What Is Right Of First Refusal Language?
Cell phone and tower companies are frequently including a Right of First Refusal (“ROFR”) provision in cell tower lease agreements. This provision can also be known as a Rental Stream Offer provision.
Typically, the provision states that in the event the landowner receives an offer to purchase their lease, the cell phone company (or tower company) has the right of first refusal to purchase the lease on the same terms and conditions as the offer. While the language may sound somewhat harmless, there are a few important things to consider.
ROFR Language Will Decrease The Value Of Your Lease
How does a Right of First Refusal, or Rental Stream Offer, provision diminish the value of your lease?
It’s quite simple.
Should you choose to sell your cell tower lease you will want as many offers as possible to drive up the purchase price of your lease.
A good example is Airwave Advisors represented a seller in a transaction where we obtained fourteen offers to purchase a lease for our client. Initial offers came in at $900,000 and after multiple rounds of bidding we were able to secure a 55% increase in price for a final closing price of $1,400,000.
Now if there was Right of First Refusal language in the lease many of the potential buyers would not have come to the table at all. Why waste time bidding on a lease when you know someone can match and take your deal at any minute?
Why Buyers Don’t Like Bidding On Leases With ROFR Language
Many buyers see bidding on leases with ROFR language as simply as a waste of time.
The cell phone company or tower company who you have agreed to the ROFR language with is typically financially strong. Any offer you receive from a third-party to purchase your cell tower lease your financially strong tenant can typically afford to match.
With that in mind most buyers will shy away from bidding on leases with ROFR provisions. It doesn’t make sense to spend time to submit an offer on a lease if the tenant is just going to match whatever they offer anyway.
What could have been an opportunity for the landowner to have twenty buyers bidding up the price is now narrowed down to just a few potential buyers. As a result, the total purchase price is reduced since there is less competition to purchase your cell tower lease.
ROFR Language Will Slow Down Your Transaction
Typically Right Of First Refusal language states that the landowner must furnish tenant with a copy of the Rental Stream Offer landowner would like to accept. Depending on the language, tenant then has thirty (30) days to respond. This can slow down your transaction by a month or more. The last thing any landowner wants when trying to close a transaction is an unnecessary delay of a month or more.
How Can Airwave Advisors Help?
We have negotiated hundreds of cell tower lease agreements and we encounter this provision frequently. We can work with you to ensure this provision and other harmful provisions in your lease agreement are removed .
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***Please note, the above information is not legal advice and does not constitute any client relationship between you and Airwave Advisors. If you have an issue you wish to discuss, please contact us. ***
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).