The Law: Blocked Signage

A cool $955,000. That’s the price tag for the fines the city levied against 59 Fourth Avenue, in Greenwich Village, for two years of illegal signage.

Illegal signage? And $995,000? You’ve got to be kidding.

It’s no joke. And even though that figure is divided among the co-op itself and the two companies that brokered and mounted the hanging vinyl billboards for the movie Twilight, TV’s King of the Hill and Boost Mobile phones, it is still an enormous sum.

How could it happen? How could a co-op board, working with an established outdoor-advertising firm, not know better – and then compound matters by not removing the signage and instead hunker down and let fines and fees accumulate? Most important, what can the co-op’s mistakes teach other boards looking to signage for revenue?

The first lesson is to not believe everything an outdoor-advertising company promises. “A lot of people will tell you a lot of things to get you into a business deal,” says an official at one such firm, who requested anonymity. “You have to do due diligence on your own.” Adds Carly Sullivan, a Department of Buildings (DOB) spokesperson: “The property owner may not even realize they need to get a permit – and they’re not necessarily told by the outdoor advertising company.”

Paul A. Crotty, a judge in Federal District Court in Manhattan, agrees.In a 62-page opinion last spring that upheld New York City’s right to regulate billboards, he noted: “The billboard industry has taken advantage of [the city’s] lax enforcement and has consistently ignored the regulations on billboard sign location.”

And some co-ops themselves may be complicit. “You could be receiving fines but actually make money at the end of the day,” observes Jeff Peyser, board president of the 208-unit co-op at 433 West 34th Street, which decided against signage. “I’m not recommending this,” he quickly adds. “But I’ve heard of this happening.”

That might have been easier before the DOB’s “Rule 49” went into effect August 25, 2006. That regulation formalized how the previously passed Local Laws 14/2001 and 31/2005 would be carried out, and established both a sign-registration process and new enforcement procedures that included new penalties ranging from $5,000 to $25,000 per day in addition to forcible sign removal and to the revocation of registration for errant outdoor advertising companies..

Whatever the particulars at 59 Fourth Avenue, in 2007, the DOB’s Environmental Control Board (ECB) first began fining both that eight-story co-op and OTR Media, the outdoor-advertising firm that paid $5,000 a month for the right to lease billboard space on the building. The area isn’t zoned for billboards, and in any event, the co-op hadn’t obtained permits. (The ECB also fined the subcontractor that physically mounted the ads, Brooklyn’s Ladder 3 Corp.)

Yet for two years, rather than comply by taking the signage down and/or contesting the order, the co-op thumbed its nose at the city: a billboard remained up from 2007 through at least March 2009 (it had been taken down by late October). The $955,000 in fines remained open pending a hearing.

(Patrick Curley, board president of the Fourth Avenue Loft Corp., did not respond to several messages left on voicemail and with a person who answered his phone. Neither was a managing agent available: the co-op’s corporate address is the same apartment as that of Curley and of a third entity, the Fourth Avenue Management Corp. And Ari Noe, the CEO of OTR, agreed to answer questions only by e-mail – and then reneged.)

“It’s important for property owners to realize there are regulations about signs,” says the DOB’s Sullivan, “and that you need to get a permit to install a sign, and that you can be subject to significant fines for violations.”

Few co-ops and condos in the city actually have what the city defines as “advertising signs,” one of four signage categories. These are signs that draw attention to “a business, profession, commodity, service or entertainment” in a different building – technically, in a different “zoning lot” – than the one that carries the sign. This is as opposed to “accessory signs,” which draw attention to businesses, professions, and others in the same building. (“Illuminated signs” and “flashing signs” are the additional regulated categories.)

The first and most important step in exploring signage is to see if your area is zoned for it. In many parts of the city, particularly those places where an ad might face a major highway or a park, billboards are forbidden.

“Anything regarding signage and land-use issues revolves around city zoning,” says Mitch Schwartz, vice president of government and public affairs for the media conglomerate Clear Channel Outdoor, one of the largest outdoor-advertising companies in the city. “If the zoning is right, a building has the opportunity to put up signage. If the zoning doesn’t allow signage, no. Like anything else in real estate, it’s all about location, location, location. The city is pretty good at walking you through it.”

The DOB does have several resources online, and the Department of City Planning has zoning maps. But Mary Cosmark, a partner at Rosen, Livingston & Cholst, cautions: “You need a zoning expert, beyond just a trained lawyer,” to read them. “The zoning resolution is extremely arcane and it’s amended pretty often, so you have to be familiar with all the amendments as well as the standing regulations. It really requires a law firm that specializes in land-use issues.”

Jesse Masyr, a partner in Wachtel & Masyr, one such firm, says it’s true that “the zoning-map site isn’t really a user-friendly document, and it doesn’t have an index.” But, he believes, “a reasonably intelligent person could learn to read them.”

