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