How building naming rights affect landlords and tenants

Private Property South Africa
Jackie Gray-Parker

Most people are familiar with the concept of residential and commercial property lease agreements. However, when it comes to ‘leasing’ the rights to name a building, things can become quite complicated.

Building naming rights are the rights to name a piece of property which is usually granted by the landlord in exchange for some sort of financial remuneration. Simple as this premise may seem, it can potentially become a minefield for the parties involved.

It has become quite commonplace for landlords to attract major tenants to commercial buildings by granting or offering them building naming rights. This is mutually beneficial in that landlords can charge a premium rental from a tenant and a tenant benefits from what essentially is another form of advertising.

Those who wish to enter into leases in a building where naming rights have been granted would do well to familiarise themselves with the ramifications of such an arrangement though.

Tenants: If there are other tenants, they should be able to recuperate costs from landlords should the name change whilst they are still occupants either as a result of the tenant having naming rights leaving or the name is changed for another reason. Such costs should cover the costs of new signage, business cards and letterheads.

Tenants should also not grant the landlord an absolute usage right to the name of the building. This is a vital in that a tenant’s name should not be used or connected in anyway with activities that could have detrimental effects to its reputation or public image.

To offset this, the tenant should enter into a licensing agreement with regards to the limited use of the name of the building. Additionally, a duty should be imposed on the landlord should he/she wish to use the desired name in promoting, leasing and marketing the building.

Landlords: Of pertinence to the landlord is that the ability to lease the premises to other tenants may be curtailed. Simply put, potential tenants are less likely to lease in a building named after a competitor.

Another consideration is that any agreements stating that a building will be named ‘using the tenant’s corporate name’ or ‘in accordance with the tenant’s business requirements’ could be detrimental to the landlord and public. For example, if a building was named ‘Fidentia House’ the landlord could find himself in a rather awkward position.

To this end, the agreement should make provision for instances when the landlord may remove or rename the building. This is beneficial for the landlord especially in cases of insolvency and corporate scandals.

It’s also worth pointing out that it is now common practice for landlords to state that naming rights will be lost if the tenant fails to remain the largest tenant in the building. Part of this agreement should ensure that this is actually covered. Moreover, landlords have the right to cancel building naming rights if the tenant is no longer renting the premises or ceases to continue business.

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