Hangar Lease Contract

A place to relax and discuss flying topics.

Moderators: GAHorn, Karl Towle, Bruce Fenstermacher

AR Dave
Posts: 1070
Joined: Tue Sep 23, 2003 3:06 pm

Hangar Lease Contract

Post by AR Dave »

At the Palmer Airport, our hangars were built on a 99 year lease - extension after that. Where I'm at now (Russellville, AR), contracts are 25 yrs, with an option of 15 year extension (from building date) - after which the city becomes owner. Original records were not kept well - some hangars didn't have contracts, so current Airport Manager tried to organize, revise, and get contracts to have some consistency. I'm told, by the original-owner builders, that there was no intention for the hangars to revert back to the airport. Anyhow we're wanting to encourage the growth, development, and activity of our airport by extending the leases. Our city took over the airport a few years back, we do have a new mayor who's seems to be pro aviation.

Currently my hangar is about $500 lease, $1000 taxes, and $500 personal property on the plane.
Shouldn't those taxes drop as the value of the hangar drops?
Last edited by AR Dave on Thu Apr 30, 2015 1:39 am, edited 3 times in total.
strangebird
Posts: 77
Joined: Wed Feb 20, 2013 1:15 am

Re: Hangar Lease Contract

Post by strangebird »

I have had two condo type hangars, you paid an amount it was about $35,000 -$40,000, the association owned the buildings, they association had a ground lease with the airport or county, you had a sublease for your unit with the association, the ground lease was paid by the member ( owners) based upon the square footage of the hangar and you paid a fee for the association for upkeep, snow, insurance etc. On one of the hangars the property taxes were paid by each member/owner, on the other the association paid the taxes and it was in the annual fees.

The ground leases were 50 years with the ability to extend them for various periods, and the extensions were usually taken early on to guarantee longevity of the hangars leases, eventually the building did revert back to the government entity, so yes they can get them back but it was like a 99 years with the extensions and who cared we are all gone by then.

We could sell the hangar if we chose to, you did not have to get approval to do that in both cases. You were transferring the sublease.

In actuality the only thing you got for your money was the empty air inside the hangar, the floor and walls were really owned by the entity that had the lease which should be the association who leased from the government entity and you had a sublease for your unit these were large hangar communities with many hangars.
User avatar
DaveF
Posts: 1516
Joined: Sat Nov 03, 2007 1:44 am

Re: Hangar Lease Contract

Post by DaveF »

We own a hangar on city-owned land. We pay annual ground lease to the city, and property tax to the county on the improvements. Our leases are 20 years, renewable. There is no reversion (city takes ownership), so the main effect of the renewal is to allow update or modification of the lease terms.

A few years ago the city considered adding a reversion clause to the leases, but it was quickly dropped. Reversion has a demonstrably negative effect on the airport infrastructure, both because it discourages upkeep of the hangars, and because it discourages commercial development on the airport, particularly for short leases like ours. There are a few nearby airports with reversion where no new structure has been built in decades and the existing structures are barely maintained by the cities.

Edit:
I missed the point of your post: Shouldn't the taxes go down as the value of the hangar falls? Seems like they should, but I think you'd have to argue the point with the assessor's office. They assess based on recent sales. Any other factor requires that you contest the assessment
Last edited by DaveF on Thu Feb 26, 2015 9:23 pm, edited 1 time in total.
User avatar
cessna170bdriver
Posts: 4059
Joined: Mon Apr 22, 2002 5:13 pm

Re: Hangar Lease Contract

Post by cessna170bdriver »

My lease with the city of Tehahcapi is for the ground only, and is for 20 years. At the end of the lease I can renew the lease, or sell or remove the hangar. When I sell, the city has right of first refusal at the negotiated price. I've only known them to exercise that right when someone they don't like had negotiated to buy.

When I bought the hangar from the previous owner's estate, it only a year or two left on his lease, and it was no trouble to negotiate a new lease.
Miles

“I envy no man that knows more than myself, but pity them that know less.”
— Thomas Browne
User avatar
GAHorn
Posts: 20967
Joined: Fri Apr 12, 2002 8:45 pm

Re: Hangar Lease Contract

Post by GAHorn »

