Real Estate Law

Negotiating a Billboard Lease in Los Angeles

Commercial property owners in Los Angeles often have alternative streams of income in the form of long term leases from billboard companies, such as Outfront Media, CBS Media, or Lamar. When it comes time to renegotiate those leases, landlords have a unique set of challenges against the billboard companies. In 2001, the City of Los Angeles put a 25 year moratorium in place on all new billboards licenses. Existing signs can stay under a ‘grandfather’ exception, but property owners and billboard operators cannot erect new commercial signs or even replace existing ones. This means that if the negotiation falls apart, property owners lose the monthly income forever (or at least until the moratorium ends and more signs can be built, which is unlikely). How Can Landlords Make Money from Billboards? Billboard income works just like any other tenant in the building. The profile is usually a large media company that owns many billboards, and then leases out the sign to advertisers on monthly contracts. The billboard operator pays monthly (or yearly, depending on the lease) rent and nets the difference between the rent and the ad revenue. Some leases have extra rent to the landlord in the form of CAM payments or excess revenue based on traffic counts. How is Rent Calculated in Billboard Leases in Los Angeles? The rent in a billboard lease is usually calculated based on location of the property, traffic counts, and prior ad revenue in that location. It can range from $100 to $5,000 a month, depending on what was originally negotiated between the original parties. Billboard leases are often 1 page, and last for 20-30 years. So when it comes time to renew and extend – it is important to get the new rental rate right. What are the Current Laws on Billboard Licenses in Los Angeles? There are almost no new billboard advertising licenses issued in the City of Los Angeles, with some very narrow exceptions (on the Sunset strip, for example). Caltrans Website – offers the current regulations and process regarding those licenses and existing ones. City Planning Summary – and proposed changes to the current license requirement. Challenges in Negotiating Billboard Leases and Extensions Property owners have less leverage in negotiating with billboard operators. Push too hard, and they might walk away and you lose guaranteed income that is very hard to replace. In almost every scenario, it is the tenant/operator that owns the physical sign and the license to it. And if they take it out after the lease expires – you cannot build a new one to replace it. It is important that the negotiation is controlled along realistic lines of pricing, term, and open communication. It is unlikely that a billboard operator will accept a short term lease (less than 5 years). Remember, if the negotiations fall apart and they tenant leaves, you cannot get a license for a new billboard to replace it. Tips in Negotiating a Billboard Lease or Extension Review the existing lease – use a lawyer to explain and break down the lease completely so you are aware of any limitations or timelines that are in place to protect the tenant or gain some advantage. Get Comparable Rents – find what other billboards are paying in your neighborhood. It is important to take into account location and traffic numbers Get updated Traffic Numbers – car traffic is the lifeblood of a billboard. It is what advertisers care about and it is the largest factor in determining the monthly rent. What to Know Before Buying a Property with Billboard Income – a Checklist If you are buying (or looking to buy) a shopping center in Los Angeles, and it was built in the 1980s – it probably has a billboard on it. There are a few steps you should take before closing in order to verify this income, especially if you are purchasing the property for its income, and the revenue from the sign is priced in: Review the existing lease and all amendments for the billboard. The details in addition to the rent is important – when the lease expires, is there an automatic renewal and who pays the expenses? Verify the existing license for the billboard with the city – this is a crucial point because there are many existing billboard without a license or an expired license. If there any issues with the license, the income on the property may be in question. Ask if any rent concession were given to the operator during the COVID-19 pandemic. Verify if there are any rent increases in the lease, and who is responsible for paying utilities or maintaining the sign. What are the Possible Fines for Violating the Billboard Ordinance in Los Angeles? Any sign or billboard that is unlicensed or not according to code could be subject to a violation and fines from the City of Los Angeles. In fact, if the sign on your property does not match the dimensions that are provided in the city license – it is considered illegal. The fines on non-conforming billboards and unlicensed signs are hefty. A 14×48 sign will carry a $10,000/day fine for the first offense, and $20,000 for the second offense. How Hiring an Attorney can Help you Negotiate a Better Extension on your Billboard Retaining a lawyer to negotiate an extension to an existing billboard lease is an excellent way to make sure you maximizing the leverage you have and protecting your investment. Due to the extremely long term nature of billboard leases, property owners often get to negotiate one or two times each lease in their lifetimes. By hiring Sinai Law, you get an experienced transactional real estate attorney to represent your interest. Our staff will review the existing lease, verify the license of the billboard with the operator of sign, get you updated historical traffic counts, and find you several rent comparable in your area. Negotiating a new lease with little leverage means you need to use any advantage presented […]

