Considerations for Billboard Lease Agreements
Let’s face it, billboards are just about everywhere and it seems more and more are going up or converting to digital billboards with computer-controlled electronic displays every day. With the uptick in the economy and an expansion of urban areas, billboard companies are seeking to expand their footprint as well, largely along the major highways and roads.
If you are the owner of land along a highway or major road, you may be approached by a billboard company with an offer to lease a portion of your land. Billboard lease agreements come in various shapes, forms and lengths and are typically used by the billboard companies in many different states and jurisdictions. Each one should be carefully reviewed to make sure that the terms match your particular situation.
1. When Do I Get Paid?
In situations where the billboard company will be erecting a new sign, the agreements typically provide for lease payments to begin upon actual installation and use of the sign. This process could take many months or years depending on zoning approvals, construction permits or other issues concerning the constructability of the sign itself. A good agreement would consider a reasonable timeline within which the sign must be erected or the contract is terminated. Otherwise, your property could be tied up for years without this income stream and no ability to exit the deal.
2. Lease Terms
Pay careful attention to the terms of the lease as they vary greatly. Some provide terms up to 25 years with rate increases every 5 years – others do not. Are the payments due monthly or yearly? Are you entitled to any late payment fees or collection costs? If you have to sue to collect rent do you have to sue in another jurisdiction? Just like waterfront property, there is only so much billboard space available due to typical zoning restrictions. A good lease rate for a sign on a major highway in 2017 might not be such a great deal in 2030 if the demand increases over time. All of these factors should be weighed up front.
3. Where Exactly Will the Billboard Be Located?
Often this point is overlooked and a vague description of the general area is given to the land owner. This could result in a sign blocking sight lines or use of the property by the land owner. Ideally the lease would attach a detailed survey with the exact location of the anticipated billboard. If another location is necessary due to zoning or governmental restrictions, both parties should have the right to approve the new location.
As in any lease, an indemnification provision is critical. What happens if the billboard company doesn’t pay the contractor who erected the sign and they record a construction lien on your property? This lien could affect your financing and loan obligations. What happens when an advertiser sues you because they claim their ads were not displayed for the right amount of time, or at the wrong times, on the electronic billboard on your property? The lease should contain a strong indemnification provision requiring the billboard company to address these kinds of legal issues by defending, indemnifying and holding you harmless from any such claims and potential damages.
Accidents happen. The purpose of insurance is to provide peace of mind and a financial solution in the event of an accident. The lease should require the billboard company to maintain adequate insurance and name the land owner as an additional insured on the policy.
6. Regulating Content
While many billboard companies are reluctant to agree in advance to not put up certain advertising, remember that they likely need the lease more than you do and everything is negotiable. For example, if the billboard is on land owned by a church, the church may want to prohibit certain “adult” advertising. If the billboard is on land where a business operates, the business may not want ads for its direct competitor to be displayed. Another source of distress is over ads that confuse the ad with the business located on the land. All of these things should be considered at the time of the lease, afterwards it may be too late without going to court.
7. Access Easement
Many leases will give a broad easement across the entire parcel for the billboard company to access the sign. This can cause problems when you later want to sell part of the land, or build a building on part of the parcel. The best practice is to clearly identify the location of any access easements, and at a minimum provide that the land owner has the ability to change the location of the access easement at its discretion with notice to the billboard company so long as the access is not materially altered or restricted.
8. Restrictions on Other Billboards
If you own a large parcel, the local zoning ordinances may permit you to have more than one billboard on your property. Be careful of boilerplate language that would prohibit you from any other billboards on the surrounding land you own or may own in the future.
9. Right of First Refusal
Frequently billboard companies will ask for a right of first refusal to buy the land in the event of a sale. Consider staying away from these provisions as they are not necessary, you are likely not getting money for this right, and it may unnecessarily delay any future sale of the land.
10. Can I Sell This Lease?
Your lease may prohibit you from selling the lease separate from the land. You may want to craft language to keep this option available if you need an infusion of cash down the road and a willing buyer comes along.
11. Eminent Domain
When roads expand, for example, the government can take private land as long as they pay for it. This oversimplification of eminent domain is important to think about in terms of how this would affect your lease. You want to be clear on whether such action would terminate the lease, and who would be paid the money for the land.
12. The End Game – Who Pays to Take This Down?
At the termination of the lease it is presumed that the land owner will want the billboard removed and the property returned to its original state. Be sure to include this requirement in your lease so you are not stuck with a large bill at the conclusion of the lease.
A significant portion of Ben Hammond’s practice involves commercial and residential real estate transactions, business law, and commercial litigation. You can contact Ben with questions at (616) 458-3600.