In the world of telecommunications law, one question consistently rises to the top of the list: What is the going rate for lease or rent of a cell tower lease? Keep reading to learn the answer. You can also find answers to other common cell lease questions in our many cell tower lease advisories.
The answer comes from tower management companies, which own or have the leasing rights for up to half of all United States cell tower sites. Serving as middlemen, these companies lease the land or rooftop site from the property owner and rent it to cell companies or other providers. With expert staff and site ownership in the tens of thousands, these billion-dollar companies have bargaining power comparable to that of the cell companies they are renting to. This is in stark contrast to an ordinary property owner negotiating a lease with a cell company.
Due to this equivalence in market power and the share of cell sites they control, the rents these companies negotiate are the best indicator of what the going or fair market rate is for a cell tower lease.
Because some of these companies are publicly held, they are required to file annual reports called 10-Ks with the Securities and Exchange Commission. When you examine filings for 2021 and divide income by the number of leases reported, it shows the average rents charged to cell companies range from $34,000 to $61,000 annually. While some cell lease rents may be higher or lower, this average range provides a good guide for rents in 2022.
These rates also correspond with what we’ve seen from clients whose lease terms entitle them to a percentage of the rent being charged to cell companies by tower management companies. Rent checks received by our clients confirm management companies are charging rates in the $34,000 to $61,000 per year range, although some came in as high as $80,000. It important to note these rent figures are per lease and should help property owners in cell lease negotiations.
Many sites have multiple leases due to two or more cell companies having antennas on the tower or rooftop in question. The annual reports note this, indicating that such companies may have an average of 1.5 to 2.5 leases per site. This means their actual revenues per site will be multiples of the preceding rents. Property owners should also take note of this and attempt to get corresponding multiples if there are multiple cell companies on their tower or rooftop.
Knowing average rents is particularly important for property owners whose cell lease is coming up for renewal. Why? Because once a tower is built, the cell company with antennas on it needs the tower right where it is. Should the tower go away, there would be a gap in coverage (or gaps if there are several cell companies on the tower). Even if companies try to relocate the tower, it costs well over a quarter-million dollars and can take a year or more to find a site very nearby that will fill the gap. Not to mention the time it will take to option and permit it, get zoning permission (which is not guaranteed for a duplicate tower), lease it and build it. Average rents are less relevant for a proposed new tower if the lessee can lease another site nearby for less.
Please keep in mind that with any lease or lease renewal, price is only half the battle — terms are equally important. In a renewal, for example, the company will typically send a lease amendment with a page or two of fine print adding terms in their favor. This is your opportunity to review it carefully, strike harmful terms and change any terms in the original lease you don’t like. Above all, ensure the lease does not harm the use, development or sales price of the property with the lease. There are ways to accomplish this, but that’s for another advisory.
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.