Key Points for Drafting Signage Clauses

The primary way of attracting customers to a retail store is by publicizing the location through the use of storefront signs, pylons or monument signs. A restriction on the size of the letters, the permitted colors, the height of a pylon or the manner of illumination can have a damaging effect on the number of potential customers and gross sales.

Prior to signing a lease, tenants should conduct due diligence in order to determine any applicable government regulations or ordinances affecting their rights to install signs and should verify whether there are any restrictions on the size of letters permitted, the height of pylon signs, the illumination of storefront signs or any other limitations affecting their signs. In the event that such restrictions exist, it is important to determine whether they are imposed by the landlord or by law.

Tenants should also inquire whether the landlord has created specific sign criteria for the shopping center while negotiating the letter of intent. For example, if a landlord has a rule or regulation requiring that all tenants have uniform lettering or a uniform color scheme, this can have a detrimental effect on a national tenant with its own brand and logo. Such a tenant should seek to carve out an exception at the outset, allowing it to have similar signage to that in place at the tenant's other locations in the same region.

The best practice is to have a tenant's professionally prepared signs approved by the landlord in advance of lease execution. The approved sign package, including the storefront signs, window decals, and all applicable pylon and/or monument signs, should then be attached as an exhibit to the lease. The lease should include language stating that the tenant's sign package is approved by the landlord, and, if necessary, that it is subject to compliance with applicable laws. In addition, the lease and sign package should specify the dimensions of a tenant's proposed signage, type of sign and method of mechanical fastening to the facade. At minimum, a tenant wants to ensure that it will have storefront signs that are at least the same height as the other tenants in the center.

In the event that the requirements of applicable laws cannot be determined prior to signing, or if the tenant is required to obtain permits for the storefront signs, the attorney should seek to include a provision that would allow the tenant to terminate the lease within a specific timeframe, if the tenant is prohibited by local law from having certain size letters or its federally trademarked design and color or is unable to obtain its permits. Further, an attorney representing a tenant should also include language that grants the tenant the right to change its signs. Depending on the specific tenant's bargaining power, any such right to change signage can be tailored to give a landlord reasonable approval rights over any proposed change.

Seeking a Variance

It is also prudent to include language allowing either the landlord or tenant to seek an appeal, commonly called a variance, from any local ordinances that may otherwise inhibit a tenant's rights to specific signs. While such a provision may initially be perceived as a burden by a landlord, typically the individual tenant whose signs are at issue is not the only one that stands to benefit. Often, the more easily identifiable a tenant's signage, the more customers are drawn to the shopping center, so the benefit extends to the surrounding tenants as well.

As an example, the attorneys at this firm obtained a variance where a Long Island village ordinance gave the local architectural review board the right to disapprove signage where such signs were dissimilar to those of surrounding structures. The subject space had been vacant for several months prior. The prevailing argument was that a failure to allow the tenant's recognizable signage would lead to less customers and, potentially, to the leasehold space going dark, which would be a disadvantage to the community.

While there is case law (see, e.g., Lisa's Party City v. Town of Henrietta, 185 F.3d 12 (2d Cir. 1999)) that establishes that an ordinance may restrict the color of a store's signs without constituting an alteration of a federally registered trademark in violation of the Lanham Act, exceptions to any such ordinances can be made. (The Lanham Act, 15 U.S.C. 1121(b) states that “[n]o State … or any political subdivision … thereof may require alteration of a registered mark.” 15 U.S.C. § 1121(b). Therefore, a tenant's attorney should pursue a variance, and assert that their client's recognizable branding will lead to improved sales, which may benefit the greater community.

In addition, there are instances in which smaller signs can lead to an increase in traffic accidents, such as where drivers do not have adequate time to turn because they are unable to identify the premises from a distance. Depending on the specifics of the locale, the argument should be made that larger signs will promote the safety of the community. On more than one occasion, when granting variances for larger signs, New York municipal zoning or planning boards have cited safety concerns, indicating that larger signs are safer for drivers, because better visibility leads to less distracted drivers and fewer road accidents.

Avoiding Sign Obstructions

A tenant's attorney should also seek to protect the client's visibility in the event of an expansion or remodel of a shopping center. This can be accomplished by including a provision stating that the landlord cannot block the sight lines to the premises or alter any pylon or monument in a way that materially or adversely affects the tenant's position or the visibility of the tenant's sign panels. The lease should also grant the tenant the right to install a panel on any future pylon or monument to be constructed. Such language can safeguard the prominence of a tenant, notwithstanding an expansion that introduces new tenants to the center. Additionally, if there is a more desirable location on a pylon or monument occupied by an existing tenant, an attorney can introduce a clause that would allow their client to take over any such space upon the expiration or earlier termination of such other tenant's lease.

The lease should also contemplate a scenario where a tenant's signs are obstructed or damaged due to landlord repairs or otherwise. An attorney can ensure that a tenant is protected if the landlord undertakes alterations by including a clause stating that if any such alterations affect the tenant's signs, the landlord shall be required to protect, repair or replace any signs that are damaged as a result of the landlord's work.

Especially relevant in New York City, a tenant's attorney should include language that requires a landlord to use commercially reasonable efforts to ensure that any obstruction (including scaffolding or a sidewalk bridge) is used for the shortest period of time necessary and will minimize interference with the conduct of the tenant's business. In the event that a sidewalk bridge/scaffolding is required, the lease should permit the tenant to install a sign reflecting its name, logo, or other branding information, at the landlord's cost. On at least one occasion, a New York City tenant has been forced to shutter its business as a result of prolonged scaffolding which interfered with customer visibility. Therefore, tenants should request that landlords erect double height scaffolding to provide additional visibility, and there should be remedies in place, such as reduced rent, if a tenant's storefront signs are obstructed for longer than a specified duration of time.

Conclusion

While it is impossible to foresee every possible scenario that may arise and affect a tenant's operations, the suggested clauses set forth above provide a baseline for avoiding pitfalls in connection with signs in New York commercial leases. Additionally, an attorney should be certain to pursue the option of a variance when a client is told that there are restrictions governing the size of their signs. A well-drafted signage clause can bolster a tenant's visibility and performance, and can serve a significant role in preserving a tenant's rights under a commercial lease.

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Scott R. Kipnis is a partner at Schnader Harrison Segal & Lewis, and leads the real estate team in New York City. Nicholas B. Malito and Jennifer Haberman are Schnader associates and members of the real estate practice group, also based in New York City. This article also appeared in the New York Law Journal, an ALM sibling publication of this newsletter.