Originally published in Blakes Bulletin on Real Estate Leasing, November 2007
The granting of building naming rights is an inducement used by landlords to secure a desirable, major or lead tenant in a commercial development. For tenants, the ability to have their corporate moniker on a building is an important brand promotion tool. However, what should be a win/win situation can quickly turn into an embarrassing disaster for both parties if the issues associated with naming rights are not properly addressed as part of the lease negotiations.
Whose Name Is That?
As their branding requirements may change from time to time, tenants find it advantageous to retain the ability to change the actual name they may employ for the landlord’s building. Tenants may also seek to retain the flexibility to brand the building using the name of any one of their affiliates or business divisions. However, the name utilized in branding a building has important implications for a landlord as it affects, among other things, the prestige of the building and the landlord’s ability to lease to other tenants (tenants are usually averse to leasing space in a building named after a competitor). Accordingly, from a landlord’s point of view, the specific name to be utilized should be agreed to upfront. Agreements which simply state that the building will be named "in accordance with the tenant’s business requirements" or "using the tenant’s corporate name" – two actual examples which I have come across – could lead to trouble down the road.
Where the tenant is permitted to change names during the term with the prior written consent of the landlord, its ability to do so should be limited to no more than once during the term or other specific period. This will help alleviate disruptions and public confusion. In addition, the landlord should seek the right to recover its costs attributable to the change. Such costs would include the cost of new signage, directory boards, brochures, business cards and letterhead.
Use Of Name/Protecting The Brand
Having negotiated such a useful right, a tenant will want to ensure that its name is actually adopted by the landlord in referring to the building. Accordingly, a positive obligation should be placed on the landlord to use the name in its marketing, leasing and promotion of the building. At the same time, however, a tenant will have substantial goodwill invested in its brand and, as such, should not grant its landlord carte-blanche usage rights. To avoid diluting its rights to the name, the tenant should enter into a licensing agreement with the landlord in connection with its limited use of the name for the building. A tenant will certainly want to ensure that its name is not used in conjunction with activities which could have a negative public image or used in any other manner which could tarnish its reputation.
A landlord, on the other hand, will want to retain expansive rights to use the tenant’s moniker in conjunction with a broad set of activities and without the necessity of having to constantly seek the tenant’s approval.
Conditions To Grant Of Naming Rights
As noted above, building naming rights are usually granted in order to secure a desired tenant. As such, the rights should be non-assignable so that they are personal to the desired tenant. Further, landlords should also seek to retain the ability to rescind the rights should the tenant cease to actively carry on business in the building or drop below a specific occupancy threshold. In some cases, it may even be appropriate to stipulate that the rights will be lost should the tenant cease to be the largest occupant of the building. Of course, all of the foregoing will be met with resistance by a tenant as it will be reluctant to forego its naming rights even if it does not maintain a presence in the building. A tenant will also recognize that the ability to transfer naming rights will enhance its ability to market its lease should it wish to assign it.
Bad Corporate Citizens
The recent wave of corporate scandals highlights one downside to naming rights. To reduce or offset negative public perception or unwanted media attention, building naming rights clauses should specify circumstances that would permit the landlord to "de-name" the building. Corporate scandals, bankruptcy/insolvency and a move into unsavoury lines of business are a few examples where a landlord might benefit from such an out clause.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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