Here are five facts you should know about cell tower leases before signing one… From real cell tower lease experts… Tower Genius.
If you have been approached by a wireless site acquisition agent working for a wireless carrier or tower company interested in signing an option to lease out your land for their cell tower, you probably have a bunch of questions. For starters… Is their offer fair or is it a lowball offer?
Negotiation is the key. Negotiating a fair cell tower lease is important but should you start negotiating right away? Probably not. You don’t want to negotiate yourself out of the deal in the initial discussion. Ask them to make you and offer. Ask them to provide details. When a cell tower developer wants to put steel in the air make sure they don’t end up stealing your money with a lowball cell tower lease offer.
If you’re open to having a cell tower installed on your land, remember it is an encumbrance on the property that you will need to likely deal with for the rest of your life or for as long as you own it. Consider the following before you sign any and all cell tower leases they place before you.
What is the underlying reason for the cell tower being proposed?
- Nobody proposes to build a cell tower on pure speculation. Understanding motivation will help determine how much leverage you may or may not have in the negotiation. If they are proposing to build a new cell tower, there is usually a specific carrier that has a coverage or capacity need, or there is a competing cell tower nearby that needs to be relocated, or there is a competing cell tower company attempting to “poach” one of the nearby cell tower’s carrier tenants by offering them better long-term lease terms. Is Verizon Wireless, AT&T, T-Mobile Sprint or DISH making the proposal or is a small local cell tower company building the tower?
Is the tower developer trying to get you to sign an “Option” for a period of 3 to 5 years when most options should be no longer than 2 years? This is usually a red flag that the tower company is a developer that may simply be looking to sign an Option to Lease and then flip the contract to a larger cell tower management firm like SBA, Crown Castle, Vertical Bridge or American Tower. We’ve seen “interesting” language in cell tower lease options from cell tower companies like ATLAS and TILLMAN INFRASTRUCTURE that we encourage land owners to take a very close look at before signing.
- If you are signing a lease option and you have a suspicion that the tower developer is speculating and may not have an actual wireless carrier lined up, make sure that your Option or Lease specifies that the Lessee or Tenant will remove any Memorandums of Lease that may get filed with your County, especially in the event they do not build a tower. The Memorandums will cloud your Title and can become a huge headache when you go to sell or refinance.
What’s a good rental escalation rate for a cell tower lease?
Cell tower lease rents should at a minimum escalate at or slightly above the rate of inflation so you don’t lose money over time. The Consumer Price Index (CPI) can be used although many carriers and tower management firms complain that it is difficult to calculate CPI. That is just a lazy excuse and should be disregarded if it comes up in your negotiations.
The industry standard for the past decade has been 3% annual rent escalations per year, however tower companies have pushed for 2% annual rent increases and for terms such as 10% every five year rental terms or even worse such as 7.5% every rental term. Occasionally we see new cell tower proposal completely omit rental escalations. Let the cell tower landlord beware!
Who pays the property taxes?
- As a general rule of thumb, make sure that your cell tower lease specifically states that the Tenant or Lessee will pay for or reimburse any property tax attributed to the cell tower improvement. If your property taxes go up by $2,000 per year after the cell tower is built, get a letter from your tax assessor explaining how they arrived at the new assessment, and make sure there is a reference to the tower improvement. This is also extremely important if you end up selling your cell tower rental stream for a lump sum payment.
How long should the cell tower lease be for?
- Tower companies usually want to not have to deal with paying rents. We’ve seen tower companies like Tillman and even carriers like AT&T propose 90 year deals. Sounds crazy, right, but what is even more crazy is that people counter with 50-year lease terms and they think they are getting a fair deal.
The industry standard is a 5-year initial term with 4 additional automatically renewing 5-year extensions, for a total of 25 years.
Are there any other details I should discuss?
- Removal and Restoration
Typically we make 2 to 3 dozen modifications on every new or existing wireless lease agreement we touch. Some are minor changes and some are significant.
Have more questions? You can always reach out to Tower Genius. We are experts in Cell Tower Leasing and will provide you with guidance and consultation. We have extensive experience in helping clients and their attorneys with equipment upgrades, cell site lease rate valuations, amendments, lease extensions, and cell tower lease buyouts.
Give us a call at 888-313-9750.