Matters Column, Law, and Real Estate

Cell tower leases can be gold mines for landowners

October 8, 2012
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Existing cell tower leases are gold mines for the landowner who granted the lease. If he were alive today, King Croesus of ancient Persia would be using his riches to buy them.

As a telecommunications attorney representing property owners across the country on such leases, I often find that they have given away the gold mine. Below are suggestions for property owners so that they can mine the gold in a cell tower lease.

But first, why are cell tower leases a gold mine?

Because it costs the cell company more than $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.

Big money comes to landowners 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 towers. This can double, triple, etc., the rent the property owner gets.

The result? Even though a lease may say the cell company can cancel at any time, the reality is that it can't. Rather, the cell company is often locked in like a barnacle to its rock.

So existing cell tower leases are extremely valuable. They often can be sold for several hundred thousand dollars, or held, in which case the property owner will get much more money over time.

But to realize large sums, here are some do's and don'ts:

Don't quickly 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 that 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 cell companies. 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, known as 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 changes specifically set forth in detail in engineering drawings attached to the amendment. Demand a substantial (30 percent to 100 percent or more) increase in rent in return for amendments, often proportional to the increase in antennas or space being used. Nix 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. 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 claim that this is needed for "911" purposes. Ninety-nine percent 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 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," it may cancel the lease without the changes or rent reduction. 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. Often this leads to significant improvements in both the rent received and in the lease terms, with the cell phone company reimbursing the property owner's legal fees. In other circumstances it leads to 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 a large cut — 20 percent to 40 percent — 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, as there can easily be 10 to 20 prospective bidders. Have the sale documents reviewed by counsel, as the documents supplied by the purchaser are often woefully deficient. Note that one of the auction terms will often be that the purchaser reimburses the seller's legal fees.

The bottom line? 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 the mine and the gold from the property owner.

John Pestle is a partner with the law firm of Varnum LLP.

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