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Commercial Real Estate

10 Tips for Commercial Lease Agreements

10 Things Every Landlord Needs to Know About Commercial Lease Agreements Commercial lease agreements between property owners and the tenants is the most important aspect that will dictate the dynamic between the parties. The vast majority of landlords and tenants focus on the term/rent, and resort to boilerplate leases provided by commercial brokers. But it is the other parts of the lease that often result in nasty disputes, like assignment clauses. We want to focus on 10 important items you should pay attention to when signing your next commercial tenant – and why an attorney can help you create more value getting you there. Brokers provide a valuable service to landlords, but it’s always important to have an impartial lawyer review the lease terms. Sinai Law Almost all Disputes can be Avoided with a Strong Lease (almost) Almost 100% of clients who come to us after a dispute started with their tenant did not have a lawyer review the lease before they signed it. The leases are often prepared by the listing broker and negotiated by the parties. In most cases it works out – but standard leases don’t always have the personalized touch that your property needs. This dynamic creates an incentive to ‘close the deal’ and ignore potential pitfalls that could hurt you in the future. We believe a strong commercial lease agreement can do much more than collect rent: Provide protection against unnecessary lawsuits and disputes Increase the value of your property Reduce disputes between tenants Reduce your overhead and expenses Preventative clauses can reduce your legal fees 1. Controlling for Assignments and Sublets Most long term commercial leases do not reach the expiration date, and this is where the language in your contract matters. Most commercial leases prohibit assignments and sublets with out authorization from the landlord. While this is standard practice, every landlord will face requests to terminate early or request to sell a business to a new operator. A good assignment clause can help you improve your leverage in a potential dispute with the leaving tenant (and the new one as well) – not just grounds for eviction. For example, we protect our clients in tying lease incentives to assignments. If rent incentives are given to tenants (like Tenant Improvements) over the term of the lease, we terminate them once an assignment is signed. 2. Beware of corporate leases provided by national tenants Most accredited national tenants (like a large pharmacy or fast food chain) will want to use their own lease forms to standardize their operations as a condition to sign. The major issue with that – they are written to protect the tenant only. Always have an attorney review a lease form provided by the tenant. Always! To name one example, a client came to us after his national tenant stopped a pending sale during escrow after threatening to exercise an option to purchase the property. Unfortunately the owner did not even know the option exited – it was buried deep in the bottom of the lease he signed 7 years ago. The sale never happened and he lost out on a great buyer. 3. Insurance Insurance is the lifeblood of all liability lawsuits. If you own property, someone will at some point will get injured and their lawyer will name everyone in a lawsuit – the tenant and the property owner. Nothing in the lease can prevent this from happening. Instead, we help property owners make sure there is enough of the right coverage in place, by the tenant and the owner, to protect against these kinds of pitfalls. Certain insurances can also help you recover lost rent and property damage. 4. Reporting and Financials Adding another task to your yearly checklist might seem like a hassle, but the financial success of your tenants is a major key to your success as a property owner. Successful tenants renew leases, expand operations, and pay rent on time. With this data you can reward successful tenants and phase out struggling ones. More importantly, this data can make or break a negotiation when it comes time to extend the lease. A tenant with 10% increase in sales year-over-year is much less likely to leave. You can also gauge if the tenant can absorb yearly rent increases. 5. Triple Net/Modified Gross Management Most commercial leases, especially in strip malls, have some kind of reimbursement of cost in the form of NNN lease. This means tenants pay the landlord’s property taxes, insurance, and common area maintenance in proportional share. A good lease will make sure the collection/reporting of NNN expenses work for the landlord’s system. Things to consider: Is your new lease agreement consistent with NNN reporting like other tenants? If all tenants get yearly reports, new lease should be the same. Does the tenant has the right to contest the costs? What does the process look like to do so? Does the lease have property tax protection in case of a tax reassessment? These are just some of the issues that can come up. The devil is in the details when it comes to NNN reporting and collection. 6. ADA Compliance The American Disabilities Act, or ADA, has sprung a whole industry of lawyers who file sham lawsuits to enforce ADA rules, even if the violation is a few inches off. Under the ADA, attorney’s fees can be collected, which could make these lawsuits very lucrative (for the lawyer, that is). If you own a retail center or office building – it is just a matter of time before you will be used by one of these lawyers. You won’t be able to prevent ADA lawsuits in California. But you can minimize them! With a proper lease, make sure to include ADA compliance to the tenants as well, along with an indemnification provision. 7. Signage Compliance laws behind signs in almost any city is quite complicated. Cities like Los Angeles have extensive regulation and permit process on which size is allowed on windows, how much […]

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