GSA delegation of authority or confirmation from OAEM that the use of the categorical delegation is appropriate after SCIP approval and before soliciting lease procurements.
4. For all proposed major medical facility leases above the threshold as defined in 38 U.S.C. § 8104, SECVA will submit to Congress a request for funding and on the same day, a detailed prospectus as outlined in the statute. The request for funding and prospectus are included in VA’s annual budget request.
5. Major medical facility leases are subject to approval via adopted resolutions from the Committee on Veterans’ Affairs of the Senate, the Committee on Veterans’ Affairs of the House of Representatives, U.S. Senate Committee on Environment and Public Works and the U.S. House Committee on Transportation and Infrastructure. Receipt of adopted resolutions from VA’s and GSA’s Committees are prerequisites for lease award.
6. Not less than 30 days before entering into a major medical facility lease, the Secretary shall submit to the Committees on Veterans’ Affairs of the Senate and the House of Representatives information as outlined in 38 U.S.C. § 8104.
7. The VA Office must request an out-of-cycle SCIP approval for a replacement lease or present evidence of an existing standstill agreement, if available, when an expiring lease has not received a formal SCIP approval. SCIP approval must be pursued through the normal budget submission process for major leases.

110503 Recording Real Property Leases

1. In accordance with 40 U.S.C. § 585, a lease agreement shall be on terms the Administrator considers to be in the interest of the Federal Government and necessary for the accommodation of the federal agency; furthermore, the obligation of amounts for a lease under this subsection is limited to the current fiscal year for which payments are due without regard to 31 U.S.C. § 1341(a)(1)(b). VA will record obligations for real property leases as follows:
   1. In accordance with OMB Circular A-11, a lease obligation will be established on a fiscal year basis regardless of whether the lease period extends beyond the end of the fiscal year. Thereafter all lease obligations will be recorded to cover all payments due during the fiscal year or cover all payments up to the lease expiration or termination date if the lease ends prior to the end of the fiscal year.
   2. Requirements for determining obligation amounts are as follows:
      1. If the lease includes a cancellation clause, an obligation should be recorded to cover the lease payments for the first fiscal year during which the lease contract is in effect, plus an amount sufficient to cover the costs associated with cancellation of the contract.
      2. For funds that are self-insuring under existing authority, only budget authority to cover the annual lease payment is required to be obligated.
      3. This requirement remains in effect during a continuing resolution.
   3. The obligation for leasehold improvements will use the same unique identifier as the general agreement. Leasehold improvement will be obligated in a full lump sum upon execution of the lease unless they are amortized.
   4. Amortized leasehold improvements will be obligated along with the rental payment upon execution of the lease commencement amendment.
   5. The budget object class codes required for VA standard lease transaction accounting are provided in Volume XIII, Chapter 2 – Budget Object Class Codes.
   6. Every real property lease using VA’s legacy accounting system must have a unique ACC assigned by OAEM. The ACC begins with “LG” for every real property lease where VA is the lessee. The ACC serves as the funds control data point in VA’s accounting system.
2. Lease obligations will be recorded in VA’s accounting systems, the process will differ based upon the accounting system being used, for example:
   1. In FMS, obligations are created and closed each fiscal year using different document numbers.
   2. In iFAMS, a lease retains the same document number while CLINs are added and closed each fiscal year.
3. In accordance with SFFAS 54, VA will record Right-to-Use (RTU) leases that meet the lease capitalization threshold as assets and liabilities. Short-term, intragovernmental, or RTU leases that do not meet the lease capitalization threshold will be expensed. For additional information about lease categories and the lease capitalization threshold, see Volume V, Chapter 11 – Accounting for Leases.
4. VA will record payments for real property leases as follows:
   1. VA will make lease rent payments in arrears with payment distributed no later than the first business day of the following month. The lease will be used as documentation for invoicing and settlement of payment.
   2. VA may pay for leasehold improvement costs lump sum or alternatively, the tenant improvement cost may be amortized over a period of time during the course of the base lease term.
   3. In accordance with OMB Circular A-11, assets that have special features or enhancements that were built or added for the Government’s unique needs or special purposes need to be evaluated on a case-by case basis to ascertain whether they can be considered to be general purpose assets. If the asset is considered to be a general purpose asset, then, as a general rule, such special features or enhancements should be financed up-front, separate from the lease.
   4. VA will only commence monthly or annual lease payments after:
      • The completion of any leasehold improvements are accepted by the LCO;
      • Receipt or documented confirmation of the approved certificate of occupancy or approved alternative as outlined in the lease; and
      • Acceptance of the space including determination of the actual square footage of the leased premises and rental amounts by an LCO as memorialized in a lease amendment.
5. LCOs and Local Finance Offices will collaborate and monitor lease obligations and contact stations regarding any anomalies, or transactions which fail to assign the accounting data to the transaction record.

110504 Financial Reporting and Disclosure for Real Property Leases

1. In accordance with OMB Circular A-136, VA will compile, report, and disclose leases in the financial statements and related disclosures. The information included in the note disclosure will be provided by OAEM.
2. VA will record real property leases in accordance with SFFAS 54 and OMB Circular A-11. For additional information, refer to Volume V, Chapter 11 – Accounting for Leases.

