Entice Major Tenants with Building Name Privileges, but Protect Your Interests

As the market softens, more and more major office tenants are demanding special name and signage privileges in return for their renting a large block of space. For example, a tenant may insist that the building be named after it. Or it may want the most prominent signage on the building's exterior and in the lobby. Its goal is to increase its name recognition in the community.

If you're willing to agree to one or both of these demands, make sure your lease has certain safeguards. Otherwise, you could get burned. For example, you may be forced to pay signage-related costs that the tenant should have paid. Or the tenant may refuse to let other tenants have the signage visibility they need. That could infuriate existing tenants and hamper your efforts to lease any vacant space in the building.

To help you better protect yourself, CLLI, with the help of New York City attorney Stuart D. Byron, and Michael Feldt, a vice president of Trammell Crow Company, has created a list of seven safeguards to put in the lease of a tenant getting special name and signage privileges. There's a Model Lease Clause on p. 3 that you can adapt and use in your lease.

INCLUDE SEVEN SAFEGUARDS IN LEASE

Make sure that your lease, like our Model Lease Clause, has the following seven safeguards:

* Give Privileges to Original Tenant Only

Make it clear that the special name and signage privileges are intended only for the original tenant, says Byron [Clause, par. a]. They're a special perk that the tenant shouldn't be able to give away to anyone else, such as a subtenant or assignee.

* Set Strict Signage Requirements

Keep control over the tenant's signage with five requirements:

Specify signage standards. Set strict standards for the tenant's signage, says Byron. Attach architectural drawings of the agreed-upon signage to the lease as an exhibit, he says. The drawings should include specifications showing the signage's size, dimensions, material, content, design, construction, location, and method of installation, he adds. Make sure your lease requires the signage to conform to the exhibit, says Byron. And say that the sign can't deviate from the exhibit without your prior written approval, he adds [Clause, par. b(i)].

Practical Pointer: The tenant may demand that you be barred from unreasonably withholding your approval to any changes to the signage, says Byron. You may have to give in on this point. But if you're worried that the tenant may want to put up illuminated signage, make sure that you exclude this from the reasonableness standard, he adds.

Make tenant responsible for ensuring legality of its signage. Make it the tenant's job to ensure that its signage violates no laws, codes, rules, or regulations, says Byron [Clause, par. b(ii)]. For example, there may be signage restrictions in your local zoning or building department codes. If you don't make the tenant responsible, it may assume that you'll verify the signage's legality—and that it's your fault if it later turns out that the signage isn't legal, Byron warns.

Require tenant to get approvals/permits. Require the tenant to get and pay for any needed governmental approvals or permits for the installation and maintenance of the signage, says Byron [Clause, par. b(iii)]. Otherwise, the tenant may argue that it's not responsible for getting and paying for them—you are, he warns.

Require tenant to insure signage. Require the tenant to insure the signage under its liability and property damage insurance policies, says Byron [Clause, par. b(iv)]. Then, if someone gets hurt by the signage, the tenant's insurer should cover the claim, he says. Or if the signage is damaged—for example, by a severe thunderstorm—the tenant's insurer should pay for necessary repairs and/or replacement, he adds.

Require tenant to clean and maintain signage. Require the tenant to clean and maintain its signage on a regular basis at its own cost, says Byron. You don't want the signage to become an eyesore, he explains [Clause, par. b(v)].

* Require Tenant to Pay All Signage-Related Costs

Make the tenant responsible for paying all costs associated with the signage—including design, installation, maintenance, cleaning, repair, and replacement costs, says Byron [Clause, par. c(i)]. Otherwise, it might try to shift some of those costs on to you.

Also, if you allow the exterior signage to be illuminated, get the tenant to agree to pay all illumination costs, including the power used, and maintenance, says Byron. If you'll be billed for any of the costs, say the tenant must reimburse you for them immediately upon getting your invoice, he adds [Clause, par. c(ii)].

Practical Pointer: Power costs may have to be estimated, Byron points out, since there's normally no separate electric meter for a tenant's signage.

* Get Right to Cancel Signage Privileges After Certain Events

Get the right to terminate the tenant's special name and signage privileges—for example, remove the name if the building was named for the tenant—if any of the following events occurs:

Tenant ends or reduces its presence in your building. Specifically, the tenant:

• Moves out or occupies less than a certain amount of its space,

• Sublets more than a certain amount of its space, or

• Assigns its lease [Clause, par. d(i)–(iii)].

You agreed to name a building after a tenant because of the tenant's importance to the building. If it no longer has a significant—or any—presence at your building, it no longer merits having its name on your building, says Byron.

