VERY IMPORTANT Hangar Reversion (Lease/ownership) Language FAA

[MikeOH]

Hypo for the lawyers to weigh in on:

One enters into a ground lease with an airport taking FAA grant money.  Assume this is a 'typical' lease with no negotiation up-front; i.e. naive lessee signs 'boilerplate' lease. Lessee then uses his own money to build hangar. Time goes by...lease is up and airport offers a new lease 'first right of refusal' but at much more than the old lease because someone else will pay it.  Can the lessee take down the hangar and 'take it with him'/scorched earth response?  IOW, does a typical land lease give the lessor the right to KEEP the improvements (e.g. hangar)?

[Z W]

There is no "typical" or "boilerplate" lease form for airport hangars in my experience.  It's all negotiable and they vary widely.  I believe at many smaller airports they are often done by attorneys who don't practice in aviation law, or by people without attorneys at all.

Some allow the tenant to remove the hangar building at the end of the lease, but give them the option to leave it and let it revert to the airport authority. That's usually because the airport authority doesn't want to pay property taxes on the building, or wants the tenant to pay them.  

Others, probably more common, say the building becomes property of the authority upon completion of construction, but the tenant has leasehold rights until the end of the term.  This puts the property tax bill on the authority, in theory.  Sometimes they say the tenant owns it until the end of the lease, but then the authority takes ownership, but say the tenant can't remove it during their ownership period.

Some actually require the tenant to remove the building and restore the site to pre-construction status (e.g. bare earth and utility lines removed).  I have no idea why.

Sometimes there is a "right of first refusal" at the end of the lease meaning the tenant can always keep the hangar as long as they'll match or beat any other offer to rent it.  It's not all that common.  More often it just says things like "the parties may negotiate the rent amount after the end of the lease term" which actually doesn't mean anything at all.  Sometimes it says that rent will increase to "fair market value" at the end of the lease, which is a recipe for a disagreement or abuse by one party or the other.  

The more urban the area and the busier the airport, the more formal the leases get, and the more they favor the airport authority.  I will also say most of the 50-year leases I've seen are older, meaning done a long time ago.  More recent ones are commonly 20-30 years, for whatever reason.  And it's not uncommon for ground rent to increase or start being due in year 20 or 25.  This makes it hard to amortize and justify the cost of a building, at today's construction prices, and is really slowing down hangar construction in a lot of places.

A lot of the time the person caught by "surprise" when the lease ends and reverts back to the authority didn't build the hangar, but instead "bought" it quite a ways into its term and didn't read the paperwork or hire a lawyer to read it and explain it to them.  Those are usually the ones who are most upset when the authority comes by and tells them they now have to start paying per month for the hangar they thought they "own."

[amillet]

I’m based at a privately owned public use airport (W28) in Sequim, WA.  The 20 unit T hanger building was built in the mid 1980s. In 1997 the airport owner condominiumized the units, with a 40 year lease term. The lease states that at the end of the lease term, ownership of the building reverts to the airport. Some of the owners have recently started to express concerns as the 40 year term expires in about 13 years. They expect the airport to negotiate a lease extension, however, the Airport plans to take back ownership, and then enter into separate leases with the hanger occupants. I  can’t complain at all, as I drafted the condominium declaration and lease agreement for the airport owner. I currently own one of the condominium hangers. 
The original units sold for $19,500. The most recent sales are between 60 and 65,000.

[MikeOH]

@Z W

Great answer!  Thank you!

[midlifeflyer]

2 hours ago, MikeOH said:

Hypo for the lawyers to weigh in on:

One enters into a ground lease with an airport taking FAA grant money.  Assume this is a 'typical' lease with no negotiation up-front; i.e. naive lessee signs 'boilerplate' lease. Lessee then uses his own money to build hangar. Time goes by...lease is up and airport offers a new lease 'first right of refusal' but at much more than the old lease because someone else will pay it.  Can the lessee take down the hangar and 'take it with him'/scorched earth response?  IOW, does a typical land lease give the lessor the right to KEEP the improvements (e.g. hangar)?

Yes, the typical ground lease gives the lessor the right to keep the improvements. 

[MikeOH]

25 minutes ago, midlifeflyer said:

Yes, the typical ground lease gives the lessor the right to keep the improvements. 

Hmm, so not really a 'ground' lease, IMHO!

