Never give your landlord the right to buy a billboard at replacement cost. That’s the lesson of Buffalo Ridge Corp v Lamar Advertising. Here are the facts.
- In 2001 Flynn Advertising contracted with Buffalo Ridge Corporation to lease real property along I-90 near Sioux Falls to construct some billboards. The leases had a three year term with automatic renewal for an additional three years unless Buffalo Ridge gave notice or termination.
- Each lease had this purchase provision: “in the event that the lease is not renewed at the mutually agreed on term and price, the Lessor shall, at option, have the right to purchase form the Lessee, at current replacement value, all materials which are located on the structure and owned by the Lessee.”
- Flynn assigned the leases to Lamar Advertising.
- In 2006 Buffalo Ridge informed Lamar that the renewal lease rate would increase from $250/month to $750/month. Lamar declined the offer.
- On November 2006 a Lamar employee tried to remove the billboard structure but was prevented by Buffalo Ridge. Lamar continued to pay Buffalo Ridge $250/month. Buffalo Ridge did not cash checks.
- In June 2007 Buffalo Ridge filed a writ of eviction together with an order to exercise it’s purchase option and a request for damages.
- In November 2007 a circuit court issued a judgement of eviction with a delay which permitted negotiations on the replacement value of the billboard.
- From November 2007 to May 2008 Lamar and Buffalo Ridge negotiated unsuccessfully about the value of the billboard. In May 2008 Buffalo Ridge offered to purchase the billboard for $37,917 consisting of uncashed Lamar rent checks ($32,250) plus a check for $2,667.17. Lamar did not accept.
- In February 2010 a court ruled that the billboard’s replacement value was $37,917 but declined to award Buffalo Ridge damages. Buffalo Ridge appealed.
- In January 2011 the South Dakota Supreme Court ruled that the circuit court erred when it failed to award Buffalo Ridge damages for Lamar’s continued occupation of the billboard site after the lease expired and remanded the case for proper determination of damages.
Insider’s take: Never agree to a clause which gives your landlord the right to buy your sign for replacement cost. You will have no leverage in lease negotiations.
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