Billboard leases, while long-term, typically have an end date. This necessitates the billboard owner obtaining a renewal of the existence lease or forging a new lease altogether. So what are some solid tips to renewing your billboard and continuing your structure of paying ground rent to the land owner?
Make sure to safely record the date of renewal
One of the first problems with billboard renewal dates is that they are typically so far in to the future. When you sign up a 30-year lease, that means you’ll have to remember that date three decades into the future. So how can you do that? You can put it into your computer’s calendar, but for all you know there will be some glitsch thirty years from now and it won’t pop up. I would suggest you have a special list of key dates that you keep in a safe place and that you religiously look at once ever month or so. Whatever your plan, you cannot forget the renewal date. If you do, it could be a disaster.
Better yet, build into your lease a forever term of monthly renewals at the end
Since you and the land owner will both probably forget the renewal date so far into the future, a better idea in any lease is to have it rollover into month-to-month status at the end, so that there is no formalized “end date” to begin with. Of course, if the lease does not already provide that, it’s too late to try to go backwards and obtain it. But on all future leases you could add that.
Start well ahead of time
Rule #1 on lease renewals is to start preparing for them well ahead of time – typically months ahead. That’s because there is some research to be done and some numbers to be crunched before you even reach out to the property owner. In addition, when you do reach out you don’t want to be rushed. If you are racing the deadline, it will put you in a weaker position.
Know how much you can pay before you even call the property owner
Billboard ground rent is a function of the simple economics of the sign: the amount it rents for is in direct correlation to the amount you can pay. Most billboard owners are shooting for a ratio of 15% to 20% going towards land rent. So look at what the sign has been brining in and apply 15% to 20% to that number and that will give you the range of what you’re hoping for. You need to know this number before you talk to the property owner.
Understand the permitting process and your protections under it
In most states the billboard owner holds all the cards regarding permits. If you were to cancel the permit on the billboard, you might be able to move it to the neighbor’s property if you can’t cut a deal with the current owner. Or maybe the sign is grandfathered and if a new lease can’t be forged, then the property owner will never again have any sign income if you remove it. This knowledge gives you much greater power in the negotiating process and you need to get it.
Be reasonable and back up your thoughts with facts
Most of the billboard renewals that I have seen go bad in the past have revolved around one of two issues:
•The sign owner is not reasonable with the property owner. In one case years ago, a highly profitable sign came up for renewal and the sign company offered the land owner a ridiculously low amount at renewal, hoping to take advantage of their lack of knowledge. However, that all blew up when the land owner did their homework and found out that the sign company was trying to take advantage of them. As a result, the sign company lost the location.
•In another case, the billboard company gave an extremely fair renewal amount to the property owner, and the owner did not believe them and cancelled the lease. The problem was that the sign company did a very poor job of supporting their numbers with actual stats on past vacancy and ad rents.
The bottom line is that many deals go bad due to the sign company’s lack of using good common sense.
Billboard renewals are a fact of life. Even long term leases actually do come due one day. However, it’s just a process and if you understand it and do your homework it works out successfully 99% of the time. Just don’t be one those 1%.