1106 Authorities and References

• United States Code (U.S.C.)
  • 31 U.S.C. § 1341, Limitations on Expending and Obligating Amounts (The Antideficiency Act)
  • 38 U.S.C. § 8101, Definitions
  • 38 U.S.C. § 8103, Authority to construct and alter, and to acquire sites for, medical facilities
  • 38 U.S.C. § 8104 Congressional approval of certain medical facility acquisitions
  • 38 U.S.C. § 8109, Parking facilities
  • 40 U.S.C. § 585, Lease Agreements
  • 41 U.S.C. § 3903, Multiyear Contracts
• Executive Order 13327
• Federal Acquisition Regulations
• GSA Leasing Desk Guide
• OMB Circulars
  • OMB Circular A-11, Part 7, Appendix A, “Scorekeeping Guidelines”
  • OMB Circular A-11, Part 7, Appendix B, “Budgetary Treatment of Lease-Purchases and Leases of Capital Assets”
  • OMB Circular A-136, Financial Reporting Requirements
• Treasury Financial Manual Volume I, Part 2, Chapter 4700, Agency Reporting Requirements for the Financial Report of the United States Government
• USSGL Changes Related to Implementation of FASAB Standards
• FASAB Handbook by Chapter
  • SFFAS 5, Accounting for Liabilities of the Federal Government
  • SFFAS 6, Accounting for Property, Plant, and Equipment
  • SFFAS 54, Leases
  • SFFAS 58, Deferral of the Effective Date of SFFAS 54, Leases
  • SFFAS 60, Omnibus Amendments 2021: Leases-Related Topics
  • SFFAS 61: Omnibus Amendments 2023: Leases-Related Topics II
  • Technical Release 20, Implementation Guidance for Leases
  • Technical Release 21, Omnibus Technical Release Amendments 2022: Conforming Amendments
• VA CFM ORP Policies, Procedures and Regulations
• VA Directives
  • VA Directive 0011 Strategic Capital Investment Planning Process
  • VA Directive 4085, Capital Asset Management
  • VA Directive 7815, Acquisition of Real Property by Lease and by Assignment from General Services Administration
  • VA Directive 7816 Lease Management
• VA Financial Policy
  • Volume V, Chapter 11 – Accounting for Leases
  • Volume XIII, Chapter 2 – Budget Object Class Codes
• VA OAEM Policies, Procedures and Regulations

1107 Rescissions

Volume V, Chapter 11 – Accounting for Real Property, December 2017   

1108  Policy Approval

This policy was approved by the VA Chief Financial Officers’ Council on March 26, 2024.

Appendix A: Previous Policy Revisions

Section	Revision	Office	Reason for Change	Effective Date
All	New chapter	APPS (047G)	Create financial policy for leases	December 2017

Appendix B: Scorekeeping Guidelines

For the purposes of scoring lease-purchases, capital leases, and operating leases, the following definitions and concepts apply.

Lease Purchase
Ownership of the asset is transferred to the Government at or shortly after the end of the lease term.
May or may not contain a bargain-price purchase option.
Capital Lease
The lease transfers ownership of the property to the lessee by end of the lease term.
The lease contains an option to purchase the leased property at a bargain price.
The lease term is equal to or greater than 75 percent of the estimated economic life of the leased property.
The present value of rental and other minimum lease payments, excluding that portion of the payments representing executory costs, equals or exceeds 90 percent of the fair value of the lease property.
Operating Lease
Ownership of the asset remains with the lessor during the term of the lease and is not transferred to the Government at or shortly after the end of the lease term.
The lease does not contain a bargain-price purchase option.
The lease term does not exceed 75 percent of the estimated economic life of the asset.
The present value of the minimum lease payments over the life of the lease does not exceed 90 percent of the fair market value of the asset at the beginning of the lease term.
The asset is a general purpose asset rather than being for a special purpose of the Government and is not built to the unique specification of the Government as lessee.
There is a private sector market for the asset.
There is no provision of Government financing and no explicit Government guarantee of third-party financing.
Risks incident to ownership of the asset (e.g., financial responsibility for destruction or loss of the asset) remain with the lessor unless the Government was at fault for such losses.
The project is not constructed on government land.

While proprietary accounting requirements for leases are different under by SFFAS 54, budgetary accounting requirements for leases remain unchanged and continue to be guided by the lease scorekeeping rule developed by OMB, Congressional Budget Office (CBO), and the House and Senate Budget Committees originally in connection with the Budget Enforcement Act of 1990, and guidance regarding this rule provided in OMB Circular A-11, Appendix B, Budgetary Treatment Of Lease-Purchases and Leases of Capital Assets (per Treasury’s Right-to-Use Leases implementation guidance under USSGL Changes Related to Implementation of FASAB Standards). All delegated leases must achieve scoring as Operating Leases. For additional Information, refer to OMB Circular A-11, Appendices A & B.