Leasing SCIF Space: Considerations for Landlords and Tenants
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In the post COVID-19 era, the office leasing market has faced significant challenges due to remote work and hybrid models, particularly in non-trophy-class buildings. One healthy exception to the office market struggle is the continuing need for Sensitive Compartmented Information Facility (SCIF) space – which is secure space designed to protect classified information from unauthorized access, eavesdropping and other security threats.
SCIF spaces remain crucial for entities engaged in government work, defense contracting and industries handling sensitive data. Work performed in SCIF spaces cannot be performed remotely, so remote and hybrid models are not relevant for the companies that require SCIF space. These spaces may be less visible to the broader commercial real estate market, but the demand for SCIF space is robust and continues to play a pivotal role in industries where security is important. In office building markets hit by the pandemic downturn, SCIFs are truly a hidden gem and can keep rental income streams in the black. Further, given President Donald Trump's promises to expand markets for government services beyond the traditional hotbeds for the industry, demand for SCIF space is likely to increase across the U.S., including in markets that are traditionally unfamiliar with SCIFs. In this article, we will explore the unique challenges that landlords and tenants face in leasing these specialized spaces and how both parties can navigate the complexities involved in leasing SCIF-compliant office spaces.
What's Special About a SCIF?
SCIFs are specifically designed to safeguard against unauthorized access, surveillance or interception of sensitive information. A SCIF space must meet specific requirements set forth by the Director of National Intelligence (DNI) and National Security Agency (NSA). These requirements ensure the space is secure against a range of security threats, including electronic surveillance, physical breaches and unauthorized access. Key features typically include:
- Physical Security: reinforced walls, ceilings and floors designed to prevent unauthorized access and soundproofing; the space may also include bulletproof windows, secure doors and specialized locks
- EMI Shielding: electromagnetic shielding to prevent data from being intercepted through radio frequencies or electromagnetic signals
- Access Control Systems: advanced access control mechanisms such as biometric scanning, proximity cards and security personnel
- Alarm and Monitoring Systems: continuous monitoring systems to detect any attempts to breach the security of the SCIF
- Environmental Controls: systems that ensure the SCIF remains within required temperature and humidity levels to protect sensitive equipment
SCIFs are not typical office space and present a number of challenges for both landlords and tenants. These challenges range from the financial costs associated with the space to the ongoing security responsibilities that must be upheld. For both parties, navigating the complexities of leasing SCIF space requires a deep understanding of the unique requirements and legal obligations involved.
Considerations for Landlords
For landlords considering leasing space for SCIF use, there are several factors to take into account. Securing a tenant for SCIF space involves a clear understanding of the unique needs of the tenant and the resources required to meet federal security requirements.
- Compliance with Security Regulations. One of the most critical aspects for landlords is ensuring that the SCIF complies with federal security standards. These standards can be complex and must meet stringent requirements for design, construction and ongoing operation. Before leasing space, landlords should ask the tenant to share the requirements of its government contract and confirm that the building can accommodate the necessary security features required by the tenant (or the tenant's government client) or that the tenant is willing to cover the cost of thereof.
- Modification and Buildout Costs; Surrender and Removal. SCIF space requires extensive modifications to an existing building, including reinforced walls, secure doors and specialized electronic systems. These modifications are often expensive and time-consuming. Landlords need to decide whether they will handle these buildout costs or whether they will pass them on to the tenant. Landlords should also consider whether their property is adaptable to SCIF requirements. Some older buildings may have structural limitations that make it difficult or impractical to convert them into SCIF-compliant spaces. Similarly, leases should expressly deal with the required condition of the leased space upon surrender. In a market where a SCIF is not likely to be reused, landlords may desire pushing the costs of removal and restoration of the SCIF back to the tenant.
- Long-Term Commitment vs. Early Termination. Because of the high costs associated with building out and maintaining SCIF space, these leases tend to be long-term commitments. At the same time, landlords should be prepared for the possibility that the tenant may require an exit provision in the event that the government fails to renew its contract requiring the SCIF, and landlords should require the tenant to pay a termination fee as compensation for any unamortized buildout costs if an early termination occurs.
- Liability and Security Concerns. Landlords should use reasonable efforts to ensure that the building itself is protected from external threats and that proper procedures are in place for monitoring and maintaining security. Security breaches could result in significant legal and financial liabilities, particularly if classified information is compromised. Simultaneously, in the lease, landlords should expressly disclaim liability for security breaches and make it clear that this is not the landlord's contractual responsibility.
