Although a good contract sets in stone the terms of your agreement, some things should maybe not be chiseled in as hard. In this Billboard Mastery podcast we’re going to review the times that there should be little room to maneuver as well as when you should give yourself plenty of leeway.
Episode 125: When To Be Loose – And When To Be Tight – In Documents Transcript
We are all classically taught that when you do a contract, you want to leave no room for error. You want things to be so tight there could never be even a little ray of sunshine falling between those words. But that's not always in reality what you want to do. This is Frank Rolfe, the Billboard Mastery Podcast. We're going to talk about when in agreements you want to be super specific and super tight and when you want to be more ballparkish, a little more loose. So let's just look at a typical billboard ground lease. Now we want to be 100% specific on such things as who the owner of the property is, who is the lessor, and where the property is in general. And we want to be very specific on the amount we're going to pay the lessor and when we are to pay the lessor and when the lease actually starts. If it starts upon construction of the sign, for example, we want to have all of that in there very, very tight. And we want to have all the things such as the fact that if the sign is removed, they can't put another one back for a certain specific amount of time.
We want to have obstructions very, very clear that they cannot obstruct our sign. We don't want to have it where that's gray because we don't want to be arguing about that. We want to have it very, very strict in there as far as how the insurance works, how much insurance we have and all of that kind of stuff. We want to make sure the person signing the lease has the authority to do so. So most of your billboard ground lease, you do want to be very, very tight and very structured. We don't want to have any arguments later after building the billboard and they say, oh, yeah, well, I think the lease expired. And you say, no, it didn't. But then in the lease, instead of saying the term starts on this date and ends on this date, you had something like the term starts on this date, but, it kind of goes for a while or something very broad brush like that. No, we want to have all those things set in stone. But then there's a few things in there we want to be a little looser about.
Now, the main thing you want to be looser about is the billboard's location. Why is that? Because when you build a billboard, you cannot always get it exactly to the inch of where you thought you were. When you drill down to put in the foundation for that billboard, you had a giant boulder. And the installation company says, well, if we're going to put it in this spot, we're going to tack on about another ten or twenty thousand dollars for having to drill through the boulder. You're going to want to move that sign over. But if your contract is very, very tight on the position of that sign, you can't. Because your contract states, nope, sign will be in this exact spot. And if you don't have it there, you basically voided the contract. So you've got to leave the position of the sign somewhat loose. Now, how do you do that? You talk about putting the sign in this general area on your exhibit attached to the lease. You maybe have like a little spot, like a box of where it will be contained. But you don't want to say it will be 13.5 feet from the western boundary line and 5 feet exactly from your front property line. Because when you go to build it, you may not be able to make that happen. And you don't want to have it anywhere near that tight.
Another thing we want to be probably a little loose on in a billboard lease is the actual term. We want to be very specific that it starts on this date and then it ends on this date. But when it comes to the end of it, you want it to actually have an automatic renewal built into it. It's just that you never have to talk to that property owner again. It's one of the key things about the billboard business is after the sign goes up, you really never want to talk to them ever again. Because if you have, for example, a lease that's 15 years, they're never going to remember when it comes due in 15 years. And oftentimes, 15 years from now, the seller is not, I mean, the lessor is not even the lessor anymore. They sold it to somebody else or maybe they've died and people just generally lose track of it all. So you want to leave it a little loose. You want to say that basically, yeah, here's our term, but it kind of rolls after that for another term or year to year or something without notice. Now, if it was really tight, you'd have where it ends on that date,
Bam. But yet we don't want to do that. We don't want to have it where it ends finitely then. We want it to have the ability to keep rolling forever. We want to play a little more loosey-goosey with that. You also want to leave it a little loosey-goosey on when the payments actually begin. You want to have it where here's how much we pay you, here's where we do it. But you don't want to have it where you've got money that's due out at any time before the sign is built. But you don't want to definitively say when the sign will be built because we don't know that. We don't know when we're going to get our permit when you sign that lease. We don't know when we're going to be able to get the company that builds the things to agree to come and put it in. We don't know if there's going to be a big rainstorm with a big flood and we can't get the thing in. So we don't want to say it'll be in by a certain date. That's always a bad idea. So you probably want to leave that a little loose if you can.
Also, if we're going to have a lease that has a percentage of revenue, we may not want to define exactly what that revenue is per se other than just the gross cash receipts, which means the money that comes in the door. Because you may not be able to collect the rent. You don't know. You don't know who you're going to get on the sign. So, again, you want to be a little loose on that if you can. The bottom line is on most of these billboard leases, you're wanting to put anything that benefits you a little looser because, gosh darn it, it's your lease and you want to lock the lessor down on all the things he controls. But, like any good negotiator, you want to leave your stuff, if you can, with a little more legroom, a little more ability to sway. Because, again, things pop up in life with billboards, both on the construction side, permitting side, and every other direction, and you don't want to be tied down where you actually void your own lease that you wrote. That's not a good position to be in. Now, I'm not saying you should ever do a lease that's not good.
Every lease needs to be a win-win for both lessor and lessee. It needs to be 100% legally vetted by your attorney. You need to read it. You need to understand it. But, at the same time, you need to understand that in life, things happen, particularly out there in the field, and you don't want to ratchet it down too tight. This is Frank Rolfe, the Billboard Mastery Podcast. Hope you enjoyed this. Talk to you again soon.