Cell Tower Lease Rent Escalators: The Classic Story Of A Penny Doubled Every Day
When discussing cell tower lease rent escalators and the effects of compounding there is a good story that can be used as an example. There is a classic story of a worker who is offered a reasonable daily wage for a month’s work. Instead of taking the normal pay, the worker negotiates a compounding pay scale where his pay doubles every day – but starts with just a penny. The employer quickly shakes on the agreement, thinking he is getting a great deal. Unfortunately for the employer, as illustrated below, the 30 days of doubling pay that began with a single penny – ends with a total invoice of $10.7 million.
This story is a good example of the power of compounding and serves as a good analogy of just how important your rent escalator is.
How Important Is A Good Cell Tower Lease Rent Escalator?
In the words of The Donald, “It’s huuuuuuuggggeeeeee!” We are talking about putting hundreds-of-thousands more dollars in your pocket over the life of your lease. That’s how big of a deal a good rent escalator is.
It always frustrates me when I see representatives for cell tower companies taking advantage of property owners like you. I often see them offering landlords no rent escalator, or a below market rent escalator that increases every five years.
Investopedia defines an ‘Escalator Clause’ as the following:
“an escalator clause is a contract provision allowing for one to pass an increase in costs to another party. Escalator clauses are usually related to influences beyond both parties control, such as inflation.”
With that in mind, does inflation wait five years for you? Then why should you wait five years for your rent to go up?
The value of the rent you receive every year decreases due to inflation and without an rent escalator that meets, or exceeds, inflation – you are losing money.
How Much of A Difference is An Annual And A Term Escalator?
We can all agree that your cell tower lease rent should escalate (even if the carrier would prefer it to stay the same). The primary reason for a built-in increase in rent is for the rent to adjust with, or exceed, the uncontrollable outside influences on the value of your rent, such as inflation.
Often we are seeing tower companies such as Crown Castle, SBA, and major carriers, propose term escalators – a rent escalation schedule that increases every five years. This is a horrible proposition for the property owner for two major reasons: (i) inflation does not wait five years for you. You are affected by inflation annually. and (ii) by agreeing to a term escalator you are ultimately agreeing to an increase of less money due to the compounding effect of rent increases year after year.
How Do I Ensure I Am Securing A Good Rent Escalator?
To truly capture a market rent escalator and to ensure you are not leaving money on the table, contact Airwave Advisors to have your cell tower lease opportunity reviewed today.
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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).
We have 2 places on our property that would be a great location for a cell tower that is much needed in our area. Can you direct me to a cell tower company for leasing ??? Yhanks
Hi Rose,
Check out our article “Cell Tower Locations” to learn more about trying to get a tower.
All the best,
Nick G. Foster
We just realized my parents have a cell tower on their property with no escalator for the first 25 years! They were clearly taken advantage of. What if anything can be done? One company who wanted to buy the lease basically told me no one would want to buy it because there is no escalator. In his words “There is a place reserved for folks in hell, who do business like that!” So you can imagine how upset I am! It is not in the best interest of my parents to sell the lease.
Hi Kaye,
It is unfortunate to hear your parents were taken advantage of. They are not alone, as often the representative for the cell phone company is not honest in presenting fair terms to landlords. Once the agreement is signed, the terms are locked in for 25 years. Unless there is a provision in the agreement where your parents can terminate, which is unlikely, they are unfortunately stuck with the agreement and the no rent escalator.
Nick G. Foster
I am looking to have a cell tower installed on my property. Who do I need to contact to get a site review.
Hi Jeff,
Please check-out our article “Cell Tower Locations | 5 Things You Need To Know“. We think you may find the article of value.
All the best,
Nick G. Foster