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Anatomy of a Lease 19 sponsor may also choose to share O&M expenses or duties with the tenant/ developer to ease the financial burden on tenants and/or prospective tenants. The lease structure at Monroe The reality is that O&M costs are a real expense to any airport develop- County Airport offers the tenant an ment project, and the lease should identify the party or parties responsible equity position in the leasehold for these costs with a spirit of fairness in mind. In some cases, the airport improvements. The leases are struc- sponsor may be able to provide certain maintenance services or utilities at tured to allow tenants to maintain a rate that is lower than an individual tenant is able to achieve. In other partial ownership of the facility at cases, the tenant may be able to provide services more efficiently than the the end of the lease term. This public sector. Efficiency should always be considered when allocating O&M structure gives the tenant motiva- responsibility. tion to maintain the facility in good repair because their equity stake in the facility will be directly 2.2.9 Construction of Improvements affected by the appraised value of The construction of improvements element of the lease agreement should the facility at the end of the lease. detail the required approval process from the lessor regarding any repairs, In addition, the appraised value of renovations, improvements, and alterations. Generally, the airport should the equity stake may have appreci- receive, review, comment as necessary, and approve any construction ated over the course of the lease and/or alterations before changes are made. This ensures that design stan- term and be worth more than the dards, quality, and conformance to standards are met and follow the long- initial investment in improvements. term vision for the airport. Needless to say, all planned improvements must This type of arrangement is bene- comply with the Airport Rules and Regulations and Minimum Standards ficial to both the airport sponsor documents. and the lessee, albeit an innova- tive and non-traditional approach. A land lease may also contain a provision within the construction of The airport uses a large percent- improvements clause that provides a clear timeline as to when the construc- age of revenues from the leases for tion of improvements and beginning of facility operation must occur. This a "building fund," which funds the clause will protect the airport sponsor from the practice of "land banking" buyback of facilities at the end of (entering into a land lease agreement to reserve land for unstated future the lease term. development) and ensure that airport land assets are used for immediate highest-and-best use. 2.2.10 Reversion/Reversionary Clause The reversion of leasehold improvements refers to the transition of ownership of all improve- ments to the airport sponsor at the termination of the lease agreement. Permanent leasehold improvements typically revert, while items such as signs, trade fixtures, conveyors, racks, and hoists typically do not. The termination of a lease may not be solely due to the expiration of the term, though that is the most common case. A lease may also terminate prior to the expiration of the lease term should one party in the lease agreement fail to meet the obligations stipulated in the lease. These failures may include failure to pay rent, violation of Airport Rules and Regu- lations, failure to comply with the Airport Minimum Standards, violation of a lease-specific clause within the agreement, or actions that trigger the termination of a lease such as leasing to a lessee's competitor when a noncompete clause is in effect. If a schedule for the construction of improvements is in effect for a land lease, the lessee should be required to complete the construction of any new facilities within the specific allotment of time or the lease agreement can be terminated. Note that violations or actions that result in the termination of a lease, and associated reversion of improvements prior to the end of the lease term, must be clearly stated in the lease document. The reversion upon termination at the end of a lease term, or upon early termination, prop- erly protects the airport and its interest in the property, yet often leads to issues with improvement