Your FBO’s Airport Lease: Improvements, Insurance, Environmental Liability

By John Enticknap and Ron Jackson, Aviation Business Strategies Group ABSGgroup.com

Multi-Part Series: The 7 Immutable Elements of Building Equity in Your FBO Enterprise©

Fourth Installment on Airport Lease

For this blog post, we’ll continue our series called the 7 Immutable Elements of Building Equity in Your FBO Enterprise© with the fourth installment on our first element: Obtaining a Long-term airport lease.

In our last post, we covered: Payments, Maintenance Responsibilities and Termination. Now we are ready to discuss three additional lease elements:

1. Improvements including new buildings and renovations

2. Insurance, Indemnity and Hold Harmless Agreement

3. Environmental Liability.

Improvements, New Buildings and Renovations

Making leasehold improvements to an FBO is not only a way to improve facilities to attract and keep customers, it’s also a way to help secure future equity in the enterprise. It’s the best way to secure a longer lease term and to improve your return on investment (ROI).

Building new facilities and/or making timely and needed renovations are critical in negotiating a longer lease term and potentially adding additional optional years with the airport authority.

If and when you decide to sell your FBO, potential buyers will be interested in the remaining length of your lease as well as any additional option year periods. For instance, a remaining lease of 15 to 25 years is a good target along with one or two additional five year option periods.

If you are planning to build a new structure or renovate an existing one, having a business plan that details your goals 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, expand the business base and create jobs. Make sure your project meets these goals and adds to the success of the airport master plan.

Working hand-in-hand with your airport authority will greatly improve relations and will help you in negotiating a longer term lease.

Insurance, Indemnity and Hold Harmless Agreement

In this section we’ll discuss the elements that help you protect your enterprise from unforeseen perils that can expose you to risk and harm.

At a minimum, insurance must meet the requirements of the lease. However, in many cases the lease insurance amount requirement may be too low, especially when you need to protect your enterprise with aviation liability coverage, auto liability and workmen’s compensation insurance.

Always review these requirements with your insurance broker to make sure you are adequately insured and there are no clauses in the agreement which cannot be met. As a standard lease requirement, the airport will want to be a named insured on your policy.

When there are problems at the airport which involve your business and the airport authority, both the Indemnity and Hold Harmless clauses are very important to the FBO.

Unfortunately, in many cases the legal language covering both of these items can be onerous to the FBO. In many of the leases we’ve reviewed, the airport may want to be completely indemnified for any actions on its part and held harmless for any acts, gross negligence or misconduct. You should ask for a review of the language by your legal counsel 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

Today, more than ever, running an environmentally friendly operation is receiving a lot of attention. In the FBO setting, owners and operators are constantly dealing with aviation fuels and other chemicals that can be environmentally hazardous.

For instance, 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 post, we’ll examine the remaining critical element of your lease, the Airport Minimum Standards section.

Please leave any comments you have about this blog post below. If you have any questions, please give us a call or send us an email: jenticknap@bellsouth.net, 404-867-5518; ronjacksongroup@gmail.com, 972-979-6566.

ABOUT THE BLOGGERS: John Enticknap has more than 35 years of aviation fueling and FBO services industry experience and is an IS-BAH Accredited auditor. Ron Jackson is co-founder of Aviation Business Strategies Group (ABSG) 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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