One of the most common questions we get is, “What is the going rental rate for a cell tower lease?” While the answer varies, there are key factors that drive it.
The answer is much different depending on whether this is (a) a new lease or (b) a renewal or extension of an existing lease. If it is a renewal or extension then the rental rate should be much higher. That’s because if the lease is not renewed/extended, to maintain service in the area the cell company will have to replace it with a new tower. And it typically costs at least $250,000 to find and lease a nearby location, build a new cell tower, tear down the old one, and move all the equipment over. The cost is much more if it is a tall tower or has multiple providers on it. So with a cell tower lease renewal (or an extension, which is the same thing) the property owner may be looking at a multiple of the rates discussed below. Of course, this assumes there are no problems in the existing lease that would make this inappropriate.
First, how attractive is the site? A dense residential area or commercial area with a lot of people with cell phones is a very attractive area. A rural area with fewer people is much less attractive. Similarly, cell towers located near thruways are attractive as well, because they provide coverage for the traffic on the thruway.
Second, what are the alternative sites for the cell company? If this is a commercial area with many landlords competing to get the rent from a cell antenna on their property, then there is a lot of competition and the rent will be less. Rural areas are similar because usually they are many nearby properties available for rent at a lower rate. But if this is a residential area or other area where it would be very difficult to put in a new cell tower – then the rent should be much higher.
Third, is this a lease (a) for a cell tower, or instead (b) adding antennas to an existing building (or other structure, such as a billboard, light pole, etc.)? The rental rate is higher for leases to add antennas to an existing building or structure because the cell company doesn’t have to spend one or two hundred thousand dollars to build a cell tower.
Putting this all together, a lease to add antennas to the roof of a church, hospital or school which is the only non-residential building in a dense residential area can command a high rent.
So, what are the dollars we’re talking about? In 2011, we conducted the only national survey of cell tower rental rates. This showed that about half or two thirds of recently signed new leases (not renewals) had rental rates in the range from $1,500 to $2,500 per month range. The numbers today will be higher. Suburban or urban areas will have higher rates. Rural areas will have lower rates. And property owners with several cell towers command higher rates.
These are some of the principal factors that affect cell tower lease rental rates. Of course, on the other side of the coin, property owners have to address the risks that cell tower leases can create, both in terms of potentially restricting the use or development of their property and in terms of liability, but those risks are a story for another day.
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.