Base Rates and Revenue Shares: Which is better?

Your lease is up for renewal and your tenant contacts you about a rate increase. Is the offer fair or not?

 

Base Rate

Sometimes referred to as a minimum annual guarantee (MAG), a base rate is the rental income paid out to the landowner regardless of how the sign performs. In most cases, this amount is paid monthly.

Here are some of the pros and cons of a base rate:

Pros	Cons
Fixed Income – During recessions, rent does not decrease Easier to value Usually includes escalation	Fixed Income – During economic upturn, rent does not increase Smaller growth potential Interests not aligned with billboard tenant Higher likelihood of abatement requests

Revenue Share

This is a percentage of the annual revenue generated from the sign. In most cases, it is paid annually or quarterly.

Here are some of the pros and cons of a revenue share:

Pros	Cons
Aligned interests with billboard tenant Higher growth potential Annual Revenue Reports from tenant Variable Income – During economic upturn, the lease rate will increase	Variable Income – In recessions, the lease rate will be lower than in other years. Difficult to verify tenant’s performance Percentage usually does not escalate over term of lease

 

SignValue suggests that all landowners include both a revenue share and a base rate in their leases. Striking a balance between the two is an art. SignValue uses real data to evaluate and negotiate the proper balance. For any questions you may have about your billboard lease, reach out to us at any time.

 

Check out some of our other recent articles:

• Billboard Lease Termination Notification Requirements
• Static to Digital Billboard Conversion for Landowners
• How Much Should you Get for your Billboard Lease?

The above sign is located in West New York, New Jersey. It is a 20×10 one-sided digital. This billboard has an easement that would be included in the purchase price. You can view the listing here. Please contact us for more information.

The second listing is located in Sarepta, Louisiana located along US-371. The sign has four 10×24 displays. You can view the listing here. Please contact us for more information.

We suggest that all Landowners take a moment to review the termination notification requirements included in their billboard lease. Oftentimes, billboard tenants will include some cunning language that allows for the lease to automatically renew under the same terms unless notified prior to the lease expiration. Here’s an example we pulled from another lease:

“This lease shall continue in full force and effect for its initial term and thereafter for successive like terms, unless not less than ninety (90) days (and no more than one-hundred twenty (120) days) before the end of any such initial or subsequent successive like term Landlord or Tenant gives notice of termination.”

Take notice how the Landlord in this case only accorded 30 days to provide notice of termination. If no notice is provided within that window, the lease automatically renews for a successive like term. If this were a 10-year lease, with an undervalued rate and the landlord missed their small window to give notice, the landlord is going to be locked in for another 10 years at the same rate. We see this happen too often to Landlords all across the country.

SignValue recommends checking your lease immediately to understand the termination requirements. If your lease includes similar language, we suggest sending a signed letter to your tenant at the earliest date possible informing them of your intention to terminate your lease at expiration.

Keep in mind, providing notice of termination is not the equivalent of demanding your billboard tenant to vacate the premise immediately. This is simply a notification to your tenant stating your intention to not allow this lease to automatically renew without the opportunity for a rate increase or amendment. Maintain a record of your letter with your lease so that it can be provided at a later date if needed.

For other useful tips, we invite you to check out our free lease tips download. If you would like us to review your lease for other important clauses, don’t hesitate to contact us anytime.

Single-sided 12×40 bulletin display located along the I-85 just south of LaGrange, Georgia. You can learn more about the listing here. This opportunity includes a long-term lease with an advertiser who has been on the display for consecutive years. Contact us for more information.

This week we would like to feature one of the listings on our billboards for sale page. We have a digital sign in Hobbs, New Mexico available for sale. The sign includes two digital displays manufactured by Lightking Outdoor that are less than 5 years old. Location includes a long-term lease. If you have any interest in this listing, please reach out.