Many landlords ask for the right to terminate a billboard lease in the event that it interferes with the sale or development of a property. There are perils in broad development clauses That’s the lesson of Lamar vs By-Pass Partners. Here are the facts.
- In the late 1980’s Outdoor Communications, Inc. (“OCI”) leased two parcels of property from By-Pass Partners (“By-Pass”) to erect billboards on a 60 acre property. Each lease had a 5 year term followed by a year to year renewal.
- The leases included the following termination language: “After the initial three years of the lease agreement, By-Pass may cancel this agreement by giving OCI 60 days advance written notice in the event sign structures interfere with the sale of development of the above said property.”
- On April 3, 1995 By-Pass notified OCI that it was terminating the leases because they were interfering with the sale of the land under which the billboards sat to Long Outdoor Advertising which was partly owned by Jimmy Wallace, the managing partner and 10% owner of By-Pass.
- On October 1, 1998 OCI sold all of its assets to Lamar Advertising. Lamar sued By-Pass claiming that the termination clause was invalid because the attempt to sell the two small parcels on which the signs were erected was not the type of interference contemplated by the parties when they entered into the lease. In addition Lamar claimed that By-Pass was not acting in good faith because Wallace was an owner in By-Pass and Long Outdoor.
- A Tennessee trial court issued a letter ruling finding that the termination of the leases was effective.
- A Tennessee appeals court upheld the ruling. The appeals court stated “The leases do not require the interference to rise to the level of preventing By-Pass’s sale or development of the property. The word “interfere” means simply “in interpose in a way that hinders or impedes…The lease termination provision does not exclude sale of the property to persons or entities affiliated with By-Pass. Therefore, under a plain reading of the provision, By-Pass may sell the property to anyone it chooses, and if the sign structures interfere with the sale, then By-Pass is within its rights to terminate the leases….Based on a plain reading of the lease agreements we find no error in the trial court’s holding that the sign structures erected by OCI under the lease agreements interfere with By-Pass’s sale of the sign sites…”
Insider’s take: If your landlord insists on a development clause you can still protect your rights by (1) asking for a first right of refusal to buy some or all of the property in the event of a sale (2) limiting termination to situations where the billboard prohibits development of the land outside of the small parcel on which the billboards sit. (3) limiting termination to an arms-length independent sale to a company which is not in the out of home advertising business.
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We also recommend excluding from the clause sales to an entity with the power of eminent domain. That will preserve your right to compensation.
Also, for the development clause, require objective evidence. That is, no take down without a permit for plans that show the board cannot remain. Even then, if the take down is solely due to a government condition, it may protect your right to compensation.
California has a specific statute. In states without a similar statute, there is a decent argument that a government-required take down will trigger a right to compensation. It may require an expensive court fight to protect that right, so pick a worthwhile location with good facts of you want to go that route.
Finally, negotiate the right to relocate elsewhere on the property. Depending on location and the nature of project, include the right to incorporate a new sign in the construction.
Experienced billboard counsel can do far more than follow instructions. There’s more to drafting a lease than “just language.” An attorney who combines experience, a knowledge of the law and a pragmatic imagination will add considerable value to your result.
Richard Hamlin, rhamlin@hamlinlaw.com