Leasing Practice Point: Signage and Advertising

August 12, 2010

Tenant signage and advertising rights generally are among the least understood and most poorly negotiated points, yet they are among the greatest sources of landlord and tenant disputes in today’s commercial, industrial and retail leases.

Many landlords are surprised to learn of the general rule that a tenant has a right – provided there is no lease provision to the contrary – to place signage on the outer walls of its demised premises and with very few limitations (except as may be provided in applicable law or covenants and restrictions governing the particular property or municipality).

The reason for this broad entitlement is that the law generally does not distinguish between the exterior and interior portions of the leased premises – these issues are typically dealt with by contract. This, however, is precisely why choice of language in leasing is critical, and explains one reason why most multitenant leases define and delimit the leased premises so as to either exclude completely, or severely limit, the use of exterior walls and roofs.

Broad exclusionary language (e.g., “no sign shall be placed anywhere on the premises without the prior written consent of landlord, which consent shall be in landlord’s sole and absolute discretion”) is wonderful for a landlord, and depending on the size or reputation of the tenant, may be entirely appropriate for a particular leasing situation. For a landlord, control over signage can be critical to controlling the aesthetic character of a particular project and in keeping other tenants happy. The above language is, nonetheless, becoming the exception rather than the rule.

In addition to landlord considerations, many new or recently approved projects have limitations placed upon them by municipalities – design review boards, signage packages, and other approval hurdles all enter into the equation. However, from a tenant perspective, failure to adequately address and/or provide for signage and/or advertising can be detrimental if not fatal to the success of a business, particularly a new business. There is no one simple, catch-all provision to be included in every lease that will address each situation.

That said, there is a relatively simple list of items that landlords and tenants should at least consider, if not directly address, in any lease where signage and advertising are at issue. These include: placement of signs (whether it be on the exterior of buildings, including roof parapets, or simply outside demised premises); size and structure of signage; co-location of signage with other tenants and a mechanism for resolving any disputes (critical in a multitenant context); ability to handle franchise requirements (in the case of national businesses such as restaurants and other similar services); advertising or placement on business directories within lobbies or other common areas (and who pays for any updates); window displays (sale advertisements and the like, particularly in the retail and restaurant context); and the issue moving signs upon the departure (thorough lease expiration or otherwise) of tenants with perhaps more advantageous signage locations and terms.

What all of this means is that parties should keep the issue of signage and advertising paramount in their negotiation strategy, as early as the letter of intent stage and certainly at the point of lease negotiation. A project, and individual tenants, can thrive or fail based upon what should be a simple issue. But the precise language used in leases, and managing expectations on both sides, is critical in this context.

The relative negotiating positions of the parties will certainly determine to a large extent the final agreement, but it is clear that as with most lease issues, virtually everything is negotiable. It is also the case that, particularly in the context of multiuse projects and urban developments, the nuances of this issue can become as important as more traditional concerns.

For more information, visit our Greater Washington-Baltimore Region Transactional Real Estate practice.