AR Dave wrote:...
What is a typical lease contract?
Is it typical to build a hangar with the city becoming the owner in 35 yrs?
Currently a 4500 sq ft hangar is about $450 lease, $950 taxes. Seems like those taxes would drop as the value of the hangar drops.
It is common that the municipality (county, etc.) gains title to the building/improvements placed upon the property owned by the municipality/county after a declared period. In some cases title to the improvement is immediate with a lease applied to the constructor (who is ususally the aircraft owner or the FBO.) In most cases this is in support of the public ownership of the land, and the use of the improvements are merely a contract between owner (city/county/etc) and the occupant. Sometimes the constructor is allowed to recoup his costs via an exclusive-use contract for a declared period. The point is that no one be allowed to build upon and block the use of public land except with a specified purpose and period.
This often creates conflicts with subsequent occupants/lessees when they feel their activities and purpose of occupancy is being interfered, but the city (the actual owner of the land and improvement) usually wins.
It's as if you allowed someone to build on your land but you first agree that after a certain period you would own the improvement, and then you subsequently leased the use of that improvement to the same or a different lessor.
'53 B-model N146YS SN:25713
50th Anniversary of Flight Model. Winner-Best Original 170B, 100th Anniversary of Flight Convention.
An originality nut (mostly) for the right reasons. ;)
AR Dave
Posts: 1070
Joined: Tue Sep 23, 2003 3:06 pm

Re: Hangar Lease Contract

Post by AR Dave »

Thanks for the feedback. The lease extensions or renewable is what I'm seeing.
We have a couple of people wanting to build hangars, but not under these short terms.
hilltop170
Posts: 3481
Joined: Sat May 06, 2006 6:05 pm

Re: Hangar Lease Contract

Post by hilltop170 »

I have two different hangar leases at two different airports in two different states.

One is a lease term determined by the actual cost of the improvements and can be renewed for five years at a time once the original lease expires. This can be done indefinitely and the hangar never reverts back to the state. The taxes are at full market value every year. Improvements can be sold and new owners can assume the original lease or get a new lease with the term based on actual purchase price with the same ability to renew every 5 years thereafter. The state does not want to possess the improvements. The lease rate can be adjusted every year by the state. High quality improvements are erected, buildings are maintained by the leaseholders, and new businesses regularly start at the state airports using this leasing system.

The other lease is a 30 year term plus 10 year extension and the improvements revert back to the county at the end of the lease, no other renewal available. The lease rate can be adjusted every year by the county. The taxes are on a decreasing scale over the term of the lease with the tax valuation dropping rapidly the first ten years, then levelling off but still dropping until the valuation is just about zero at the end of the term. The improvements can be sold at any time but no new lease will ever be given. So the market value of the improvements artificially falls as the lease progresses since they revert back to the county at the end of the lease. The lowest quality buildings are erected that will do the job and nothing is done by tenants to maintain the hangars because there is no incentive. No new business has started at this airport in many years. The county will take possession of worn out improvements at the end of the lease.

I think it boils down to whether the governing body is pro-general aviation or against it. The difference is obvious.
Last edited by hilltop170 on Fri Feb 27, 2015 4:09 pm, edited 4 times in total.
Richard Pulley
2014-2016 TIC170A Past President
1951 170A, N1715D, s/n 20158, O-300D
Owned from 1973 to 1984.
Bought again in 2006 after 22 years.
It's not for sale!
User avatar
GAHorn
Posts: 20967
Joined: Fri Apr 12, 2002 8:45 pm

Re: Hangar Lease Contract

Post by GAHorn »

It's discussions like this that make me realize how fortunate I am to have my own hangar at the end of my own house in the country and all paid for, with the taxes frozen at $1400/yr... (but nothing else very often)... because I'm 65.

Miles, mayber you better come on down to TEXAS! :D
'53 B-model N146YS SN:25713
50th Anniversary of Flight Model. Winner-Best Original 170B, 100th Anniversary of Flight Convention.
An originality nut (mostly) for the right reasons. ;)
hilltop170
Posts: 3481
Joined: Sat May 06, 2006 6:05 pm

Re: Hangar Lease Contract

Post by hilltop170 »

Yes, you are very fortunate George, you had the foresight and ability to secure a great location with a nice airstrip and home. Unfortunately the vast majority of aircraft owners do not have the ability or option of having their own airport and must bow to the personal opinions of inept low level government bureaucrats many of which have a grudge against general aviation. Only in places which recognize the benefit of general aviation do you have favorable regulations.
Richard Pulley
2014-2016 TIC170A Past President
1951 170A, N1715D, s/n 20158, O-300D
Owned from 1973 to 1984.
Bought again in 2006 after 22 years.
It's not for sale!
User avatar
4583C
Posts: 457
Joined: Tue Apr 23, 2002 8:20 pm

