Is it possible to renegotiate an inherited billboard contract?

[Peyton Zachrich]

A self-storage facility I bought a few months back has a large billboard with a market rate of about $400-500/month, but the prior owner signed a contract that provided an easement to Lynd for a period of 10 years, starting in 2013, for only $130/month. 

I would like to renegotiate this with Lynd to something more reasonable, but I'm not sure if I have any leverage or means of getting out of a bad contract as a new owner. It was an asset sale so the contract would not implicate me, but the easement on the property itself doesn't seem like something I can take back. Let me know if anyone has experience negotiating inherited billboard agreements like this.

[Wayne Marques]

@Peyton Zachrich  I have no knowledge of this situation, but at least you are towards the end of that contract period.  Best of luck!

[Cason Acor]

I've brokered deals with existing billboards and am familiar with their contracts. If what you're saying is accurate, and the easement is only granted for ten years, then that's very favorable to you. The last deal I did involving a billboard, the advertising company took some poor old lady to the cleaners 20+ years ago and got her to grant them a perpetual easement for literal pennies. And becuase the easement is perpetual, there's nothing any subsequent property owners can do to change that contract. So in your case, assuming the easement is revoked after the 10 years, I would treat it like any normal tenant lease and renegotiate it when the term expires because there's only one year left. But be absolutely certain of the terms of your current contract with them. Billboard leases tend to heavily favor the advertising company and leave little recourse for property owners. So make sure there aren't any clauses or extention options that might make your life more difficult. If you are able to renegotiate the contract, do everything you can to avoid giving them access through an easement. Treat it more like a ground lease.

[Justin Vermuth]

Typically billboard companies will start negotiating a new lease with you 3-5 years before expiration simply because that’s when their leasing agents are able to earn a commission when signing a new lease. Like an earlier poster said though, be sure to read your agreement closely to avoid any automatic renewals, etc.

[Eliott Elias]

Everything is negotiable 

[Ronald Rohde]

Everything is negotiable, have they had frequent advertiser changes? That demonstrates demand. Granted its a very loose proxy for "market rent" for the physical lease. 

[Shane H.]

Is it 400 or 500? Huge difference in percentage. Either way in my experience it is slightly above average even at 400. I would ask the question what’s a reasonable % of revenue for a billboard land lease and see what some other more experienced owners here think. Is their an increase upon automatic renewal? If there is I would be cautious about opening negotiations as they may counter with a lower rate than current. At the moment the advertising revenue is down. They are wasting no time capitalizing on that to renegotiate lower leases with land owners under the threat of removing the sign. If the area welcomes billboards you have a better chance to negotiate since another company could take the location. If it’s preexisting in violation of current zoning once they remove it you can’t put another one up. So they have 0 competition. You can keep what they offer or lose that revenue source entirely. Though since it’s on a commercial lot there’s a fair chance it’s safe to rebuild. I’d verify though. 

[Paul Klei]

Billboard leases tend to heavily favor the advertising company and leave little recourse for property owners. So make sure there aren't any clauses or extention options that might make your life more difficult. 

I'm presently negotiating a lease to allow a sign to be built on my land. Is there a way to remove or mitigate the sole discretion language that allows them to remove the sign or stop/lower rent? I want to monetize the lease. Are you familiar with how leases are appraised in terms of how they are structured (length, escalation clause, etc)? 

[Paul Klei]

Quote from @Ronald Rohde:

Everything is negotiable, have they had frequent advertiser changes? That demonstrates demand. Granted its a very loose proxy for "market rent" for the physical lease. 

I am presently negotiating a lease to allow a sign to be built on my land. Is there a way to remove or mitigate the sole discretion language that allows them to remove the sign or stop/lower rent payments? They are also offering 20% of revenue, seemingly without a base rent, although I prefer both for the sake of valuation. DOT says traffic will increase soon and I'd like to account for that. I am considering compromising at 10% of revenue for base rent and 10% revenue share. I am receiving mixed advice of the necessity of an escalation clause if I am getting base rent and revenue share. In your experience, are escalation clauses common/reasonable in this situation? Thanks  

[Cason Acor]

Quote from @Paul Klei:

Billboard leases tend to heavily favor the advertising company and leave little recourse for property owners. So make sure there aren't any clauses or extention options that might make your life more difficult. 

I'm presently negotiating a lease to allow a sign to be built on my land. Is there a way to remove or mitigate the sole discretion language that allows them to remove the sign or stop/lower rent? I want to monetize the lease. Are you familiar with how leases are appraised in terms of how they are structured (length, escalation clause, etc)? 

You should absolutely, ALWAYS negotiate rental escalations. The worst case I've seen is a billboard lease signed 25 years ago for just a few hundred dollars annually, with no escalations and no date of termination. Market rate for that billboard now is $5,000/month, and all the current owner gets is a couple hundred bucks and there's nothing he can do about it.

Remove any language that allows them to lower base rent or remove the sign at their own discretion. Always require specific terms of notice and a defined lease length. Require additional compensation if they want to extend. Do not let them extend indefinitley. DO NOT GRANT THEM AN EASEMENT.

Regarding your question, are you referring to appraising the lease independent of the real property that it's attached to? If so, I don't have any experience with that. But I would imagine the more favorable terms for the property owner, the more valuable the lease will be.

[Shane H.]

Quote from @Cason Acor:

Quote from @Paul Klei:

Billboard leases tend to heavily favor the advertising company and leave little recourse for property owners. So make sure there aren't any clauses or extention options that might make your life more difficult. 

I'm presently negotiating a lease to allow a sign to be built on my land. Is there a way to remove or mitigate the sole discretion language that allows them to remove the sign or stop/lower rent? I want to monetize the lease. Are you familiar with how leases are appraised in terms of how they are structured (length, escalation clause, etc)? 

