Existing Cell Tower Leases are Gold Mines: How to Keep the Mine and Get the Gold
As a telecommunications attorney representing property owners across the country on such leases, I often find that they have given away the gold mine. Here are some simple suggestions for property owners so that they can mine the gold in a cell tower lease.
But first, why are they a gold mine?
- Because it costs the cell company over $250,000 to replace a cell tower with a new one at a different site, the company will to pay a lot of money to stay put.
- There may not be a replacement site available, either at all or at a reasonable cost. That's because the new tower has to be very close to the old one so as not to have a "gap" in the cell company's network.
- And big money comes because other cell companies will pay large rents to be the second, third or fourth antenna on an existing tower, thus avoiding the cost and difficulty of building their own tower. This can double, triple, etc. the rent the property owner gets.
- The result - - even though a lease may say that the cell company can cancel it at any time - - in reality it can't, it is locked in like a barnacle to its rock.
So an existing cell tower lease is extremely valuable. They often can be sold for several hundred thousand dollars -- or held on to in which case over time the property owner will get much more money. But to realize these sums, here are some do's and don'ts:
- Don't extend the term of the lease. Property owners can get large amounts of money when the lease comes up for renewal, in return for allowing the tower and antennas to stay where they are. Extending the term of the lease removes this potential.
- Don't agree to lease amendments which harm the property owner's ability to sell the lease or sell its property. Property owners are often asked to amend cell tower leases. This request often comes in form letters from California or Massachusetts companies hired by the cell company. Don't sign the amendment! The fine print almost always contains provisions which either prohibit the property owner from selling the lease or significantly reduce the sale price of the property owner's main piece of land (the "parent parcel" on a small portion of which the tower is located).
- Do agree to amendments allowing changes in the antennas and towers - - but only for those changes specifically set forth in detail in engineering drawings attached to the amendment. Get a substantial (30% to 100% or more) increase in rent in return, often proportional to the increase in number of antennas or space being used. Nix any terms harming the value of the lease and have the tenant reimburse your legal fees.
- Don't allow the main lessee to sublease the tower to other providers. Such subleases can often double or triple the rent from the main lessee. The property owner should be getting this additional revenue.
- Don't agree to amendments that in general terms allow the cell phone company to modify, expand, or upgrade its installation, even if they ostensibly claim this is needed for 911 purposes. 99.99% of the time the tower is used for commercial purposes, not for 911 calls. Because towers often need upgrades, property owners can get large rent increases (see previous item) in exchange for specific amendments. Granting a general right to modify or upgrade removes this possibility.
- Don't agree to a reduction in rent (or other changes in lease terms) based on the claim that because "the cell company has too many towers" that without the changes or rent reduction, it may cancel the lease. In fact, most companies are doubling the number of cell towers in the next few years. And like the barnacles mentioned above, towers can't be moved.
- Do have any proposed amendment to an existing cell tower lease reviewed by attorneys or consultants specializing in such matters before you sign it. Often this leads either to:
- Significant improvements in both the rent being received and in the lease terms, with the cell phone company reimbursing the property owner's legal fees, or
- Rejection of the amendment, because it harms the property owner.
- Do be skeptical of offers to buy out a lease for what appear to be large sums of money. Usually the property owner can do better on its own, because the buyout company takes such a large cut (20% to 40%) of the income from the tower as its fee. If you do decide to sell a lease, have a cell tower professional auction it off (there can easily be 10 to twenty prospective bidders). Have the actual sale documents reviewed by counsel specializing in these matters, as the documents supplied by the purchaser are usually woefully deficient. Note that one of the auction terms will be that the purchaser reimburses the seller's legal fees!
So be very careful with existing cell tower leases. They truly can be gold mines. But there is a whole industry of "claim jumpers" hoping to use lease amendments to take mines away from property owners.
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.
You May Also Be Interested In
- Cell Tower Blog Post, July 18, 2018
- Cell Tower Blog Post, June 12, 2018
- Webinar: What Property Owners and Managers Need to Know About Cell Tower Leases and the Sale of LeasesCell Tower Blog Post, May 23, 2018