Billboard siting and development expert Andy Goodman responds to questions from readers concerning leases.
I’m working with a property owner on a renewal of a lease on a non-conforming billboard. The lease is grossly undervalued. What approach should the property owner take?
The landowner is in a difficult situation because he can’t play one billboard company against the other. If he starts talking to another billboard company and the billboard comes down he’s not going to be able to rebuild it. That creates a difficult situation.
My suggestion to the property owner, take a look and see what the competition is in the area and see what billboards are nearby and how many billboards your Lessee has nearby. If they happen to be at a competitive disadvantage you have slightly more negotiating power. So go ahead and negotiate the best lease you can. You don’t want the billboard to come down so get whatever increase you can. You also want to get the lease in place as quick as possible before they decide to take it down. The next best option is to get a lease that increases 10% every five years. The other option is to negotiate a revenue share – a % of the revenue that comes in on the billboard. So the property owner gets their guaranteed annual rent or 20-30% of the revenue, whichever is greater. This way as rates go up you can get some upside.
What do you think of a clause in a billboard lease which says the property owner cannot rebuild the billboard for five years if the billboard comes down?
The only time that I have suggested this type of clause into my agreement is when a property owner discusses a termination clause for redeveloping the property. I will put into the lease a clause which says if the Lease is terminated for redevelopment of the property we will allow them to terminate but they cannot put a new billboard on the property for the next five years or the remaining term of my Lease without letting us be the Lessee. This gives me some assurance that the property owner has no hidden agenda.
Have a lease question? Email andygoodman.age@gmail.com.
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