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Retaining a Cell Tower Lease When Selling Property

February 9, 2022

When selling property with a cell tower lease, keeping the lease is a good option. Done properly, you get the best of both worlds: full value for the property and ongoing lease payments, with the option to sell the lease in the future should you desire. Prior advisories have addressed buying and owning property with a cell tower lease among many other topics. All of our cell tower advisories can be accessed here.

Selling a property and cell lease together will rarely yield the full value for the lease; however, selling the lease in advance of selling the property may also not be attractive. You may not have other places to invest the proceeds where you will get the same return, for example, and taxes can take a big bite. Additional options, such as 1031 like-kind exchanges, are complicated with short deadlines.

Increasingly, real estate investors are opting to sell property — commercial, residential, land for development and, in a unique case, an office condo — but keeping the cell leases and future leasing rights.

To do this successfully, you should aim to establish balance with purchasers by retaining sufficient future rights to (1) renew the lease, (2) expand it some, and (3) satisfy their requirements for paying full value of the lease, should you decide to sell it in the future. You do not want to grant yourself so many rights that it interferes with a purchaser’s ordinary use and development of the property in question, thus decreasing its selling price.

Essentially, you are trying to attain the balance that would occur in a well-drafted cell lease sale to a third party, whereby keeping the lease is the equivalent of “selling” to yourself

Specific subject areas where rights must be balanced include:

  • Permitted and restricted uses by both parties within the leased area;
  • Restrictions on uses or devices allowed on portions of the property outside the leased area, such as Wi-Fi using radio frequencies, which cell companies and lease purchasers alike desire;
  • Access rights and rights-of-way for tenants and utilities, as well as who pays for same;
  • Height and building envelope restrictions on new construction outside the leased area;
  • Property owner approval rights of changes in the leased area, and;
  • Relocation.

Our experience helps in this area, as we have worked on over 100 cell lease sales and/or cell lease retentions involving such balancing of rights. In addition, we have seen (1) situations where a landlord opting to keep a lease did not retain needed rights and thus suffered financial consequences, as well as (2) lease sales where too many rights were given away, again to the landlord’s financial detriment.

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.

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