You should absolutely, ALWAYS negotiate rental escalations. The worst case I've seen is a billboard lease signed 25 years ago for just a few hundred dollars annually, with no escalations and no date of termination. Market rate for that billboard now is $5,000/month, and all the current owner gets is a couple hundred bucks and there's nothing he can do about it.

Remove any language that allows them to lower base rent or remove the sign at their own discretion. Always require specific terms of notice and a defined lease length. Require additional compensation if they want to extend. Do not let them extend indefinitley. DO NOT GRANT THEM AN EASEMENT.

Regarding your question, are you referring to appraising the lease independent of the real property that it's attached to? If so, I don't have any experience with that. But I would imagine the more favorable terms for the property owner, the more valuable the lease will be.

I’m not going to get buried in the middle of this post as we had a lengthy discussion elsewhere, but I just want to clarify quickly…

when you say always demand escalations… billboard escalations in my experience are normally a set dollar amount per set number of years. What was proposed elsewhere was 3% per year for 75 years which I believe the sign company will never go for. 

with a 20% revenue share the lease in your example would be paying 13k/yr even if there were no escalations in the base rent. 

[Ronald Rohde]

Quote from @Paul Klei:

Quote from @Ronald Rohde:

Everything is negotiable, have they had frequent advertiser changes? That demonstrates demand. Granted its a very loose proxy for "market rent" for the physical lease. 

I am presently negotiating a lease to allow a sign to be built on my land. Is there a way to remove or mitigate the sole discretion language that allows them to remove the sign or stop/lower rent payments? They are also offering 20% of revenue, seemingly without a base rent, although I prefer both for the sake of valuation. DOT says traffic will increase soon and I'd like to account for that. I am considering compromising at 10% of revenue for base rent and 10% revenue share. I am receiving mixed advice of the necessity of an escalation clause if I am getting base rent and revenue share. In your experience, are escalation clauses common/reasonable in this situation? Thanks  

Sure, as mentioned, everything is negotiable, and sole discretion to stop payments is not market unless you're charging a huge above market rent.

[Cason Acor]

@Shane H. some of this is market specific and will depend on how sophisticated/aggressive the advertising company is that someone is negotiating with. For example, in my market, two companies own 95% of the billboards along the interstates. Neither of these companies offers nor agrees to revenue share as part of their leases. So regular base rent escalations is the only way to stay on top of the market.

[Paul Klei]

Quote from @Cason Acor:

@Shane H. some of this is market specific and will depend on how sophisticated/aggressive the advertising company is that someone is negotiating with. For example, in my market, two companies own 95% of the billboards along the interstates. Neither of these companies offers nor agrees to revenue share as part of their leases. So regular base rent escalations is the only way to stay on top of the market.

This company dominates the market in this area. In fact they have several billboards nearby, even one 1200' away so they are obtaining a special permit from DOT to build a new sign on my land. But their proposal was 20% revenue share to "simplify the situation" after I mentioned base rent. In light of what you've said, what does this suggest? 

[Shane H.]

Quote from @Cason Acor:

@Shane H. some of this is market specific and will depend on how sophisticated/aggressive the advertising company is that someone is negotiating with. For example, in my market, two companies own 95% of the billboards along the interstates. Neither of these companies offers nor agrees to revenue share as part of their leases. So regular base rent escalations is the only way to stay on top of the market.

 Must be a strange market in Utah. Admittedly I’ve never worked a lease in your state… but damn I’d love to work with a company willing to give me perpetual increases that aren’t tied to their revenue. Oh the possibilities…

[Logan M.]

If some of you guys have never read through a billboard lease you should, they are brutal. Completely one-sided and limiting to your future uses. Utah's legislator is controlled by real estate interests and billboard companies, not even though they are sleeping together but have children together kind of close.

If you are coming toward the end of your lease and want more money, I would offer to extend the lease, automatically add a yearly increase and increase the current rent. 

If your location is good they will pay for it and love you.

[Shane H.]

Eh… I’ve dealt with far worse than the billboard companies. I’m not sure why everyone hates them so much except that I think they expect far more money for a tiny footprint of property…

[Ronald Rohde]

Quote from @Paul Klei:

Quote from @Cason Acor:

@Shane H. some of this is market specific and will depend on how sophisticated/aggressive the advertising company is that someone is negotiating with. For example, in my market, two companies own 95% of the billboards along the interstates. Neither of these companies offers nor agrees to revenue share as part of their leases. So regular base rent escalations is the only way to stay on top of the market.

This company dominates the market in this area. In fact they have several billboards nearby, even one 1200' away so they are obtaining a special permit from DOT to build a new sign on my land. But their proposal was 20% revenue share to "simplify the situation" after I mentioned base rent. In light of what you've said, what does this suggest? 

 How are you going to verify revenue? Audit? Look at their contracts? How will you understand the triggers? I dont want a revenue share with anyone I don't know or trust.

[Paul Klei]

This company dominates the market in this area. In fact they have several billboards nearby, even one 1200' away so they are obtaining a special permit from DOT to build a new sign on my land. But their proposal was 20% revenue share to "simplify the situation" after I mentioned base rent. In light of what you've said, what does this suggest? 

 How are you going to verify revenue? Audit? Look at their contracts? How will you understand the triggers? I dont want a revenue share with anyone I don't know or trust.

I'm asking these same questions rhetorically to box them in to agreeing to different terms. For example, they want to pay annually in advance, beginning immediately after construction. But if it's 20% of revenue, and there won't have been any revenue yet, what would they be basing it on? Obviously they are doing some math behind the scenes that makes the situation more negotiable.