Many lenders may require that you “record” your billboard ground lease. And some operators do this even when their lender does not require it. But what does it mean to “record” a lease and what the pros and cons to doing so? In this Billboard Mastery podcast we’re going to examine the concept and some real-life tips on getting it done.
Episode 51: A Primer on Recording Leases Transcript
When most people sign up a billboard ground lease to keep that around, they get their permit, they figure out what to build, they build the sign, it's part of a file, they pay their ground rent based on what is contained in the ground lease, but it never really leaves their office. But some lenders yet require you to record that lease. And then some billboard companies just refer to record it even if the lender doesn't require it. So what does it mean when you say, "Record a lease"? Well, first off, I'm not an attorney, and I'm not trying to give you any legal advice here at all, I'm trying to give you some observations to maybe save you some legal cost as you decide what you want to do regarding this issue of recording the lease. So, when you record lease, it puts your lease of public record, which means anyone who's looking at buying that land or having anything to do on the land where the sign is to go, will be given public notice that there is a lease to build a billboard on the property. And or if the billboard is already built, it lets them know what the contents of that lease are.
Now, why would that benefit anybody? Well, here's the situation. If I sign up a ground lease with somebody who owns a piece of land, in the interim period between when I sign the lease and when I build the sign, if someone was to buy that property, or if someone was to make a loan on the property, they would have no notice that there is a lease on the property, and in the laws of most states, that means your lease is subject to being terminated.
Now, if you record the lease, then that means that anyone looking to buy or finance the land, would be put on notice that the lease is there and they couldn't later claim, "Well, I didn't know there was a lease, or I would have never bought that land and therefore, I'm not encumbered by it, or I would have never made the loan on the land if I know there was a lease, and therefore you can't have a lease exist." So, here's a situation, when I first got into the billboard business, I never recorded my leases. I would go ahead and get the property owner to sign the lease, I get my permit, I build the sign, and years would pass and I would pay my regular allotted monthly rent based on either revenue or minimum, and everything was just fine and dandy. And then, at some point in my career, years and years later, I got a lender who wanted those leases to be recorded, I had never recorded lease in my entire life.
So I learned that, to record a lease, I had to go down to the County Recorder's Office to record the lease, but there's a wrinkle to that. If I went to the county recorder's office to record the lease, it would have to traditionally be notarized. They would not accept any lease that was not fully notarized, so suddenly, I had a new issue. I had to not only get someone to sign the lease, I also had to find someone to notarize that person as they signed the lease. That is a giant pain. I had been signing up most of my leases literally on the hood of my car or in someone's office or in someone's home, and now suddenly I couldn't do it anymore.
Now, to get it notarized, I would have to go ahead and take them to a notary, or I'd have to meet them where there was a notary, or I'd have to bring a notary with me. Now, there are problems when you approach someone to sign a lengthy agreement and you wanna bring a notary, it scares them. People who would normally sign an agreement themselves, reading once through it, when you throw out, "Oh, and this person here, they're a notary." That often kicks that lease into the domain of having to go to an attorney, because now the person who has signed the lease is no longer comfortable. And in some cases, it can kill the deal right then and there. They may say, "Gosh, this is getting too weird, I didn't mind signing your little billboard lease, but now that you're bringing this whole notoriety thing in, you're kind of freaking me out. So that was the first problem with the concept of recording leases.
Another problem is, people can get mad at you when you record the lease. On several occasions, I had people who yelled at me saying, "How dare you record the lease on that my land. You screwed up my loan, whatever the case may be." So recording the lease is not the utopia that it might seem, and it's up to you to decide whether it is worth the extra aggravation to get recorded to save you from the finite possibility that somebody buys the land or finances land in that tiny interim period between when you sign the lease and build the sign. Now you might say, "Well, what happens after you build the sign?"