Practical Pointer: You and the tenant must negotiate the minimum amount of space the tenant must occupy, says Feldt, so you won't have the building named after a tenant without much presence there.

Tenant has another building named after it. You may want to terminate the special name and signage privileges if the tenant has another building in your business district named after it [Clause, par. d(iv)]. A duplicate name may cause confusion and damage your building's reputation, warns Byron. Expect the tenant to balk at this, though.

Tenant is in default. Get the right to terminate the special name and signage privileges if the tenant is in default of the lease—that is, still in violation of the lease after the time to cure that violation has elapsed [Clause, par. d(v)]. A deadbeat tenant mustn't be allowed to take advantage of the special perk, says Byron. You're likely to have to negotiate with the tenant about what type of default triggers your right to remove the tenant's name from the building—such as a major or minor default, a monetary or nonmonetary default, and a single default or multiple defaults, says Feldt.

Practical Pointer: Expect the tenant to demand that you be required to give it advance notice if you intend to end its privileges and remove its name from the building. That's reasonable, says Byron. He suggests giving the tenant 30 days’ advance notice [Clause. par. d(v)]. Once the notice period ended, you would be free to offer the special name and signage privileges to another tenant, says Feldt. But be ready for a tenant to also demand that you promise not to rename the building after its competitor, especially if the tenant still occupies space in your building, he adds.

* Require Tenant to Remove Signage

Say in the lease that if you change the building's name or the lease ends, the tenant must remove its signage, says Byron. You don't want the hassle of removing it yourself, he says. Also, require the tenant to fix any damage caused by the signage's installation or removal, Byron adds. And say that the removal or repairs are at the tenant's expense [Clause, par. e(i)].

Practical Pointer: To protect yourself, make sure the “survival” clause in your lease says that these removal and repair obligations will survive the lease's expiration or termination, says Byron [Clause, par. e]. Otherwise, once the lease expires or is terminated, the tenant may claim that the obligations no longer apply.

* Get Right to Keep Signage

Get the right to keep the signage in place even if the tenant is no longer in your building, says Byron. You may think that your building will benefit from keeping the signage up, especially if the tenant is a prestigious company and its signage and identification with the building could work to your advantage, he explains.

Have the tenant agree that when you eventually decide to remove the signage, it will reimburse you for the removal costs and for repairing any damage to the building caused by the removal, says Byron [Clause, par. e(ii)].

Practical Pointer: A savvy tenant may balk at this reimbursement requirement, warns Feldt. The tenant may argue that if you choose to keep its signage in place, you must release it from paying all signage-related costs incurred after it moves out of your building, he says. You'll have to negotiate this point with the tenant.

* Allow Other Tenants to Put Up Signs

Don't say in the lease that the tenant has an “exclusive” right to put up signage on or in your building, says Byron. Make this right “nonexclusive” so that other tenants can put signage on or in your building, too, he explains. And say that you can grant other tenants in the building signage rights [Clause, pars. a & f].

Practical Pointer: The tenant may demand that the signage of other tenants—both existing and future—be smaller and less prominent than its signage, says Byron. If you agree to that demand, he says, say that the restrictions on other tenants will end if the tenant does anything that would trigger your right to end its special name and signage privileges. And to avoid confusion and conflict with the tenant over other tenants’ signage, attach to the lease your building's general signage guidelines for all your tenants, says Byron.

CLLI Sources

Stuart D. Byron, Esq.: Of Counsel, Blank Rome Tenzer Greenblatt, LLP, 405 Lexington Ave., New York, NY 10174; (212) 885-5000.

Michael Feldt: Vice President, Trammell Crow Co., 2200 Ross Ave., Ste. 3700, Dallas, TX 75201; (214) 979-6100.

Sidebar

* Consider Repercussions of Name and Signage Privileges

Giving a tenant special name and signage privileges may have positive or negative effects on your building, says Michael Feldt, a vice president of Trammell Crow Company. For example, if the tenant is a prestigious company, naming the building after the tenant may make your building more inviting to prospective tenants, he says. But if the tenant has been embroiled in scandals or is suffering financially, having its name on your building may discourage prospective tenants. Also, if you give special name and signage privileges to a less-than-major tenant, you may be unintentionally shutting the door on a prospective major tenant that would have wanted the same privileges, warns Feldt.

To protect your interests, thoroughly investigate a tenant's creditworthiness and reputation before deciding whether to give it special name and signage privileges, says Feldt. And consider whether you could lose out on better leasing opportunities by giving these privileges to a particular tenant, he adds.