Re: Hangar Lease Contract

Post by 4583C »

hilltop170 wrote:Yes, you are very fortunate George, you had the foresight and ability to secure a great location with a nice airstrip and home. Unfortunately the vast majority of aircraft owners do not have the ability or option of having their own airport and must bow to the personal opinions of inept low level government bureaucrats many of which have a grudge against general aviation. Only in places which recognize the benefit of general aviation do you have favorable regulations.
Well said Richard. Amazing how a different mayor, city manager or city council can change the direction of a local airport. Years ago the local city manager figured out that low fuel prices would raise the traffic count which would in turn draw grant funding. The plan worked and for several years KXBP had some of the lowest fuel prices in the country. A change of mayor and city manager brought a negative attitude toward the airport and non competitive fuel prices and a huge drop in the volume sold. There was some fear that the city would turn down the airport expansion grant when funds finally became available from the State and Feds. The expansion is going on now and I hope with a new mayor and city manager we will return to a fuel price structure that will again pull the traffic in.
flyboy122
Posts: 324
Joined: Mon Apr 21, 2014 2:30 am

Re: Hangar Lease Contract

Post by flyboy122 »

AR Dave wrote:
What is a typical lease contract?
Is it typical to build a hangar with the city becoming the owner in 35 yrs?
Very common. That's why I rent a hanger instead of building one. There are plenty of lots at KOCQ, and it's only minutes from my home. But by the time I pay the ground lease, and then make the payments on a hanger.....I can rent for a loooong time. There are a couple downsides to that though:

1. The current airport leadership charges just enough to cover costs+rainy day, but we are one wacko airport board away from that common sense concept going out the window. I'll take it while I can get it.

2. I can't modify the hanger to suit my needs. (Insulation, heat, etc.....)

Fortunately I talked my wife into buying 80 acres, so I have a back up plan for if rental costs skyrocket or I want to build a nice permanent shop. Lucky for us? I think so, this property was a score! But keep in mind we both put a minimum of 70 miles per day on our cars. Country living isn't perfect.

DEM
AR Dave
Posts: 1070
Joined: Tue Sep 23, 2003 3:06 pm

Re: Hangar Lease Contract

Post by AR Dave »

OK - we're further along than I realized. Mayor, Chairman of Airport Commission, and a business wanting to buy a hangar met. Mayor is agreeable - now they're floating idea's on how to re-do all the contracts. I've relayed information from this thread.
Last edited by AR Dave on Thu Apr 30, 2015 1:40 am, edited 1 time in total.
AR Dave
Posts: 1070
Joined: Tue Sep 23, 2003 3:06 pm

Re: Hangar Lease Contract

Post by AR Dave »

Summary: Hangar Contracts are 25 yrs + 15 yr extension, at 40 yrs city owns them.
New business is wanting 40 yrs on a hangar contract, from now forward. The hangar they're wanting, to buy, is 13 yrs old.
Another business wants to build a hangar as well.

We also want a renewable clause. We're paying 10 cents a foot on the lease currently. They were talking about going to 20 cents/ sq ft at time of renewal and making that tied to the original contracts (before revision), like the Chairman's would be renewed in 9 yrs. Instead of making it a set number, he's trying to figure out how to adjust it for inflation or to reflect the economic atmosphere.
Last edited by AR Dave on Tue Mar 03, 2015 2:27 pm, edited 1 time in total.
hilltop170
Posts: 3481
Joined: Sat May 06, 2006 6:05 pm

Re: Hangar Lease Contract

Post by hilltop170 »

The best deal for everyone would be, just let existing leases expire, remove the confiscation clause from all leases, guarantee renewal of expiring leases, set annual reasonable lease rate based on annual consumer price index and reasonable term for new leases and renewal of leases when they expire. Tax at a fair rate at full market value on new leases and lease extensions. That would encourage good buildings, good maintenance and upkeep by tenants, and would be attractive for businesses and new leasees who want to be there long term and want to be able to sell at full market value not degraded by future artificial reduction of value due to pending confiscation should they need to sell. Good luck!

Dave- give me a call if you want to talk.
Richard Pulley
2014-2016 TIC170A Past President
1951 170A, N1715D, s/n 20158, O-300D
Owned from 1973 to 1984.
Bought again in 2006 after 22 years.
It's not for sale!
AR Dave
Posts: 1070
Joined: Tue Sep 23, 2003 3:06 pm

Re: Hangar Lease Contract

Post by AR Dave »

OK Hilltop, I'll call you in the morning.

We're still struggling with the proposal. I like just taking the confiscation clause out and renewing like you suggested.
Chairman is scared that the next mayor might come in and change something. He wants a signed contract guaranteeing an additional 20 yrs, right now (while we have a willing Mayor), plus taking out the confiscation clause, etc.. I think (agree) simply taking out the confiscation clause, would take care of everything.

George, post me some big legal words for me to use tomorrow? Thanks

Dave :D
Last edited by AR Dave on Thu Apr 30, 2015 1:41 am, edited 1 time in total.
Post Reply