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Anatomy of a Lease 17 SASO leases will specifically state (and in the case of a SASO, may limit) the commercial activity that can take place at the leasehold. For land leases, the "use of premises element" will state what improvements may be constructed and for what purposes. The majority of the items included in the use of premises section should be referenced in the Airport Rules and Regulations and Minimum Standards documents. This would enable the air- port to modify this lease element in accordance with revisions to these documents as items and requirements may change over the term of the lease. 2.2.5 Lease Term The lease term states the fixed period in which the lease agreement is in effect. Each lease situation is slightly different, depending on when the lease was negotiated, the size of the ten- ant's investment, and the useful life of the improvements. While there are no set rules, and dif- ferent airports have differing guidelines based upon applicable state and local statutes, it is important to consider that leases that are too long in term may prevent land from being devel- oped in the most advantageous manner. Conversely, a lease term that is too short may prevent the potential tenant from being able to fully amortize their initial investment for the necessary improvements, thus dissuading interested tenants from entering into airport development projects. The typical airport land lease term will range from a 20- to 30-year term, where, at the termi- nation of the lease, all improvements (financed by the tenant or otherwise) revert back to the airport. The length of the lease term must consider the ability of the developer to fully amortize its investment in improvements over the length of the lease agreement. The larger the investment in leasehold improvements, the longer the lease term will need to be. The airport sponsor, however, must ensure that the lease term does not violate any state or local statute regarding acceptable lease term length for publically owned land. The FAA also advises against longer lease terms and considers any term longer than 50 years to be fee-simple transactions (i.e., the tenant becomes the de-facto Baton Rouge Metropolitan Airport owner of the leased property). has established land lease rates based on fair market value, on a sliding scale. These values are 2.2.6 Rent updated every 5 years, after eval- The rental amount is usually determined by fair market value, or is the uating comparable properties, result of a competitive solicitation offer, but can be a combination of both. In with a maximum increase of 10% a competitive environment, the forces of supply and demand should yield a to ensure rates do not exceed determination of what is known as market value. While a comparison of sim- commercially acceptable limits. ilar facilities (i.e., comparing competing airports of similar size, service, and The sliding scale rewards larger infrastructure) is an acceptable method of determining market value, other developments. market factors affecting the value of the land can be quite different. If the Baton Rouge Metropolitan Airport airport sponsor owns the facility or improvements, the airport may consider land appraisal rates, 20052009. a fair market value basis for minimum financial offer to remain competitive with the market. The exception to this rule is in facilities such as airline ter- Parcel Size Cost Per Cost Per Square minals where they were constructed with grants or facility charges. In these (Acres) Foot Acre cases, operation and maintenance drives rental amounts, and replacement 00.25 $0.18 $7,840.80 cost and/or development costs are typically not a factor in establishing 0.250.5 $0.17 $7,405.20 rental rates. 0.50.75 $0.15 $6,354.00 0.751 $0.14 $6,098.40 In addition to stipulating the lease rate, the rent element of the lease 17 $0.13 $5,662.80 should also include the timing and acceptable methods of payment, as well 710 $0.12 $5,227.20 as the provisions and penalties associated with the failure to make timely payments.