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, 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 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 taxes increase you typically pay the increased amount and send your tenant the bill. 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?
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?
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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).