The goal in owning a billboard is to have the income stream go on forever. So what do you do to help make that possible when the lease comes to an end? In this Billboard Mastery podcast we’re going to discuss some strategies to help make your billboard go on making money forever.
Episode 58: What Happens At The End Of The Lease? Transcript
0:00:33.4 Frank Rolfe: What happens at the end of your billboard lease? This is Frank Rolfe with the Billboard Mastery Podcast. It's a very important topic, because even though billboard leases are very, very lengthy in nature, like all leases, they do ultimately end, unless they're perpetual. I've never seen a lease that was perpetual, that went on till the end of time. So assuming they all have some form of end date, what happens? What do you do? Well, the first thing you wanna do is make sure it doesn't ever really end. So how do I do that? If I can't write into the lease it goes forever, how do I make sure that it goes on for 10, 20, 30, 40, 50, 100, 200 years? Well, the first thing is make your lease long to begin with.
0:01:13.4 Frank Rolfe: Don't make your lease short. Try to make a lease, if you can, 10 or 20 or 30 years in length. It's perfectly reasonable why you need that, you gotta pay off the debt on the sign before you have any profit. And the industry has always been built on lengthy leases, so you should have no trouble in selling the person at least, even on a sign where you have very little capital into it, of at least a 10-year term. Now, the reason you want that long term, is 'cause you're gonna use that as a tool to your advantage, because the longer the term, the longer the time it is for someone to forget the lease even exists.
0:01:45.3 Frank Rolfe: So the first key is, make it lengthy, make it long. Do it because memories are not typically that long. And then have a trigger in the lease, which you can typically slide through, because the proprietary won't notice that the lease renews for a like term, unless they cancel it within, say, 30 or 60 days of the anniversary. So now what happens is, if it's a 10-year lease and then you realize 12 years in, "Wait a minute, I wanna get more money for that lease, I wanna do something different." Well, they can't. They're bound for now a second 10-year term. Because when the first 10-year term came up at the end of the 60-day window, they didn't notify you. So as a result, it rolled over again. Now in a really long, long lease, a 30-year lease, and they miss that window, they won't even live to see the next window come up. And that works to your advantage because, therefore, you may just go on forever and ever, and they'll never even notice.
0:02:41.6 Frank Rolfe: Also make sure that the lease, when it comes up, that that notice does not have to be sent by you to them in writing. Have it where they have to come to you and not vice-versa. They will never remember to come to you in all likelihood, but if you give them that reminder, that notice, that little sheet of paper that says, "Hey, your lease is coming up for renewal, don't forget. If you don't do something in that 60-day window, it's gonna roll over." Then of course, they're gonna do something, and that's the problem. Now, what some people do is, if they can't sell the idea of it renewing for a similar term, they will at least have something that says it will renew for a year-to-year term until terminated by either lessee or lessor. Again, that lease buys you time with that notification. A lot of people, 10 or 20 years in, will completely forget that the sign even exists. All they know is they get that monthly check, and they like the monthly check, but they never question the monthly check or when that comes up. So if you have it where a lease continually rolls year after year until notice, you could go 50 or 100 or 200 years before anyone ever really notices what's going on.
0:03:47.0 Frank Rolfe: Another way to make sure the sign lasts forever is don't put it in locations where they're gonna wanna build on it. A lot of billboards, when you drive down the highway and you say, "Wow, look at that billboard," it's right up against the wall of the building. It's there by design, because as long as you are out of the way, why would they ever wanna chop you down? They wouldn't, they wanna have the money. So don't put the sign in the middle of the property. The worst thing you could do if you were building a sign on raw land hoping for longevity, is to have the sign as a center mount right in the middle of the tract. I guarantee you that thing will never last, anything they develop on that property will require removal. But if you put it on the property line, or if you put it in some area you can't build, like on the edge of a stream, now you've got built-in longevity, because there's no obsolescence of you being there.
0:04:32.4 Frank Rolfe: Also make sure, always on a sign, to pay a fair market rent. In many cases, people are gonna wanna have a percentage versus a base. I say give it to them. That way, as time marches on, as inflation goes up, they always feel like you're being fairly treated. One of the key reasons why people wanna end billboard leases is because they feel like they're not getting enough money, that they're being taken advantage of. So don't let them ever have that Opex. Let them get more money every year, let the sign continue to go up in value, and go up in revenue and let them share in that. Because then that way, they won't going to wanna cancel, because they'll think at all times they're getting the right amount of money for what they've got. If you talk to a lot of sellers who terminate leases and say, Well, why are you terminating? Typically, it's because the guy is ripping me off, he's not giving me enough money. Well, don't put yourself in that boat. The amount of money that it would be required for them to feel like they're getting their fair shake is a very tiny amount of money, and certainly not worth losing the sign over. So treating people well, treating them fairly is one of your best ways to gain longevity.
0:05:43.9 Frank Rolfe: Finally, do some strategies that make it better when the lease does end, from your perspective, because normally if you have a sign in one spot, that's what's holding the permit, and there's nothing that will stop you from potentially moving that sign to your neighbor right across the property line. So make sure that at all times, you own and control that sign structure. In most areas, that size structure is what controls the permit. Do not give the property to the owner, the right to ever claim ownership of the sign structure, put it in your lease that the sign will always remain your property. Not only does that mean that at the end of the movie you get that surplus old metal or wooden sign back that maybe you can use somewhere else. Where it becomes more important though, is the simple fact that sometimes a person wants to terminate you, so they can let another sign company who will pay them more put the sign right back where yours was.
0:06:33.0 Frank Rolfe: Now, you would say, "Well, I've got that covered in my lease, under my development out." Yes, that's correct, you do, but not when your lease ends, then you don't have any development out protections. So in that case, the only thing you have to protect yourself is the fact that you hold the permit. And if you put it on the property line, not only did it keep you out of the way from construction, but you only have to move the sign over maybe 10 or 20 feet under the neighbor to carry on with your billboard for another 10, 20, 30, 40, 50 years. But if they can take possession of the structure, even though you may say, Well, the structure is not worth very much money, it holds the permit. In most areas, to build a billboard what you have to do is you have to do a simultaneous swap of demolition of the existing billboard and construction of the new one. Whoever has the sign is the one who gets to file the demolition.
0:07:25.3 Frank Rolfe: If you own the sign structure, well, you can always be the first to the door, because you file at the same time the demolition and the new permit. But if you don't hold it, they'll outsmart you, they'll run in, and file a demolition of the new permit when you're least suspecting it. You have to make sure that always the sign belongs to you, it should be written into the lease that at all times the sign is yours. If you employ everything I've just discussed, there's no reason why you can't have signs that go on for your entire lifetime and beyond. There are many billboards out there that are up today that have far outlived the lifespan of the person who built the sign. But you have to be sensible about what you're doing and use good common sense and strategy, but if you do, there's every reason to believe your sign could be up there literally for your lifetime. This is Frank Rolfe with the Billboard Mastery Podcast. I hope you enjoyed this, talk to you again soon.