- Tenant Responsibilities and Access Control. Landlords must carefully define in the lease agreement the responsibilities of the tenant in terms of maintaining security protocols and access controls within the SCIF. This includes specifying who has access to the facility and how sensitive information and equipment are handled. Landlords should be prepared for tenants to require in the leases that the landlord may not access the tenant's SCIF without a representative of tenant present. Landlords should also be prepared for SCIF tenants to require that any landlord staff, including cleaning and repairmen or engineers, be qualified U.S. citizens and undergo a background check that may include fingerprinting.
Considerations for Tenants
For tenants, leasing SCIF space is a matter of ensuring they have the appropriate infrastructure and environment to safeguard sensitive and classified information and comply with the requirements of the government contract. Here are some key considerations for tenants when negotiating a lease for SCIF space:
- Security Needs and Compliance; Accreditation. Tenants must assess their specific security needs and ensure that the SCIF space complies with all government standards for protecting classified information. All SCIFs have to be certified and accredited. The SCIF accreditation process is a series of steps (including pre-construction concept and plan approval, construction security checks and inspections) that ensure a SCIF is built to meet security requirements. The process involves a government sponsor, an accrediting official and a final inspection. Tenants should also be aware of the requirements for securing personnel who will have access to the SCIF and ensure that the landlord is capable of meeting those needs. Tenants should require that the lease document includes such any such requirements regarding landlords personnel (citizenship requirements, background checks, fingerprinted).
- Building and Space Requirements. Before committing to a lease, tenants should thoroughly review the building's ability to accommodate SCIF requirements. This includes evaluating the building's existing security features (such as perimeter security and access control systems) and determining whether any modifications will be necessary to meet SCIF standards. While looking for SCIF space, tenants should strongly consider hiring a broker with specific SCIF experience. Experienced brokers can be a wealth of knowledge with respect to which buildings in a market area can accommodate the SCIF requirements, which will ensure that tenants avoid wasting time touring and pursuing opportunities that are not feasible.
- Customization and Modifications. Though some SCIF spaces are prebuilt, others may require significant modifications to meet the specific needs of the tenant. Tenants should clarify whether they are responsible for the cost of these modifications or if the landlord will bear the expense. Tenants should also ensure that they have sufficient time to complete any necessary buildout before occupying the space. If the tenant will be responsible for constructing the SCIF, the tenant should be sure to hire a contractor who regularly performs construction for tenant buildouts in SCIFs. Better yet, a tenant should consider using a contractor who has already built out SCIF space in the exact building housing the space being leased.
- Length and Flexibility of Lease Terms. Given the significant investment in both time and money involved in setting up SCIF space, lease terms for such spaces are typically long-term. Tenants must carefully evaluate the lease duration, renewal options and any exit clauses that may affect their ability to move out or expand their operations in the future. The tenant should not agree to relocation or redevelopment rights benefitting the landlord that are typically contained in boilerplate leases. At the same time, the tenant should consider the risk of a long-term lease in light of its ability to maintain and renew any particular government contract requiring the SCIF.
- Ongoing Maintenance and Security Monitoring. Tenants must have a clear understanding of who is responsible for maintaining the SCIF space and ensuring it remains secure. This includes ongoing monitoring, maintaining the physical security infrastructure and managing access to the SCIF. It's important for the lease to clearly define these responsibilities to prevent misunderstandings.
- Insurance and Liability. SCIF spaces and the government contracts that require them often involve significant financial and operational risks, particularly in the event of a security breach or data leak. Tenants should ensure they have adequate insurance coverage to protect against potential liabilities related to the loss or compromise of sensitive information.
Conclusion
SCIF spaces are a critical component of national security and increasingly in demand due to the rise of international conflicts, cyber threats and the growing need to protect sensitive information. Both landlords and tenants need to carefully consider the unique requirements associated with leasing SCIF space, from compliance with government security standards to the cost of modifications and the long-term nature of the lease. For landlords, the ability to provide SCIF-compliant spaces may offer a niche market, but it requires careful planning and investment. For tenants, securing the right SCIF space involves understanding the security needs of their operations and the financial investment required. For both parties, importance of clear, well-structured lease agreements is paramount.