Guidebook for Developing and Leasing Airport Property (2011) / Chapter Skim
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Pages 10-29
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From page 10... ...
10 While a lease is often considered a complex and daunting document by the legal and real estate neophyte, it can be easily understood and digested if the individual components that comprise the whole are broken down and examined in detail. Every lease, regardless of type, is comprised of essentially the same core elements; understanding the individual components of a lease will provide the necessary building blocks needed to construct and execute a successful airport lease agreement.
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From page 11... ...
A land lease is simply an agreement whereby the airport sponsor leases a parcel of land for a stated period of time (term) and the tenant, or the tenant's developer, is responsible for making improvements on that land.
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From page 12... ...
are addressed in a standard airport lease policy. These considerations may include stringent insurance requirements, limitations on the types of activity that can take place, revenue sharing agreements, and minimum levels of service that must be offered.
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From page 13... ...
In cases where the tenant pays a known amount for space and sublets for a greater amount, it's not uncommon for the airport sponsor in a commercial leasing scenario to receive a percentage of the profit. Detailed provisions should be spelled out in the lease and any operating agreement to avoid future conflict between the parties in a long-term lease agreement.
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From page 14... ...
For example, the airline may rent ticket counter and office space in the ticketing area of the terminal, which likely has a different rental rate associated with it than baggage make-up areas and operational spaces. In the gate area, the airline may have yet another arrangement for gate podiums and/or the use of passenger boarding bridges that have their own unique set of rates and charges.
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From page 15... ...
For a more comprehensive discussion of this subject, the reader is encouraged to review ACRP Report 36: Airport/Airline Agreements -- Practices and Characteristics. 2.2 Essential Lease Elements Through the case study interviews, the intangible effects of relatively good and relatively bad agreements were revealed.
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From page 16... ...
2.2.3 Premises The premises element of a lease agreement defines the land and improvements that, in total, constitute the property subject to the lease agreement. The definition of the premises will include a description of the land to be leased (including square footage, boundaries, and access)
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From page 17... ...
The exception to this rule is in facilities such as airline terminals where they were constructed with grants or facility charges. In these cases, operation and maintenance drives rental amounts, and replacement cost and/or development costs are typically not a factor in establishing rental rates.
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From page 18... ...
2.2.7 Escalation Clause One of the most troubling aspects of long-term land leases is providing for the continued adjustment of rental property to compensate for inflation. When rent remains constant during a time of inflation, the airport is losing income, and this period may last for several years.
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From page 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 reality is that O&M costs are a real expense to any airport development project, and the lease should identify the party or parties responsible for these costs with a spirit of fairness in mind.
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From page 20... ...
These obligations must be considered, and funding sources established, if the airport plans on entering into an agreement that requires payment to the lessee at the end of the lease term. 2.2.11 Rights, Reservations, and Obligations of Lessor Many contemporary leases provide the lessor with the right of ingress and egress to leased premises.
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From page 21... ...
Such a lease clause (i.e., one that is affected by changes in regulation outside of the lessor's control) is also referred to as a living clause.
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From page 22... ...
requirements, at a minimum, should outline coverage types and amounts so that the airport is protected from financial liability. These requirements will vary based upon the type of tenant (e.g., private versus commercial enterprise)
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From page 23... ...
Environmental aspects to be considered in airport leases include the current environmental condition of land and/or airport facilities; responsibility for past, present, and future environmental remediation; environmental insurance requirements; and landlord assurance that the tenant will be financially capable of resolving potential liability exposures. At the very minimum, all parties of an airport lease agreement should agree on the environmental condition of the property at the time the property is placed under control of the tenant, as well as the condition the property is expected to be in at the time it reverts to the airport sponsor.
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From page 24... ...
Liens are typically recorded at the appropriate courthouse as a legal claim against real property. In the event of default of the loan, the lender will have first claim to the property if it has a first lien position, or stand behind the first lien holder in the case of a second lien position.
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From page 25... ...
Regulatory compliance requirements should be broad enough to encompass the many areas that affect the airport sponsor as owner of a public airport. Federal aviation and environmental Anatomy of a Lease 25
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From page 26... ...
regulations are prevalent at all airports, while a mix of local, state, and other federal regulations exist and vary depending on location. The regulatory compliance section of an airport lease agreement must acknowledge and require the tenant, as one member of an airport's community, to adhere to the same standards for compliance as the other members of the airport and the airport community as a whole.
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From page 27... ...
Holdover provisions should not be confused with extension options, as extension options involve an additional period of time, as well as adjustment in rental rates for that extended period. Holdover language may include an adjustment in rents as well, but this provision is meant to provide short-term extension of the protections and terms described within the lease document and not the protection of the tenant that is reluctant to negotiate a new agreement.
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From page 28... ...
2.3.2 Right of First Refusal A right of first refusal is a contractual right placed in the lease agreement that gives the lessee the option to enter into a lease agreement with the lessor for a specified airport property in advance of an interested third party. This does not specifically limit the airport from marketing the property, but it may limit the property's marketability if prospective tenants are aware that the property is subject to a right of first refusal.
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From page 29... ...
the facilities and services at the airport that will make the airport as self-sustaining as possible." This means achieving market value rates for all available property. 2.3.3 Percent of Revenue Another method of revenue recognition for the airport sponsor, a method that is common in terminal concessions lease agreements, is percentage of gross revenue payment.
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