Avoiding Pitfalls in Domain Leasing: NamesCon 2017

l-r: Zak Muscovitch, Eugene Rome, and Andrew Rosener

l-r: Zak Muscovitch, Eugene Rome, and Andrew Rosener

So what do you do with a domain that’s sitting there unsold? The answer: lease it out. Domain leasing is not without its dangers, however. Media Options CEO Andrew Rosener joined domain lawyers Eugene Rome and Zak Muscovitch to discuss some of the pitfalls associated with domain leasing, and how you can avoid them. 

Muscovitch said that the down payment itself is the starting point for a healthy leasing relationship. Dropping that chunk of change is a test of sorts: the ability to put down a significant down payment speaks to the customer's ability to make the lease payments over time when using a high-value domain. 

No Pain, No Gain

"You want the person who's leasing the domain to feel some substantial pain if they do something stupid, said Rosener. "I'm serious—you want them to have skin in the  game." This is in case the person leasing your domain does something illegal, because it's ultimately your name on the domain's registration form.

Helping Startups Start Up

"A startup in whatever business identifies a domain name that they just love," said Muscovich, but it might not have the cash on hand to nail down a high-value domain name: a startup just can't spend money like that. Leasing allows the startup to tie itself to the perfect domain name "without being married to it." 

"What is the lessee going to do with the domain? What's their goal?" asked Rome.

"I have some leases out there that I hope they never execute, [...] but generally you're hoping that they execute," said Rosener. It comes back to that skin in the game—he said that it's about getting someone comfortable with the fact that they don't own the thing they're putting money into—yet. One could call it a similar dynamic to what happens in an auction.

Lessees might use a domain to do illegal stuff: "What happens?" asked Muscovich. "Everyone gets sued." Rosener said that it comes back to due diligence around the deposit: "Make sure you know who the buyer is and what their intentions are."

This is Me, This is You

Muscovich likened the situation to a landlord-tenant relationship—you have to make sure they're not using your domain to make dodgy money with schemes "such as black-hat SEO, trademark infringement, copyright infringement, that sort of thing." You have do do what a prudent landlord would do, he said: keep an eye on your property throughout the course of the lease.

Rome suggested bringing in an escrow company to act as an impartial third party if need be. "These things can go sour," noted Rosener, so the contract has to be airtight. Muscovich added that lower-value domain names might not justify the cost of a lawyer; he suggested using a service like escrow.com. Rosener suggested doing all lease deals through escrow: "You don't want to be chasing the money!" This avoids personal engagement, which almost always revolves around something negative. "Nauseating" was the word Rosener chose: "It's just better having that intermediary because it reduces the friction."

This also protects you against acts of (digital) nature. Shady characters doing shady stuff happens, said Rome, but some innocuous situations occur that frustrate all involved. Things like a Google algorithm change disrupting a leased domain's revenue flow can hinder a lessee's ability to pay the domain owner.

We're usually talking about high-value domains when discussing domain leasing, but Rosener has a $5,000 domain name that's getting leased: "This guy's paying $250 a month... basically forever!"