Selling a cell lease and future leasing rights for the site in question usually involves three steps.
First, deciding whether you want to sell. Often the first question to ask is whether you can take the money from a sale, invest it, and get the same amount of money as you’re currently getting in rent.
If answer is “no”, usually you stop . . .
. . . Unless you’re going to sell the property where the cell site is located anyway, in which case a sale usually makes sense. Because the funds from the cell sale usually add dollar for dollar to the sales price of the underlying property.
. . . Or if it would be helpful to get the funds so as to pay down outstanding debt, fund major obligations and expenses, or the like.
Second, you go out for bid.
There are roughly a dozen major companies that buy leases and future leasing rights.
To contact them you need an RFP or “bid request” that puts your lease and location in a good light, attaches all the information that a bidder needs to put in a bid, and contains key terms that you will want in the final sale documents.
You have to decide what you are going to sell (just the current cell site, or if the lease is on a roof, the cell leasing rights to the entire roof) and for how long (35, 50, 99 years or forever). And identify and include tax or other considerations, such as getting capital gains treatment on a sale, qualifying for so-called 1031 “like kind” exchanges, and so on.
Often you have two or three rounds of bidding to get apples to apples comparisons, and improve the price and terms.
Third, you work on the actual documents (mainly a 15-20 page “easement” plus an “option” or “purchase agreement”). These are complex documents. And where we spend most of our time.
The standard drafts from purchasers are very one-sided and make the tail wag the dog. In other words, they make their use of a small cell site the dominant use of all of your property – and your use and development of your property secondary. So if in the future their cell site is in your way, you’re stuck. We’ve seen it happen.
This is particularly a concern if the cell lease is for an antenna on a building, water tower or other structure, where care should be taken to protect the ordinary use, maintenance and repair or replacement of the structure.
We have addressed these types of concerns many times. Properly done, the documents will address the legitimate concerns of both parties, such that the use of the underlying property is not significantly impaired, and the purchaser gets meaningful rights to use the cell site for communications purposes.
This is where some of the key terms from the RFP can be important, such as provisions protecting your future use and development of your property, addressing interference and relocation, making sure there is meaningful insurance there for the long term, protecting you when the buyer assigns the lease, spelling out who bears what costs at closing and so on.
If the purchaser’s due diligence reveals complications that have to be addressed, such as errors in past real estate documents, these will have to be addressed at this stage. And getting any bank holding a mortgage on the property to agree to the sale can take a lot of effort.
Sales of cell leases by cities, counties, schools or other local units of government can involve additional complexities, but that is a story for another day.
So these are the three major steps involved in selling cell leases and future leasing rights. As with many things, knowing in advance some of the key points to be addressed towards the end (in step three) and addressing them in steps one and two really helps.
John Pestle has previously co-presented on topics related to cell tower leases and lease buyouts. Those seminars are available for purchase. Current Issues in Cell Tower Leases and Lease Buyouts is available as a CD with a reference manual. Cell Tower Lease Buyouts is available for purchase as an on-demand webinar.