Understanding and Negotiating the Airport Lease
12/1/1997

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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 business’s 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 lease’s 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 business’s 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 lessor’s 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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