April 12, 2016

Rules and Regulations Section of a Lease Provides Protection

April 12, 2016/ AC-U-KWIK

Part Four of the Four-Part Crafting Advantageous Hangar, Office and Tie-Down Agreements Series

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

In our previous blog, we wrote about developing a tie-down agreement as the third post for our series about crafting advantageous hangar, office and tie-down agreements, which together are the third component of the six intangibles that can build equity in your FBO.

In this final post for the series, we discuss the rules and regulations section of crafting these types of agreements.

The rules and regulations section should not be taken lightly as it provides the language that spells out the expected performance of both the leasee and lessor. Therefore, it can be viewed as protection should one of the parties in an agreement default in some way.

Here are few tips to keep in mind when writing and adopting a rules and regulations section as part of a hangar, office and/or tie-down agreement:

It’s important to stipulate in all agreements that aircraft, either in a hangar or a tie-down area, must be in airworthy condition. This includes keeping tires inflated and keeping the aircraft free from other obvious maintenance issues. Be sure to include language regarding aircraft maintenance. Do not allow maintenance on the aircraft unless you authorize the specific maintenance to be performed in writing.
Your tenant should have aviation liability insurance coverage. We recommend at least $1 million in coverage. Your agreement should also include a good indemnification clause for your protection.
If your tenants expect to drive their vehicles onto the ramp, they should have to comply with the airport’s safety and security requirements as well as your FBO training and insurance policy standards. Aircraft towing movements should be restricted to trained FBO personnel only.
Tenants are subject to the terms and conditions of your FBO master lease. Therefore, when you draft an agreement, include language that covers this requirement. Specify that any fueling of aircraft is restricted to being performed solely by your FBO. Also, hangar and office tenants should be apprised of any regulations concerning controlled access points for guests or other visitors.
Spell out what specific services tenants will receive. Office tenants should not expect the FBO to provide free office services such as copy, fax, phone answering, etc. This section should also have specific language regarding normal operating hours and restrictions for setting up on-site living accommodations. Hangar and office tenants should also be made aware in writing of any restrictions regarding pets/animals on the premise.

There are many factors and nuances to developing a rules and regulations section of a lease that we will not be able to cover in the blog. Therefore, we encourage you to attend one of our FBO Success Seminars where we spend additional time discussing these important topics as well as others, in addition have your legal counsel review your agreements.

Please Share your comments in the space below.

About the bloggers:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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April 05, 2016

The Best Ground Might Be Your Tie-Down

April 05, 2016/ AC-U-KWIK

Part Three of the Four-Part Crafting Advantageous Hangar, Office and Tie-Down Agreements Series

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

In our previous blog, we wrote about developing a favorable office lease agreement as the second post for our series about crafting advantageous hangar, office and tie-down agreements, which together are the third component of the six intangibles that can build equity in your FBO.

In this post, we discuss creating a tie-down agreement that can turn often overlooked space into some the best ground at your FBO location.

Your aircraft tie-down ramp should be viewed as a viable leasing area that has the capability of creating a consistent revenue stream, whether it’s a month-to-month lease with base tenants or an RON situation with a transient customer.

Here are a few tips to keep in mind when developing a tie-down agreement:

Don’t give it away. Put a true value on the tie-down space and stick to it.
Just like hangar queens, be wary of aircraft owners who fly their aircraft infrequently. We’ve seen tie-down areas at some FBOs that are full of aircraft with flat tires and parts missing. Chances are these customers are not paying their tie-down fees on a regular basis and not buying fuel.
Keep the tie-down areas up to snuff. Attracting and keeping tie-down tenants requires a ramp that is attractive and well kept. That also means replacing the tie-down ropes on a regular basis.
It’s important to keep in mind that, like hangar agreements, FBOs should not devalue the true worth of tie-down space based on promised potential fuel sales. Work with the tenant to determine monthly fuel sales potential, spell out specific fuel sales goals in the lease, and revisit these amounts frequently. Include language that escalates tie-down rates if consistent fuel sales goals are not met.
All aircraft that tie down on your ramp should have an agreement. This protects you and the tenant in case of insurance claims by establishing the terms of the tie-down agreement.
As part of your agreement, make sure you establish the rules, such as prohibition of derelict aircraft, flat tires and aircraft maintenance conducted in the tie-down area.
Tie-down agreements are usually simple contracts and for the short term. You can make them month-to-month and evergreen, meaning they renew automatically. Also, you can make provisions to terminate the agreement upon a 30-day notice. This gives you flexibility in running your business.

Tie-down lease agreements are a sublease just like hangar and office lease agreements, They must conform to the master lease agreement between your FBO and the airport authority. Signatories to tie-down subleases have a right to know the contents of your master lease because they must also comply with its contents. In addition, terms for rate increases in your subleases should be similar to the master lease, and the term of subleases cannot be longer than the master lease term.