I'm surprised anyone signs up for such a raw deal: You rent the land, you build the hangar, and we get to keep it!

[midlifeflyer]

19 hours ago, MikeOH said:

Hmm, so not really a 'ground' lease, IMHO!

I'm surprised anyone signs up for such a raw deal: You rent the land, you build the hangar, and we get to keep it!

Thing is, not everyone thinks it's a raw deal. Leaving out business use (I'm making an educated guess that the new, fancy Signature FBO building and fuel farm were built at Signature 's expense with a reversion clause, and they have to pay the costs of maintaining the ramp too!), I can see someone deciding storing their airplane in a hangar for 30 years in a hangar that cost $60,000 to build on that newly-developed area of the popular airport with a waiting list is worth the additional $166/month on top f the ground rent, even if they had to finance or pay for the construction up front. In fact I know people who would jump at the chance. OTOH, I can see someone feeling like they were forced into it because there was no other viable choice, and others who simply had no idea what they they were buying into. 

 

[ttflyer]

21 hours ago, MikeOH said:

Hmm, so not really a 'ground' lease, IMHO!

I'm surprised anyone signs up for such a raw deal: You rent the land, you build the hangar, and we get to keep it!

In our case, in the corporate jet side of things, the cost of the hangar construction has been paid for three fold in just the fuel cost savings alone over the last 20 years.  Not to mention what we would have paid to rent the hangar space to store the airplanes.  Building (corporate) hangars is a license to print money relative to renting space and paying "tenant" fuel rates. 

Obviously this is different for light GA owners. But they own the land.  It is what it is.  Something I tell my bosses from time to time about our jets and it applies equally to Mooneys: 

Airplanes are expensive.  Either you can afford them or you can't. 

[midlifeflyer]

1 hour ago, ttflyer said:

In our case, in the corporate jet side of things, the cost of the hangar construction has been paid for three fold in just the fuel cost savings alone over the last 20 years.  Not to mention what we would have paid to rent the hangar space to store the airplanes.  Building (corporate) hangars is a license to print money relative to renting space and paying "tenant" fuel rates. 

Obviously this is different for light GA owners. But they own the land.  It is what it is.  Something I tell my bosses from time to time about our jets and it applies equally to Mooneys: 

Airplanes are expensive.  Either you can afford them or you can't. 

I don't think it's a complaint about expense. I don't think the wealth or lack of wealth of the aircraft owner is a huge factor. I think it's more about how different people look at things. Even assuming no independent bad thing intercedes to make things worse.

Business people make business decisions. They are used to the idea of looking at a bigger picture, balancing cost and benefit (both financial an otherwise), amortizing out costs over the long term, and figuring if the net benefits them.  If it does, they're satisfied, both short and long term. If it doesn't work out long term, they're not particularly happy either but even when they yell and scream, they understands it's what they bought. I saw a lot of it during the recession.

But for those who don't have that point of view, it's more, "I built it; it's mine!" They don't see the cost of construction as a 30-50 year investment and, in effect, the rent on the building.  Nor the added value that made them choose that airport over another.  So building a hangar, being "kicked out" at the end of the term while the airport gives "their" hangar to someone else at top dollar, feels like a horrible deal in retrospect and that something is being stolen from them. 

[MikeOH]

@midlifeflyer

You nailed it with your last post.

Other thoughts that cross my mind: You sign a 30 year lease and build a hangar at your expense that reverts to the airport in 30 years. So, who ‘owns’ the hangar in the meantime? You or the airport? If it’s you then do you have right to tear it down and move it to another location? A year after it’s built? Six months before the 30 years is up? Seems it would be fully depreciated at that point, so what basis would the airport have to sue you for what it was ‘worth?’

[Schllc]

8 hours ago, ttflyer said:

In our case, in the corporate jet side of things, the cost of the hangar construction has been paid for three fold in just the fuel cost savings alone over the last 20 years.  Not to mention what we would have paid to rent the hangar space to store the airplanes.  Building (corporate) hangars is a license to print money relative to renting space and paying "tenant" fuel rates. 

Obviously this is different for light GA owners. But they own the land.  It is what it is.  Something I tell my bosses from time to time about our jets and it applies equally to Mooneys: 

Airplanes are expensive.  Either you can afford them or you can't. 

