|Free Lease Advisory|
Retail Signage Rights
Many shopping center lease deals have fallen through because of disputes between the landlord and the tenant over signage. One attorney for a chain store retailer relates the following: "I have seen several deals hung up on signage alone. This was after all other business and legal issues had been resolved. In one instance, we were at loggerheads over the size of a particular letter in our trade name because it determined the size of the other two letters. This also had a big impact on the whole graphic appeal of the store. The attorney on the other side laughed and said, 'I can't believe that the size of a letter will blow this deal.' As it turned out, the retailer prevailed on the point, but the deal nearly fell out of bed on that design issue alone. It serves to illustrate the importance of design type issues as far as we are concerned."
It certainly does. The landlord wants tasteful and uniform signage for the center. If the overall signage for the retail complex is aesthetically pleasing and uniform, it will make a favorable impression upon the shopping public, and this will increase sales and percentage rent. It will also add to the value of the landlord's real estate asset. Likewise, prominent and effective signage is crucial for the retail tenant. If customers have difficulty locating a tenant in a shopping center, the tenant's sales will certainly suffer.
All of this means that signage provisions in regional or neighborhood shopping center leases are hotly negotiated between retail landlords and tenants. Most negotiations start with the landlord's form lease, since it has generally been approved by the landlord's lender and the landlord usually has the business leverage to insist that negotiations start with his form. It is customary for a landlord's shopping center form to contain a specific clause regulating the tenant's signage in the body of the lease. It is also customary for that clause to refer to a signage exhibit attached to the lease which covers the construction, design standards, approval, maintenance and removal of tenant's signage in great detail.
This article focuses primarily upon tenant signs placed upon some portion of the premises, e.g., the facia or facade located above the show windows in the storefront. But regional and neighborhood shopping centers almost always have pole or pylon signs which have a sign for the shopping center as a whole, and which frequently contain signs advertising major tenants in the shopping center in addition. It is extremely unusual for garden variety retail tenants to be able to place a sign advertising their premises on such a pole sign. Even so, it does occasionally happen, for example, when a major tenant with a sign on the pole does not renew its lease, and the landlord is negotiating a new lease with a shop space tenant with substantial leverage.
If a tenant is fortunate enough to get a place on a pole sign, he is usually required to pay for the cost of fabricating the sign which is placed on the pole, the cost of its installation, the cost of obtaining any permits required by local signage ordinances or building codes, and the cost of maintaining and removing such signage at the end of the term. In addition, the tenant is usually required to pay some prorata portion of the utilities for the pole sign, which can be substantial over the term of the lease.
Finally, many landlords include the entire maintenance cost for pylon signs for the center as a common area expense which is paid on a prorata basis by all tenants in the shopping center. A sophisticated tenant will frequently object to this practice when shop tenants or anchors have their own signs located upon the pylon, unless those tenants bear a proportionate share for the maintenance of the sign in addition to their normal prorata share for common area expenses.
Windows, Facades and Logos
Most of the negotiation regarding signage in a shopping center involves facade or exterior signage. It would be common for a shopping center lease to contain language in the signage clause such as: "The tenant shall not fix or maintain upon the glass panes and supports of the store windows, or within twelve inches of any window, doors or the exterior walls of the premises, any signs, advertising placards, descriptive material, names, logos, insignia, trademarks, or any other such item except those that have been approved by the landlord in writing, with specific regard to size, type, color, location, display quantities, copy and nature. The tenant shall not affix any sign to the roof of the premises, or place any sign within the common areas of the shopping center. In addition, the tenant shall only erect signs in accordance with the provisions of the signage criteria attached hereto and incorporated herein as Exhibit D."
Note that this sort of language regulates facade signs, exterior signs, and signage contained within the premises. Aggressive retail tenants like to display special signage relating to specific promotions, and object to prohibitions on the placement of signs on the store windows or on fixtures or stands placed in front of the store windows which are visible to patrons passing in the mall or driving in the parking lot of the shopping center.
Often, lease language relating to temporary signage is extensively modified by promotional tenants as a condition to signing the lease. Many such tenants insist on including their own lease clauses pertaining to temporary signage which give the tenant the right to place tasteful temporary signage on the interior of show windows for limited periods of times, e.g., for periods not exceeding six weeks in duration. Sometimes, temporary signage rights only apply to the Christmas retailing season.
Generally, temporary signage provisions also contain standards for such temporary signage and require that such signage be "professionally" designed and fabricated. The extent to which the tenant can make changes permitting him to use temporary signage in the premises often is a function of how comfortable the landlord feels with the tenant, and whether the tenant is a national chain store tenant that has professional graphics capabilities and a reputation for design quality.
