Today out of home leasing and development expert Andy Goodman comments on the standard cancellation language in many out of home leases.  We’ve presented the language below.  Andy’s comments are in italics.

Cancellation:  If, in Lessee’s sole opinion: a) the view of the advertising copy on any Structure becomes obstructed; b) the Property cannot be safely used for the erection, maintenance or operation of any Structure for any reason; c) the value of any Structure is substantially diminished, in the sole judgement of the Lessee, for any reason; d) the Lessee is unable to obtain, maintain or continue in force any necessary permit for the erection, use or maintenance of any Structure as originally erected; or, e) the use of any Structure, as originally erected, is prevented by law or by exercise of any governmental power; then Lessee may, at its option, either: (i) reduce and abate rent in proportion to the impact or loss that such occurrence has upon the value of Lessee’s Structure for so long as such occurrence continues; or (ii) cancel this Lease Agreement and receive a refund of any prepaid rent, prorated as of the date of cancellation.

• Cancellation or reduction in rent is in the Lessee’s sole control which is normal for our industry.  We don’t want the Lessor deciding once the obstruction or the operation of the sign has been diminished as to what the ramifications are.  
• Most property owners want to know how much of the copy needs to be obstructed for the rent to be reduced or abated.  Is it 25%, 50% or the entire one or both sides of the sign.  Are you discounting rent by the portion by which the sign is obstructed? At that time the Lessee would have to show historical revenue to the Lessor and then reduce the rent in proportion to the obstruction.
• This clause gets used in recessions and freeway construction to reduce rent.  It got used during covid to reduce rent.  Here’s what’s changed.  Most property owners have become savvy.  If you have a sign and can show what the billboard has done in revenue in the past and what it’s generated in revenue now or you have road construction or a recession…most property owners are asking for a clause which says you must justify how much you are cutting back rent and for how long. 
• The section that the Lessee is unable to obtain or maintain the necessary permits is very important as a reason to cancel the Lease. Obtaining the necessary permits have become more difficult with both the local municipality and the state. Therefore, if the permits are unobtainable the Lease must be cancellable. The same if the permits that have been issued are revoked by the municipality or state a cancellation of the Lease must be possible. Otherwise the Lessee is forced to continue to make rent payments to the Lessor.
• Also the Lessee has to protect itself from local or state government changes that prevent the current use of the sign, such as an electronic sign no longer being a permitted use. Although the argument would be the sign is now a legal non-conforming use, the protection must stay in the lease.
• Getting a refund of prepaid rent (clause ii in the lease above) is very important especially in high trafficked areas on a freeway, in Times Square, or in West Hollywood – anywhere rent are prepaid and expensive. 

You can reach andy at andygoodman.age@gmail.com, 310-721-8422.

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