Well, in most states, is my understanding that the fact that the sign is there, puts the potential buyer or a lender on due notice that there is a billboard and therefore they are supposed to ask, "Okay, if there's a billboard, there must be a lease. Where the lease?" which would naturally lead them then to your lease. Again, I'm not a lawyer, I'm not giving you legal advice. Check with your state, check with your county recorder, but typically, that's how it was always explained to me, that what I was really sacrificing by not recording my lease was that interim period prior to construction post-signing it, that might make me lose my lease.
Now, if your lender says you must record it, you have no option but to record it or you can't get the loan. That's what happened to me. So as a result, he really wasn't up to me, it wasn't a conscious decision I made to record or not to record, it was thrust upon me and I had a completely changed the way I did my doings because I could no longer just whip out the lease on the hood of my car, out with the farmer on his farm and sign it up. Now, if you then fall into the trap where you are going to record your lease, here are some tips on that.
Number one, talk to your county recorder and find out exactly what is required to record the lease. It doesn't do you any good to sign it up and notarize it, take it down to them and they won't accept it. Go down and talk to them prior to signing the lease, as to what is required to get it recorded, see examples of what they want. Do they wanna have one notary blank or two notary blanks? Do both parties need to be notarized or only one? These are all important questions you need to know, so you don't waste your and the signers time. Imagine how horrible it would be if you signed up the lease and it turned out they wouldn't accept it, and then you had to go over, sign it again to get the loan, and the person won't sign it the second time.
Number two, here are some tips on getting the notarization done. It is too difficult to go and meet someone at a bank, I've done it. The problem is, even if you meet at the bank, there's no guarantee that notary is going to be there, or that they're not going to say, "Oh yeah, I'll get with you, but it'll be about 25 minutes." So if you're gonna have to use a notary on the lease, you're probably gonna have to bring one with you. There are people that do traveling notarizations, and you could pay them to meet you at a certain spot at a certain time to get the notary done. Now realize that the person won't sign it on the spot, or if they're not short for the meeting, you're still gonna be out of money. Traveling notary is not inexpensive, probably maybe $150 to do that. But that is probably the best way to do it. I tried the different ways of meeting people and taking them around to get notarization, I found it to be a horrible, dismal failure. But if you're going to go ahead and do recording of leases, A, go to your recorder's office and ask them precisely what that is to look like. B, provide the notary probably at the time that you're going to sign the agreement. Do not try and chase around and find a notary.
Now, here's another tip I will tell you. Again, check with your recorder, I'm not dispensing legal advice here. But in some areas, I found that I was allowed to take a marker and black out certain sections of my lease, because the problem is, if you record your lease it becomes a public record and therefore everyone can read it, and other side companies might wanna read your lease to find it when it expires, or even what the terms of your lease are, so they can try and outbid you or undercut you when it comes up for renewal. In many areas, you are allowed to black that information out, that is not considered to be the important part of what is recorded, but again, don't listen to me, I'm not an attorney. Talk to your recorder, that's the important party that you have to clear things through, so that's another tip to try and make it so that you don't record the lease and then later regret it.
Now, another benefit I imagine you recording the lease, among all the other benefits is, it is probably the most appropriate thing to do if you have what is often a 30-year lease, and that is why some billboard companies preferred record leases even in the absence of a lender requirement to do so. But I think it's a matter of choice. You need to look at the pros and the cons in your state, in your circumstance, with your lender and your county recorder's office and make the appropriate decision. I never had any issues with all those leases I signed up and never recorded, so for all those many years, not one issue ever arose, I never had anyone say, "Oh, your lease is negated, your lease it's not bind in, your lease is no good." Didn't you have any trouble with my banks during that period that didn't require them to be recorded.
And when I did start recording them, nothing much happened there either, although it was much more difficult and complicated to get things signed. But you have to do what you gotta do in business, and if your bank requires you to record the lease, then I would see no reason why you would not do it, but do it in a smart manner, do all your background preparation, talk to the county recorder, wanting her to talk to an attorney, make sure you're doing it correctly. Make sure you know everything that is required to get the job done, and then you'll just have to make that a new part of how the process works for you to sign up a ground lease for a billboard. This is Frank Rolfe of The Billboard Mastery podcast. I hope you enjoyed this, talk to you again soon.