Billboards can be used to promote and market your own business, or rented to others to promote and market their businesses. While you can build your own billboard, there’s more to it than installing a sign. If you want to rent the use of the billboard to others, you will have the same issues as with any other business.
You will need customers (people and companies that want to advertise). You will need people who can install and change the advertising content. You will need to maintain and repair the signs, collect your receivables and make sure you have the proper permits.
Most landowners prefer to lease a portion of their land to companies that rent signs to advertisers. In addition to the operations issues described above, they can also provide advertisers with greater exposure over a wider area than a single sign. Billboard operators recognize that the signs are valuable.
You can make money by leasing land to a billboard operator, depending on a number of factors, including your ability to negotiate a good lease. The negotiation of a ground lease for billboard use can be challenging, but if you take the time to consider these following important factors, you will be able to reach a satisfying agreement with billboard advertising companies. The same factors apply if you own billboards and need to find locations to expand your operations.
1. Know the Fair Market Rent
As with any other real estate transaction, location is the most important factor. Advertisers will pay more to reach customers in prime locations such as the Sunset Strip or adjacent to a major highway. If you are a billboard operator, you can pay higher rent for land in those locations. If you are a landowner in one of those areas, higher revenue will translate into higher rent.
Some operators and some landowners prefer a fixed monthly rent. Others prefer to pay rent based on a percentage of revenue. Many percentage-rent leases will include a minimum rent regardless of revenue. The rent paid per square foot by a billboard operator will usually exceed even the rent per square foot paid by a retailer in an upscale shopping center.
2. Set the Period of the Lease
A “static” billboard, where the copy must be changed by hand, can cost tens of thousands of dollars to build. If the site is challenging, the cost can approach $100,000. A “digital” billboard, where the copy is changed electronically and remotely, can cost $250,000 to $500,000 to build.
While the useful life of a static billboard is decades, a digital billboard may not last longer than ten to twelve years. The billboard operator must have enough time to amortize the cost of construction or purchase. Landowners must recognize that if they want to reach agreement.
Often billboard operators want the ability to end the lease if its visibility is impaired or traffic is re-routed. Landowners often want the ability to terminate the lease if they want to build on the property or sell it to someone who does. A long-term lease can afford stability of income and the certainty of a fixed cost. A short-term lease may be appropriate when both sides want flexibility.
3. Consider Future Inflation
Early in Richard’s career, inflation was rampant. In December 1980, the prime rate reached 21.5%. Until recently, we have been blessed with very low inflation. Today, higher inflation is eroding the purchasing power of revenue. Landowners want to protect the purchasing power of the rent they receive. Billboard operators want the rent to remain at a level that allows a profit.
Our Experienced Lawyers Can Help You Lease a Billboard
A solid ground lease can provide landowners with excellent cash flow and billboard operators with a stable inventory. Whether you are a billboard operator, a landowner who wants to rent to a billboard operator, or a landowner who wants to build and operate your own billboard, it is important to get legal guidance to ensure your rights are protected and that you follow government regulations. At Hamlin | Cody, our attorneys have been working in the industry since 1985 and can guide you through the various options you have regarding your situation. Come talk to us or hit Reply to schedule a Get Acquainted Call.