This only works where a “fuel farm “ is allowed.  This is getting harder and harder as well, bc airports want the markup on fuel. 
it is VERY difficult to get a new one approved at my home drome, and even when you do, the airport charges $1.50 flow charge per gallon. 

[midlifeflyer]

11 hours ago, MikeOH said:

@midlifeflyer

You nailed it with your last post.

Other thoughts that cross my mind: You sign a 30 year lease and build a hangar at your expense that reverts to the airport in 30 years. So, who ‘owns’ the hangar in the meantime? You or the airport? If it’s you then do you have right to tear it down and move it to another location? A year after it’s built? Six months before the 30 years is up? Seems it would be fully depreciated at that point, so what basis would the airport have to sue you for what it was ‘worth?’

You have to read the lease to know. The lease is likely to cover that issue in the landowner’s favor. Continued maintenance by the lessee until the landlord takes possession. The default position (no contract) may vary from state to state. In some it may belong to the landowner: in others, it might belong to the tenant so long as it can be removed without damaging the property.

Depreciation is an investment/tax thing, not a measure of damages. You own a 6 year old car that has been fully depreciated (5 years is standard) but is worth $50,000. Someone crashes into it and totals it. You get zero because it’s been fully depreciated on the books? Current fair market value is the measure of damages. Yes I know some TV judges talk about depreciated value, but they’re really talking about the lessened fair market value of someone’s old laptop running Windows ME, not of an asset that doesn’t lose or actually appreciates in value like a building.  

I don’t know about “nailed,” but I think I can appreciate both viewpoints because I have been exposed to them.  I thought it was a bit weird when I first came across it. Then I became exposed enough to be able to see the transaction from multiple sides. 

[midlifeflyer]

Speaking of removal,, I’d personally be far less concerned with the airport acquiring my hangar after a 30-50 year ground lease than the airport requiring me to remove it at my expense. 

[FastGlasair]

It seems, with a new mayoral administration at Ogden, Utah KOGD,  we the hangar owners are about to "win" our legal case (without the courts) with a new Mayoral adminstration, come January 2nd 2024. Our leases said we had "first right of refusal to renew this lease" the only prescribed legal contract increases are CPI rate adjustments.

www.xevision.com  LED and HID landing & taxi lighting technology. Our ONLY competitor is the SUN.

[MikeOH]

9 hours ago, midlifeflyer said:

Speaking of removal,, I’d personally be far less concerned with the airport acquiring my hangar after a 30-50 year ground lease than the airport requiring me to remove it at my expense. 

I assure you that 30 years from now I won't give a damn, at 50 years...I won't be around to give a damn!

[1980Mooney]

This powerpoint sums it up pretty well in layman's terms. 

https://www.sdmunicipalleague.org/vertical/Sites/{2540DC39-A742-459F-8CAF-7839ECF21E89}/uploads/Bryan_Johnson-Airports_Reversionary_Rights.pdf

[as350]

1980Mooney, can you update the link to the presentation? when I click the link it goes to a 404 page.

[1980Mooney]

49 minutes ago, as350 said:

1980Mooney, can you update the link to the presentation? when I click the link it goes to a 404 page.

Bryan_Johnson-Airports_Reversionary_Rights.pdf (govoffice.com)

[Schllc]

On 12/25/2023 at 1:39 PM, ttflyer said:

nse to print money relative to renting space and paying "tenant" fuel rates. 

Oh, our airport is on to this. They won’t allow fuel farms to be built, saying it’s for environmental reasons.. bs… the ones that are grandfathered still, pay more that $1 per gallon in flow fee, even though they have  nothing to do with the purchase or dispensing,  and the airport won’t allow any competition on the field to sell fuel. It’s the city or no fuel. 
All government entities grow to the point they are wild.y inefficient and abusive, it is the natural order when no stake holders get to sit at the table. 
When I was considering a board seat, I spoke to the  manager and asked him about the fee. His response was really shocking. He said the airports budget is predicated on the gallons pumped. I said that is a specious method for the justification. 
I said that it was analogous to me owning a hamburger joint that needed to sell 100 burgers to break even, so one day I haven’t sold a single hamburger and I’m about to close when you walk in, and I tell you your burger will be 100x the cost of a normal burger bc I haven’t sold one yet today.  
he didn’t understand the analogy, and there in lies the problem…