There are many factors and nuances to crafting an advantageous office lease agreement that we will not be able to cover in the blog. Therefore, we encourage you to attend one of our FBO Success Seminars where we spend additional time discussing these important topics as well as others.

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December 15, 2015

Breaking Down the 10 Critical Elements of an FBO Airport Lease, Part 4

December 15, 2015/ AC-U-KWIK

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

In previous blog posts we discussed nine of the 10 critical elements of an FBO airport lease as part of our series on the six intangibles that can build equity in your FBO.

In this final post for this subject, we will discuss the last critical element, Airport Minimum Standards. The Airport Minimum Standards document is basically what creates a level competitive playing field. It further helps protect the intrinsic value of your enterprise by spelling out the minimum requirements for an FBO or SASO (Specialized Airport Service Organization) operating at your airport and sets the standard of compliance for existing or potential competition.

In essence, it states that if a new operator wants to start an FBO at your airport then they must make the same investment in facilities, pay the same rentals and fees, provide similar services, and operate on the same level as your business.

Although an FBO Minimum Standards document is generally separate from your lease and resides as part of the rules and regulations of the airport, it is important to make sure it is called out in your lease. Many airports do not have minimum standards and this may cause a problem for the existing businesses.

Two important elements of an airport minimum standards document are its purpose and the issuance of a permit, lease or operating agreement.

Purpose

The purpose of minimum standards is to establish and make requirements for general aviation aeronautical activities. They are established in the public interest for the safe and efficient operation of the airport in order to enhance orderly growth and comply with federal, state and local government legal requirements. It also provides information to parties operating or desiring to operate at the airport. These standards in general establish minimum levels of service that shall be offered in order to protect the public welfare and prohibit irresponsible, unsafe or inadequate services.

Permit, Lease or Operating Agreement

No person, including an aeronautical service operator, shall offer or perform a commercial aeronautical activity, operation or service at an airport without written authority for such service. Such authority will generally be contained in a Permit, Lease or Operating Agreement that has been negotiated between the FBO/SASO and the airport.

Keeping these elements in mind will assist you in maintaining your FBO business no matter what the competition may bring to the airport environment. Make sure the minimum standards are up to date. Many documents we review for our clients are up to 20 years old.

In our next blog, we’ll start a new series based on the second intangible that can build equity in your FBO: A Favorable Fuel Supplier Agreement.

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December 08, 2015

Breaking Down the 10 Critical Elements of an FBO Airport Lease, Part 3

December 08, 2015/ AC-U-KWIK

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

In previous blog posts we discussed six of the 10 critical elements of an FBO airport lease as part of our series on the six intangibles that can build equity in your FBO.

For this blog post, we'll break down three additional key airport lease elements and provide insight and tips to help you protect your business while adding intrinsic value to your enterprise.

Improvements, New Buildings and Renovations

FBOs should view this section as a way to spell out and secure future equity in their enterprise. Making lease hold improvements, building new facilities and making timely and needed renovations are critical in negotiating a longer lease term and potentially additional optional years.

In this section, it is critical that you consider the best investment in facilities that gains two things:

Longer lease term
Return on your investment (ROI)

Having a business plan that details what your goals are will greatly assist you in getting the project financed and approved by your board of directors.

During your evaluation of expansion projects, it is important to keep in mind the goals of the airport authority. Airports like to see investments into the infrastructure of the airport environment, expansion of the business base and job creation. Make sure your project meets these goals and adds to the success of the airport master plan.

Insurance, Indemnity and Hold Harmless Agreement

Protecting your enterprise from unforeseen perils that can expose you to risk and harm is what this section is all about.

Insurance must meet the requirements of the lease. In many cases the lease insurance amount requirement may be too low, such as $2 million or $5 million in aviation liability coverage, auto liability and workmen’s compensation insurance. You should review these requirements with your insurance broker to make sure you are adequately insured and there are no clauses in the agreement that cannot be met. The airport will want to be a named insured on your policy. This is a standard requirement.

Both the Indemnity and Hold Harmless clauses are very important to the FBO. When there are problems at the airport that involve your business and the airport authority, these clauses may come into play. Unfortunately, in many cases the legal language in both of these paragraphs can be onerous to the FBO. The airport may want to be completely indemnified for any actions on its part and held harmless for any acts, gross negligence or misconduct. Your legal counsel should review this language to make sure you can live with it. In many cases, since you are operating at a government owned facility, the FBO may have to accept less than ideal language.

Environmental Liability

In running the day-to-day FBO operations, owners and operators are constantly dealing with aviation fuels and other chemicals that can be environmentally hazardous. With this in mind, it is important to understand that if you are operating a tank farm system for fuel storage you are required to provide environmental insurance. If you are operating at an older airport and you are new to the facility or the ground, you may want to consider completing a Phase 1 environmental assessment prior to use. This inspection could be a requirement of your insurance underwriters. Your legal counsel and insurance brokers should review the inspection and subsequent lease language prior to signing an agreement.

