Concession Contract Terms and Conditions: Retail, Food and Beverage, Advertising

Transcription

1 Concession Contract Terms and Conditions: Retail, Food and Beverage, Advertising Jodi Howick Durham Jones & Pinegar April 13, 2011

2 Purpose of a Concession The broad goals of a concession are to: Provide services to the public using public property Raise revenue for the public agency

3 Understanding the Client s Goals Airport Revenue needs Customer service needs Tenant mix Reducing risk Management tools Ability to change Concessionaire Investment levels Business plan Market environment Performance Incentives Operating costs Ability to stay Create a win-win

4 Scope of the Concession Define the allowed concession and distinguish it from others Locations available for use Use of common areas Permissible activities generally Industry-specific needs and exclusions

5 Scope: Retail/Food and Beverage Define specific business activities Identify the concepts allowed for each location Identify product categories that may be sold Require the use of brands The airport retains control over offered products and services

6 Scope: Advertising Designate display areas Designated permissible mediums (static display, kiosk, electronic installation, phone board, sponsorship, etc.) Designate excluded mediums (wireless data systems, television, tenant spaces, etc.) Provide for adding or removing rights Specify the nature of the rights (degree of exclusivity, lease, license)

7 Term Airport s need for flexibility and change vs. Amortization period and retaining good concessionaires Shorter trends (food/retail 2-5 years; advertising 5-10 years) Overall program under contract (master concessionaire or single facility) Options to renew to incentivize top performance

8 Initial Investment Specify required improvements Purchase of any existing improvements Work by the airport (and financial responsibility) Title to the improvements Level of required concessionaire investment Amortization schedule establishing net book value Construction schedule (transition period) Construction standards Special needs, such as: Kitchen equipment Diverse advertising mediums

9 Additional Investment - Refurbishment Reinvestment timing Continuously maintain in like new condition Mid-term investment to freshen/upgrade Repeated investments through later years of agreement Reinvestment amount Specified percentage of gross revenues Specified percentage of initial investment Continue to comply with construction requirements

10 Rent Amount Due Annual concession rent is the greater of either: A Minimum Annual Guarantee (MAG) The concessionaire generally bids this amount The MAG may be adjusted each year based on a percent of rent paid in the previous year The MAG is not reduced below the initial MAG stated in the agreement Should the MAG be adjusted if airport traffic declines? OR:

11 Rent Amount Due Percentage Rent The concessionaire also pays a percentage of its annual gross revenues when this sum exceeds the MAG Percentages vary based on the industry, type of concept (branded/not branded), type of activity (static display/sponsorship), use of revenue incentives It is essential to define gross revenues appropriately (may vary by industry, may be all inclusive except stated exclusions)

12 Payment Typically the concessionaire pays the rent: Monthly in advance: 1/12 of the MAG is due Monthly in arrears: Monthly percentage rent due (to the extent it exceeded the MAG for that month) Annual true up: The parties determine whether the MAG or percentage rent is due based on an annual accounting: If the concessionaire has underpaid (based on its monthly payments), it pays any remaining sum due If the concessionaire has overpaid, the airport credits that amount toward future rent

13 Verification of Accurate Payment To verify gross revenues: Require monthly accounting and financial/performance reports Require concessionaire to obtain an annual independent audit and provide a management statement Provide strong audit rights for the airport (at any time) Impose financial consequences for underpayments

14 Additional Charges Office space Utilities Common area maintenance Product distribution and delivery

15 Service Standards Areas generally addressed in all concession agreements include: Cleanliness and waste handling Upkeep of the premises Freshness of the concept incorporating trends Safety Addressing public complaints Delivery and transportation of the product through the terminal

16 Food and Beverage / Retail Quality of the food Approval of menu items Food handling Freshness of displays Customer service Street pricing Acceptable forms of payment Hours of operation

17 Advertising All advertising copy is subject to airport approval Copy may not contain matters that are controversial or raise ethical, moral, social, or political issues Art is not permitted without a waiver of the Visual Artists Rights Act Going dark is not allowed in any location the concessionaire must display filler materials approved by the airport Unpaid advertising is not allowed

18 Enforcement Requires a Range of Tools Surveys and secret shopper reviews Corrective action plan requirements Airport retains a right to perform (and charge) Defaults may result in changing when rent is due (from monthly to quarterly in advance) Defaults may result in an increased performance security Liquidated damages (not penalties) Other Termination of the agreement

19 Other Real Property Concerns Relocation and recapture of the premises Surrender of the premises Disposition of improvements upon termination Damage and destruction of the premises Damage caused by concessionaire to others Holding over Bankruptcy Use of other airport areas

20 Addressing Risk Indemnity Insurance (consider needs with liability, auto, property, business income) Waivers (subrogation, claims) Performance security Environmental concerns Security responsibilities

21 Boilerplate Issues Consider: Are some issues addressed through airport policies (or could they be)? Do standard airport requirements need adjusting? Do contract boilerplate terms need adjusting or updating?

22 Thank you