Have seen lots of billboard leases over the past 20 years. A bad lease can make it difficult to get financing or ruin your business prospects.
What’s in a good billboard lease.
1. A term of at least 20 years with optional extensions.
2. Assignability to someone else without consent. This makes it easy to sell your business. Some landlords will take forever to sign an assignment and can use the assignment process to extract more rent or an assignment payment.
3. Lease costs of about 10-20% of estimated board revenues. The means $100-200/month for a typical 14 by 48 billboard. The worst lease I’ve ever seen had a true up clause which promised the landlord 40% of gross revenue.
4. A 20% of gross revenues circuit breaker clause – If your lease has a clause limiting rent to the lesser of a fixed amount or 20% of gross revenue you have protection if rents drop severely during a recession. Outdoor revenues declined by 20% during the 2009 recession. It’s nice if your lease expense declines when revenue declines.
5. No automatic lease inflators. US outdoor revenues grew 4.5%/year from 1992-2011 and from 2%/year from 2002 to 2011. My experience as a sign owner is that ad clients do not agree to mandatory 5%/year automatic increases. If you agree to a 5%/year lease inflator you will probably see your sign margins shrink because you won’t be able to increase rates as fast as your lease expense. If you do agree to an inflator use the Consumer price index which can be measured objectively and will drop or remain close to zero during a recession.
