Base Rates and Revenue Shares: Which is better?

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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.

 

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