Many promotional tenants are also adamant about the use of their logos in their store signage, whether on facade, interior or exterior signs. This can cause a problem with the landlord since often the colors and size of the letters used in a national tenant's logo are inconsistent with overall signage criteria adopted for the shopping center. Ultimately, the right to use the tenant's logo will depend upon the business leverage of the tenant, and the extent of the landlord's objection to its use, if any. Many national chain store tenants are not willing to sign a lease which does not permit them to use their logos in store signage.
The use of neon in retail signage has made a dramatic comeback. Neon is used in some of the most attractive and eye- catching signage in regional shopping centers today. Frequently, neon signs are located inside the store windows on tenant fixtures or stands. If the tenant is expecting to use either neon signage or signage which flashes or is otherwise lighted and which will be visible from the exterior of the premises, he would be wise to negotiate the right to do so specifically in the lease.
Control by the Majors
Major tenants in neighborhood shopping centers will ask for a right to approve exterior signage in the center along with their right to approve other significant modifications to the site plan for that center. Few landlords are willing to agree to such provisions without substantial negotiation. Frequently, the majors will settle for signage standards set forth in their lease or reciprocal operating agreement regulating the signage of other tenants in the center. These standards are generally consistent with the landlord's signage criteria contained in the shopping center form lease.
Renovation, Repair and Replacement
Signage provisions contained in shopping center leases are generally silent as to the landlord's right to remove tenant signage in the event a major renovation of the shopping center takes place. It is normal for the landlord to update the signage criteria for the shopping center when a renovation occurs. In cases where the landlord has no express right to remove a tenant's signage during such a renovation, he will generally request the right to do so from tenants when communicating his renovation plans to them.
Numerous chain store tenants are extremely hard nosed about such requests, and will grant them only if the landlord agrees to remove and replace the tenant's sign at the landlord's expense, and will only agree that the sign be down for a certain number of days. National tenants also sometimes request that the landlord erect temporary signage for them at the landlord's expense, and bear all other expenses associated with the renovation, removal and replacement of their sign. The tenant may also request that the landlord only remove the tenant's sign when the center is not open for business if the renovation or repair work in the tenant's area is minor in nature.
There can be substantial acrimony between landlord and tenant if the landlord requires the tenant to obtain a new sign consistent with newly adopted signage criteria for the renovated center. This is especially the case where the tenant has a relatively short period remaining on the term of its lease, or if the expense associated with obtaining a new sign is substantial. In addition, updated signage criteria frequently will prohibit items present in the tenant's original sign. Existing colors in the tenant's old sign may not be permissible under new criteria. The new signage criteria may not permit letters as big as those in the tenant's old sign.
In addition, landlords who are renovating existing mature centers often find that the city's signage ordinance has become more restrictive since the center was originally constructed. Signs that were put up under old city standards can remain, but once they are removed and replaced they must conform to new city standards.
This may mean that the tenant will have substantially smaller signage or signage which is not as visible under the new signage criteria. Landlords can expect tenants that fall into this category to be extremely cool to the new signage criteria adopted or required for the renovation.
The Sign Plan
Sophisticated tenants know that their negotiating leverage will never be greater than before the lease is signed. As a result, most national tenants will only sign shopping center leases if a plan showing proposed tenant signage is attached to the lease and deemed approved by the landlord in the lease. Seasoned retailers know that the landlord is entitled to approve the signage, but they fight their design wars before the lease is signed.
Frequently, in the case of national tenants, these plans come from the tenant's standard signage and graphics program. However, standard graphics prepared by the tenant frequently do not show items crucial to obtaining a complete approval for tenant's signage. For example, the sign plan which the landlord approves in the lease must show the specific location of the tenant's signage on the facade and on the exterior of the tenant's premises, if such is the business deal. It must also be specific as to color and letter sizes and otherwise contain enough detail for the tenant to erect the signage it has in mind following the execution of the lease.
In addition, the tenant's sign plan showing approved signage usually only pertains to initial construction of tenant's signage. What if the tenant's national signage program changes? What if the tenant changes its tradename? What if the tenant adopts a new logo for its stores? Generally, unless the tenant can specify precise standards which will apply to future modifications of signage, each future modification must be approved in writing by the landlord and otherwise conform to the landlord's signage exhibit contained in the lease.
Contents of the Landlord's Signage Exhibit
The landlord's signage exhibit attached to the lease frequently runs several pages, and is very specific concerning the general and specific requirements and specifications for tenant's signage. Often, general requirements and specifications in a signage exhibit prohibit:
In addition, signage exhibits frequently require: