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).
Quick Reference Guide and FAQs
- How can landlords make money from billboards?
The rental income from a land-lease from a billboard works very similarly to any commercial lease. The billboard lease is longer in term.
- How is rent calculated in Billboard leases in Los Angeles?
Combination of location, traffic counts, and your negotiation skills. Billboard leases are long so it’s important to negotiate well when you have the chance.
- What if you can’t agree on an extension with a billboard operator?
In Los Angeles there is a moratorium on new billboards since 2001. So if you can’t agree on a new lease and the operator takes down the billboard, you won’t be able to replace it.
- How can landlords gain leverage in negotiating with a billboard company?
Hiring an experienced lawyer is the best way to maximize negotiating power. Get rent comparable, traffic counts on your street/highway, and hold strong in negotiation.
- Can an attorney negotiate a billboard lease?
Yes. Interpreting the lease and applying local rules is an essential leverage tool when negotiating with a billboard operator.
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 to you in order to secure a better position.
Testimonials and Case Studies
Case Study #1 – Small Landlord vs. Outdoor Media
- Property owner approached Sinai Law to negotiate a small billboard in South Los Angeles. Current rent was less than $100 per month.
- Client was unable to negotiate a better lease term, as Outdoor Media was playing hardball and threatening to leave.
- Upon retainer, our firm produced a traffic report and gave the client 3 comparable rents in her neighborhood.
- Our firm re-engaged with Outdoor Media’s representative and after 2 weeks of negotiation a new lease was signed at a 600% rent increase.
- The rent increased from the billboard’s new lease created $120,000 in equity.
Case Study #2 and Testimonial
"I inherited a property five years ago and it was time to negotiate the sign lease on my property. The lawyer at Sinai Law walked me through the process and explained to me and my family all the details. He was able to extend the lease in less than a week and we were very happy with the results and the firm's professional manner." -Manny H.
- Owner of the property was inexperienced landlord and needed guidance in extending the lease.
- Operator of the billboard (large media conglomerate) wanted a rent reduction before retainer with Sinai Law.
- Engaged with billboard rep and signed extension at the previous rent within 1 week of retention.
- Client incurred only 5 billable hours as legal expenses total.