Understanding and Negotiating the Airport Lease
Failure to understand the terms and conditions of an airport lease could
leave your business out in the cold. Careful attention to some of the
following lease provisions can protect you and your business.
Lease Term. This provision deals with the duration of the lease.
Specifically, you need to know when the lease actually starts. This
may be important when new construction of a hangar, building or other
improvements are involved which may prevent your businessís use of the
property until the work is completed. To obtain the fullest use of the
property, you may want the actual lease term to begin when construction
is completed rather than making lease payments during construction even
though you do not have full use of the property.
It is also important to understand how long the lease will run. Is the
lease month-to-month or for a set number of months? Further, is the
lease renewable? If so, will it renew automatically or must you
exercise the option of extending or renewing the lease? If you must
exercise an option, make sure you know how far in advance of the
leaseís termination you must give notice that you are extending or
renewing the lease.
Knowing the potential duration of your lease becomes especially
important in situations where the lessor does not have an obligation to
renew or extend the lease. If the lease does not provide otherwise, a
lessor could have the ability to not renew or extend a lease even after
you have invested in your business by building a hangar or other
improvements on the property. Although this may seem unfair, the
language of the lease will govern your rights. Thus, understanding
this information up front is essential because it will allow you to
assess the financial feasibility of recouping any investment you may
wish to make in the property or your business during the lease.
Use of the Property. The use provision details the types of activities
for which the property may be used. Make sure the terms of the lease
allow you to use the property the way you have planned. This will
require determination of your businessís goals and intentions during
the lease term. If you plan to sub-lease part of the space to another
aircraft owner or intend to run a specific type or types of business
from the property, you will need to ensure that the lease allows your
intended use. This may be done with language which specifically allows
your intended use, or with general language that will allow a wider
variety of uses, including your intended use.
After you sign the lease, if the language of the lease does not allow
your use, your desired use may only be possible by obtaining permission
from the lessor. It is much easier to include the appropriate language
in the lease prior to signing, rather than attempting to change the
lease or obtain the lessorís permission after the fact. Thus, you will
need to have a good idea of how you intend to use the property both at
the beginning and throughout the term of the lease.
Buildings and Construction. If your are leasing property without a
hangar or buildings and you intend to have the hangar, buildings or
other improvements constructed yourself, you will need to make sure the
lease protects this investment. First, you will want the right to
remove the hangar, buildings or improvements from the property upon
termination of the lease. Although this may not provide you with the
full value of your investment in the property, it will allow you to
recoup some of your equity.
If you are financing any of the construction, the bank or other source
of financing will probably want the ability to mortgage or otherwise
use the improvements as security for the financing. The lease will
need to allow this. If you are arranging financing prior to signing
the lease, you may wish to provide the bank or financing source with a
copy of the proposed lease to confirm that the lease allows them to
protect their financing.
Rent. The lease will invariably provide a set monthly or annual rental
payment for the property. This is often referred to as base rent.
However, this is not the bottom line for what the lease will cost.
Additional fees which increase and can exceed the base rent include
assessments, taxes and license fees to name a few. If you will be
selling fuel, a fuel flowage fee may also be assessed on the gallons of
fuel which you pump. It is imperative that you determine up front what
additional fees for which you may be responsible and precisely how
those fees are calculated. Depending upon the total of the additional
fees, you may be able to negotiate the base rent amount or other terms
of the lease.
Similarly, if the lease provides the lessor with the ability to raise or
decrease the rent, be sure to understand when this can happen and upon
what such a change is based. Although you may not be able to control
whether or not an increase or decrease in the rent is imposed, by
understanding the circumstances upon which this change may take place,
you will be able to plan for and possibly forecast this change in rent.
This knowledge allows you to run your business in a way which either
limits the effect of an increase, or takes advantage of a decrease.
General Provisions. In reviewing the lease, make sure the lease refers
to parties consistently. Names of persons or entities should be
spelled correctly and where used should refer the appropriate party.
If the lessee will be your business entity, such as a partnership or
corporation, the lease will need to refer to that entity as the lessee
and not to you individually. To the extent that you as an individual
are required to sign the lease, you will want the lease to refer to you
in your capacity as an officer or partner of the particular entity who
is the lessee. However, if a personal signature is required as an
additional lessee or as a guarantor, this distinction may still be
required, but may ultimately be immaterial to your personal liability
under the lease.
Finally, it is essential that you carefully review all of the provisions
of any airport lease before you sign. Consultation with an experienced
aviation attorney beforehand can help you protect your business. By
taking the time to understand the airport lease you are signing, you
can avoid being left out in the cold.
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