Once you’ve determined that you’re in an area indeed zoned for billboards, the next step is to find an outdoor-advertising company (OAC). New York City makes this part easy: since August 2006, such companies doing business here have to be registered with the city. You can find a list (“DOB Sign Registration Program OACs”), with names, addresses, and phone numbers, at the government’s website (see address on p. 39).

You choose an OAC the same way you choose a managing agent or a capital-improvement contractor. “You’ve got to interview them, understand the legal parameters and stress that safety issues are paramount,” says Schwartz. “You’ve got to be comfortable.”

Don’t forget to address content issues. Andrew Freedman, an associate at Cosmark’s firm, recalls working on a deal where “there was a solid paragraph of text defining what uses were not appropriate for the sign – what’s offensive, what’s not offensive.”

An example of the former? “Strip clubs,” Freedman says. “Some buildings might not want liquor ads. And nobody’s allowed to do cigarette billboards,” he notes, referring to the federal Attorney General Master Tobacco Settlement Agreement of 1999.

You need to be aware of structural and even weather issues. Theresa Racht, a partner at Racht & Taffae, mentions one co-op in northern Manhattan, near the Hudson River that “would do it in a heartbeat, but the wind up there is prohibitive. They also have lightning issues. You may have a building with what seems like a perfect big, exposed space, but there have been some accidents with signs because of wind.”

For aesthetic and/or philosophical reasons, residents in your building may prefer not to have signage. Board president Peyser, who wanted to explore the possibility of leasing billboard space on his building, found himself in the minority of his seven-member board. “There was somewhat of a disdain toward cheapening ourselves by hanging a billboard,” he says. “But I think you have to look at where the building is and what the neighborhood is like and what an advertisement could fetch. If you take all those factors into consideration, and if you’re in a highly trafficked location anyway, this could be one of the upsides to having traffic outside your door. If you have to smell the fumes and hear the horns blaring, you might as well make some revenue from it.”

Discussion never progressed to where the co-op would order zoning research done, but the managing agent did bandy about some figures. “We were hearing, like, $20,000 a month potentially,” says Peyser, whose co-op, he notes, is financially healthy without that.

Assuming all these details get ironed out, an OAC generally agrees to pay a flat fee for the right to host and sell advertising on the property; it’s generally in the mid-four-figures monthly. But, adds Schwartz, “in New York, there’s a diversity of ways things get structured. The sky’s the limit. Creativity is everywhere. A lot of this stuff is done by traffic counts: how many cars and pedestrians will pass this thing, how many eyeballs will see it?”

On the other hand, advises Racht: “Make it easy on yourself and go with a fixed amount; if it’s a five-year lease, you might try to get increases each year. If you try to tie it to some sort of revenue-sharing, well, who’s providing the info and how accurate is it and how do you know it’s accurate? The cost to have an auditor go through records to check on your percentage is not inexpensive. No management company would do it as part of your standard management fee.”

Sergio A. Fernández de Córdova, executive vice president of the ad company Fuel Outdoor, also cautions against revenue-sharing, and proposes a novel alternative to flat fee. “If you do revenue-sharing,” he notes, “you’re a partner in the business and you have to register with the city as an OAC.” It also means that if the outdoor-ad company can’t sell an ad to fill the space, you get no revenue – unless, de Córdova suggests, “you do a structured contract that contains a fixed rent and a ‘when sold’ [component],” referring to a fee that kicks in only when the ad space is actually sold. “So you may get $1,000 a month,” he says, giving an arbitrary figure, “and when the sign space is sold you get another $1,000 a month. So if the space isn’t sold, at least you’re collecting rent” – presumably more, in total, than you would have had with a straight flat fee.

Condominium buildings take the same steps, up to the technicalities of rights-leasing. “With co-ops,” explains Cosmark, “the corporation owns the outside of the building, whereas in a condominium, an outside wall is common element partially owned by every unit-owner. The [condo] board cannot lease a portion of the common elements without getting 100 percent of the owners to agree.”Ultimately, the revenue from signage is only part of what goes into a decision to turn your building into a billboard. “Once you come to the conclusion that marketing or media messages have a power, then you realize some of them are promoting positive ideas and some are not,” says Jordan Seiler, founder of the advocacy group Public Ad Campaign. “If it’s an issue within your building, then it’s an issue outside your building, since you have to look at it every day.”

FOR MORE INFO

www.nyc.gov/html/dob/html/guides/sign_related_appl_permit_guide.shtml

www.nyc.gov/html/dcp/

www.nyc.gov/html/dob/downloads/excel/oac_company.xls

www.nyc.gov/html/dob/html/violations/ecb_violation.shtml