(Article updated on February 10, 2020)
Cell tower lease agreements are unlike any residential, or commercial lease agreement.
This is due to the very specific use of a cell tower, also known as an unmanned wireless communications facility. A Cell tower lease agreement is typically presented by the tenant, not the landlord. This is the complete opposite of traditional residential and commercial leasing, where lease agreements are typically drafted by the landlord.
Since the property owner is likely going to sign a lease agreement drafted by the tenant, it is imperative that the agreement is thoroughly reviewed by cell tower lease experts such as Airwave Advisors®.
Before we share with you our 7 tips and tricks….
How Do Cell Tower Lease Agreements Work?
We often receive the question of how do cell tower leases work? In a typical Verizon lease for example there can be thirty-six provisions. These dozens of provisions cover everything from rent to condemnation. We won’t address every nuance of a cell tower lease here, instead we will address the basic fundamentals that make up a cell tower lease.
- A company pays you a monthly or annual fee to occupy your real estate.
Typically a cell tower or a wireless company will contact you directly. They will propose to pay you a monthly or annual fee (also known as rent) in exchange for you allowing them to occupy your real estate. The fee amount is negotiable and typically the the amount of space they would like to occupy is negotiable as well. In their initial offer they will ask for more space then they need and they will offer to pay you well below what they are really willing to pay you.
- Both parties discuss the total time that the cell tower can be on your property.
In a cell tower lease agreement this is known as “Term”. Both parties discuss how long they are willing to enter into a lease agreement for. Typically the cell tower company will want you to agree to the longest term possible. The reason being is that they can typically terminate the cell tower lease in thirty days – however – you will be locked in for the total amount of the lease term. That means you cannot re-negotiate the lease five, ten, or twenty years (if the lease is more than twenty years) down the road, to get more rent. It is always in the best interest of the property owner to agree to the most minimal amount of lease term as possible.
- Cell towers need power! It’s time to discuss utilities.
In most cell tower lease template agreements there is language allowing a cell tower lease tenant to obtain their own electric meter. However, there is often fallback language in the lease where in the event they can not obtain their own meter they can use the property owner’s utilities. This is a huge problem and the last thing any property owner wants to be is a middle-man passing through a utility expense to his tenant every month.
T-Mobile’s lease template even goes so far as to propose a flat utility reimbursement of $200.00 per month for the term of the agreement. This is a ridiculous proposal as we have seen cell sites use in excess of $1,000.00 per month in utilities and utility rates increase annually. A property owner should make sure that their tenant obtains their own meter with the local utility company – period.
- Uncle Sam enjoys cell towers as much as we do. Who pays the real estate taxes?
In the event your property taxes increase due to the installation of a cell tower on your property, your tenant should pay 100% of the increase in rent. Ideally the property owner would like their tenant to be assessed directly by the local assessor. Playing middle-man passing through the tax increase to the tenant is not ideal, however, it is common. If your property taxes increase you typically pay the increased amount and send copies of your prior year and current year tax bill to the tenant. It is important to watch out for pitfalls in the leases. Often they will not include any time period upon which they have to reimburse you. The agreements will also try and time-bar you from getting reimbursed after one (1) year.
- The cell tower lease agreement has been terminated or expired, now what do we do?
In the event both parties do not want to renew the agreement upon lease expiration, we will need to look at the removal language in the lease. Most cell tower lease templates are insufficient when it comes to removal language. Some even go as far as allowing the cell tower company to abandon the tower and walk away. Depending on the circumstance this could transfer the risk and liability of owning the tower to the property owner. Instead most property owners want the cell tower removed at the end of the contract. Better yet, if the tenant fails to remove the cell tower, the property owner should have the right to have the tower removed at the sole cost and expense of the tenant. Whatever is brought on to your property, should be taken off your property as well, right?
Now that we have a basic understanding of how a cell tower lease agreement works…
Here are 7 Cell Tower Lease Agreements Items To Look Out For:
1. Lease Only Lease What You Have To
It is absolutely alarming when we see cell tower lease tenants requesting 100′ x 100′ land lease areas (10,000 square feet). They simply don’t need that much space. Most cell towers only require a few hundred square feet of land, not 10,000 square feet. Don’t lease more property than you need to; you will be giving up more than just the rights to that land for the next 25 years.
2. Don’t Negotiate Cell Tower Lease Rent Without An Expert
We often review lease agreements of previous deals negotiated by property owners without the help of experts. It pains us to see low rents, bad lease language, and unfavorable terms for the landlord. The cell tower lease companies have experts on their side, shouldn’t you? Have cell tower lease experts such as Airwave Advisors assist you in your cell tower lease negotiation and don’t leave money on the table.
3. Cell Tower Lease Rent Escalations
Here again, we see many deals that were negotiated by property owners without the help of cell tower lease experts, which resulted in unfavorable lease provisions for the landlord. The value of money decreases over time, and so can your cell tower lease. Unfortunately, many landlords do not realize that they may leave tens, or even hundreds of thousands of dollars on the table, simply because they did not use a landlord advocate like Airwave Advisors. The cell tower lease companies have experts on their side, shouldn’t you? Have cell tower lease experts such as Airwave Advisors assist you in your cell tower lease negotiation and don’t leave money on the table.
4. Take Caution When Granting Options
Many new cell tower lease agreements are options in the beginning. The tenant writes the landlord a one-time check and they have the option of exercising the lease or passing on the opportunity. We have received some new leases agreements where tenants are asking for three (3) to five (5) year options in exchange for paying the landlord $100.00. Proposals like this are a red flag, how serious is this tenant to really rent your property? Be very cautious when granting anyone an option to lease your period for an extended period of time. What is that option worth to you?
5. The Minimum Amount Of Term The Better
Extension terms, while attractive to landlords in commercial leasing, are not in the landlord’s best interest in cell tower leases. That is because cell tower leases typically allow for the tenant to terminate with thirty (30) days notice, however, the landlord cannot terminate until lease expiration. So if the landlord agrees to thirty (30) years total in lease extensions, they are locking themselves into the lease for that period of time, while the tenant can terminate next month if they want to.
6. Remove The Right Of First Refusal
The Right of First Refusal, or Right On Sale, provision needs to be removed from any cell tower lease agreement. The tenants rights are significantly protected in the lease agreement and this provision is overreaching. By keeping this provision in the cell tower lease agreement, you significantly restrict your ability to sell the cell tower lease in the future. When many buyers see this provision in a lease, they will not waste their time on making an offer to purchase your lease. Why make an offer to buy something, if someone can just take the deal at the price you have offered? Don’t limit your options – have the right of first refusal removed from your cell tower lease agreement.
7. Tenant’s Have Experts On Their Side, Make Sure You Have Experts On Your Side
There is a reason cell tower lease companies use cell tower lease experts in every deal – results – it gets them better deals. If your tenant is using cell tower lease experts to negotiate against you, shouldn’t you have cell tower lease experts looking out for your best interests?
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About Nick G. Foster
Since founding Airwave Advisors® in 2014, Mr. Foster has added value to over 400 clients ranging from the State of Nevada, City of Beverly Hills, to Habitat For Humanity. Mr. Foster focuses on cell tower lease renewals, buyouts, new lease negotiation, and cell site lease management. Prior to starting Airwave Advisors® Mr. Foster founded and led the Cell Site Services Group within nationwide commercial real estate services leader Cassidy Turley (now known as Cushman & Wakefield).