• Billboard Legal: Mitigating End of Lease Costs

    By Richard Rothfelder, Rothfelder and Falick

    Fairway Outdoor Advert. v. Edwards, 197 N.C. App. 650 (2009).

    Introduction

    Sometimes you must pour a huge cement foundation to anchor a billboard and a landlord then paves, landscapes, or builds around your billboard. In those cases, the cost of removing the concrete foundation and restoring the area to its pre-existing condition could be several times the cost of removing the billboard itself. You can mitigate pre-existing condition risk by specifically stating in your lease that you are only required to remove the steel as opposed to removing the steel, removing the foundation, and returning the site to the condition it was in before the billboard was constructed.

    Summary

    • In November 2001, Fairway executed a 10-year lease. Rent for years 1-5 was set at $1,500/year. Rent for years 6-10 was to be at an amount mutually agreed upon.
    • The lease required Fairway to remove all structures, equipment, and materials within a reasonable time following termination. The lease did not specifically obligate Fairway to remove the foundation and restore the property to its original condition.
    • In May 2003, a new landlord acquired the property. The new landlord and Fairway were unable to agree on the rent rate for years 6-10.
    • In October 2006, the landlord notified Fairway that the lease was being terminated and required Fairway to return the lot to its pre-existing condition by remove the above ground fixtures, remove the below ground concrete, and restore the parking lot pavement to its original condition.
    • The two parties litigated several matters relating to the lease termination. The trial court found that Fairway had the right to remove the above ground components of its sign by cutting the pole at grade, removing approximately six inches of the pole below grade level and filling the hole with concrete.
    • In July 2009, the appellate court upheld the decision, stating: “when, as here, a lease agreement grants the lessee the right to remove ‘all structures, equipment and materials’ but does not require the lessee to remove all of them or restore the property to the same condition as at the beginning of the lease, the lessor may not require the lessee to choose between removing all or removing none.”

    Takeaways

    The cost of removing a billboard and restoring a property to pre-existing condition can be substantial if you are putting a billboard in an area with poor soil or in an area that might be subject to improvements. A landlord might try to use a pre-existing conditions clause to extract rent concessions. It might be beneficial to put language in the lease which requires you to remove only the head and monopole of the billboard but not the concrete foundation.

    Also, be aware that many courts would likely use the “industry custom” to provide a missing term when a contract is silent on a specific issue.[1] In this case, the “industry custom” would likely be to cut the pole, remove about six inches of the pole from the ground, and filling the hole with concrete. However, by explicitly defining your obligations in the contract, you might risk facing unexpected costs.

    [1] Columbia Artists Mgmt., LLC v. Swenson & Burnakus, Inc., 2010 WL 1379737, at *2 (S.D.N.Y. Mar. 3, 2010); see also Richard A. Lord, Willston On Contracts, 34:7 (4th ed. 2009).

     


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