This is the first in a three-part series on commercial landlords, developers and cell tower leases. The advisory below examines considerations when purchasing property with a cell lease. These considerations apply to all persons purchasing property with a cell lease who are seriously concerned about preserving the value, use and future development of the property. Other advisories examine owning and selling a property with such a lease, all based on our four decades of combined experience representing property owners on cell leases. The complete collection of our cell tower lease advisories can be accessed here.
First, obtain a copy of the lease; do not rely on a memo. Ensure the copy includes all lease revisions, as the most important terms are often in later amendments. It is best to source these documents directly from the tenant, as their records are typically complete (or more complete than that of the property owner). Only these documents confirm the encumbrances on the property you are purchasing. Because it is common for cell leases to be transferred, a title report or recent rent check can verify the current tenant.
Second, determine if the lease, right to receive rent and future antenna leasing rights for the property have been sold. Many leases and/or antenna leasing rights have been sold via a specialized “easement” for long periods of time – 30 years to perpetuity. If sold, the easement terms are often more harmful to the property owner than the original lease. During the easement term, the property owner generally receives no rent. Tenants and easement holders will provide documents to a prospective purchaser once a signed buy-sell agreement has been established. Occasionally, arrangements can be made to obtain these documents sooner.
Third, request engineering drawings showing the parent parcel, leased area, access easement and utility easement from the tenant or easement holder. If the lease was sold, the purchaser almost always has such drawings. With these documents, you can accurately evaluate what portions of the property have been encumbered by the lease and/or easement and applicable terms. Purchasers sometimes skip these steps, which is a risky chance to take — we’ve seen it time and again when brought in too late. If our experience is sought from the outset, we may be able to find terms that could scotch a sale or lead to a reduction in purchase price.
Rent, of course, is an important element. A secondary item on rent is determining whether and/or when the rent might be increased. This usually relates to the lease term, precise language of the lease and engineering drawings, which is beyond the scope of this blog.
Another major consideration is whether and to what extent the documents affect the owner’s future use and development of the property. We have seen instances where this was affected to the point the property was rendered nearly valueless. Look at the location of the leased area and easements.
- Are they well defined in the lease or easement?
- Can the tenant/easement holder unilaterally make changes, such as expanding the leased area?
- Do the leased areas or access routes harm future development? (Is the leased area in the middle of the parent parcel or where natural expansion would occur?)
Don’t rely on assurances that they will “consent to changes.” Often they will not… or not without exacting substantial concessions. A possible exception is changes in access and utility easement routes, as long as you pay all costs. Well-drafted documents will have provisions, including relocation clauses, that allow development of the property while preserving the tenant’s need to be very close to its current location.
Examine interference provisions. These can say (or be close to saying) that nothing can be done on the property that might affect the cell lease. This includes construction of new buildings, height increases to existing buildings and/or placement of items atop buildings that might harm the propagation of cell signals. Will this impair the purchaser’s plans for the property, such as building two-story homes or multi-story commercial buildings?
Another common (and vastly overreaching) provision states new radios cannot be brought on the parent parcel after the lease is signed. Sometimes this extends to nearby properties of the property owner or those within a certain number of miles. What does this mean? No cell phones, Wi-Fi, Bluetooth, police radios, ATMs, soda machines or radios can be utilized by the building owner or tenants. A final provision to look out for gives the tenant/easement holder the exclusive right to put new radios on the property, often mini-cell towers or Distributed Antenna Systems (DAS).
On lease term, even though a lease or easement may be cancelled on short notice or not renewed, this almost never occurs. Assume the documents will be in effect for the maximum time they allow. If the lease is for antennas on a building or a tower near significant buildings, examine the terms in detail. Leases for cell antennas on buildings need to be more detailed and complicated than those for a tower on open land to protect the property owner, the building and its use and maintenance. For example, there are often three areas being leased: space on the ground for equipment and generators; space on the roof for antennas; and space in between for connecting wires. Each scenario has different terms that apply, such as the tenant having to remove rooftop equipment at its expense for roof work. Unfortunately, the detail is often not there due to forms of leases intended for a different purpose.
Finally, consider security. The tenant needs 24/7 access in accordance with the property owner’s reasonable security provisions. Do the documents provide for this?
Many other cell lease/easement terms are of a more conventional nature. The preceding points are some of the key issues property owners should look at prior to purchasing a property. Well-advised purchasers may seek concessions (or even walk away) if a serious impairment if found.
Varnum represents clients nationwide on cell tower leases, including on the sale of over 100 cell leases. If you would like to discuss an initial cell lease or retention, sale or renewal of an existing lease, please contact John Pestle or Peter Schmidt.
John Pestle is a telecommunications attorney who, for decades, has represented property owners, including municipalities, on cell tower leases and sales. He is a graduate of Harvard, Yale and the University of Michigan Law School and held an FCC license to work on radio, TV and ship radar transmitters.
Pete Schmidt is a real estate attorney who has represented clients on numerous cell lease sales, including the Detroit Public Schools on the sale of approximately 24 leases. He is a graduate of Albion College and the University of Wisconsin Law School.