In our next blog, we’ll examine the remaining critical element of your lease, the Airport Minimum Standards section. We consider this one of the main six intangibles and will treat this as a separate subject because it is a very important component with distinct elements.

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December 01, 2015

Breaking Down the 10 Critical Elements of an FBO Airport Lease, Part 2

December 01, 2015/ AC-U-KWIK

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

Previously we discussed three of the 10 critical elements of an FBO airport lease as part of our series on the six intangibles that can build equity in your FBO.

For this blog post, we'll break down three more of the airport lease elements and provide insight and tips to help you protect your business while adding intrinsic value to your enterprise.

Payments, Including Rental, Gross Revenue, Flowage Fees and out Years to Include Escalators

By paying attention to the exact wording of this very important element, you can protect yourself from any future disagreements or disputes. Payments may include investments in refurbishment of your terminal building and/or hangars to keep them up to date. Payments may include capital investments for a new hangar or building to exercise lease extensions. These rent payments and additional investments are all financial obligations that contribute to the success or potential failure of your FBO. Please note that each one of these elements is negotiable; therefore, do your homework by getting other comparable FBO leases in your area and region. If you have a competitor at your airport, ask to see its lease. Because it is considered a public record, you can obtain a copy under the Freedom of Information Act (FOIA). Remember, knowledge is the key to negotiating your best rates.

Building/Ramp Maintenance Responsibilities

Be sure to be very specific with the language for this element. Any ambiguity can lead to finger pointing, and the FBO can end up on the short end. If you are leasing buildings owned by the airport, most leases provide for the lessee (FBO) to pay for building upkeep, utilities and taxes. If you operate in the snow belt, it is incumbent on the FBO to understand whose responsibility it is for snow plowing ramps, approach taxiways or other areas.

Be very clear on taxes. In many cases you don’t have to pay property taxes on buildings owned by a city or municipality. In some states you may have to pay school taxes or other fees. Therefore, be clear on defining responsibilities.

Termination by the FBO or Lessor

In this section, it is wise to spell out unequivocally how the lease can be terminated by either party in cases of dispute, natural disaster, fires or other unforeseen events. What is most important is that the parties to the agreement have sufficient time to correct and negotiate any disputes or other occurrences. The “cure” clause should be at least 30 to 60 days to fix problems. This length of time is generally not used if the issues are late payment of rents or fees.

When there are issues, prompt resolution is the best way to solve problems. As Colin Powell once said “Bad news isn’t like wine. It never gets better with age.”

In our next blog, we’ll examine the final three critical elements of your lease with additional tips that can help you build equity in your FBO.

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November 10, 2015

Breaking Down the 10 Critical Elements of an FBO Airport Lease

November 10, 2015/ AC-U-KWIK

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

In our previous blog, we listed the 10 critical elements of an FBO airport lease as part of our series on the six intangibles that can build equity in your FBO.

For this blog post, we'll break down three of the airport lease elements and provide insight and tips to help you protect your business and add intrinsic value to it.

Term and Option Years

When you approach bankers or investors to help grow your business, one of the first items they will examine is the primary term of your lease and the option years remaining. Whether you're looking to sell your business or make additional capital improvements, the term and option years help form the primary equity foundation of your business. Therefore, rule of thumb is the longer, the better. If you are wanting to sell, investors want to see at least 15 years remaining on your primary lease with at least one five-year option. If you are planning to upgrade or expand your facility, now is the time to negotiate a longer primary lease and tack on one more five-year option. This will give you more time to amortize the cost of capital improvements and put you in a better position to sell down the road.

Operating Rights

Under the Operating Rights section of your lease, you'll find a detail of the services you can provide, the facilities that you are required to have and the required hours of operation. Besides the standard fueling services, most FBOs must also provide ground handling services, hangar services and a terminal facility.

In addition, many leases require an FBO operator to offer aircraft maintenance, flight training and other special services. If you don't want to provide these services, make sure you have the right to subcontract these out. Also,ifyou don't want to be open 24/7, make sure the hours of operation are detailed in the lease.

Assignment Sale Clause

Any business needs flexibility for its future. If your business outlook changes, a family legacy becomes altered or you encounter a major life event, you need the option to be able to sell or transfer your FBO business. The sale and assignment clause allows you to do exactly that.

The clause needs to containreasonable language that says you can sell the business to a qualified party with approval in writing, and suchapproval will not be unreasonably withheld. This process can sometimes take months, but, with patience,it can be completed successfully. Note that some airports have elected to charge a substantial fee to both the buyer and seller to complete a lease assignment.

In our next blog, we’ll examine three more critical elements of your lease with additional tips that can help you build equity in your FBO.

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AC-U-KWIK FBO Connection

Part Four of the Four-Part Crafting Advantageous Hangar, Office and Tie-Down Agreements Series

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Part Three of the Four-Part Crafting Advantageous Hangar, Office and Tie-Down Agreements Series

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