CHECKLIST OF CURRENT ISSUES IN CELL TOWER LEASES
January 16, 2018
Cell tower leases present unique issues for school districts, technical colleges, cities, and other public entities.
For example, instead of dealing with the tenant directly, the tenant typically retains a company to serve as its representative. This representative is usually not the decision maker and will discourage you from trying to request a deviation from a standard boilerplate agreement drafted by this representative. The standard boilerplate agreement already accounts for the legal interests of the public entity’s counterparts, however, so one often needs to force the issue to have the decision brought to the prospective tenant, the wireless company.
A related concern is that the representative may request that you sign documents in advance of the lease, such as a letter of intent. Ideally, it is better to proceed directly to the lease itself, because the letter of intent may include provisions that are binding, unlike a standard letter of intent. In sum, make certain that any letter of intent is not binding but--if it is--do not enter into the letter of intent if you can simply execute an appropriate lease; if signing a letter of intent is unavoidable, follow the same process that is required for making final commitments and consider revising the letter to be consistent with the terms that you ultimately can agree to.
Another issue in dealing with the representative is that you may be requested to sign a document usually entitled “Land Owners’ Authorization” appointing the representative company as the land owner’s agent for purposing of obtaining zoning or other permission from the local authorities. If the agent’s authority is unlimited, the representative company may be able to agree to certain conditions as part of the approval process – conditions that affect the land owner.
The owner should also scrutinize the definitions of the property and the leased premises in the lease. The property is typically defined as the entire parcel that the owner owns, and the leased premises are defined as the specific portion of the property that is leased. Besides ensuring that the definitions are accurate, the owner should be careful that the terms are used in the desired manner, to prevent the tenant from having unfettered access to the entire property or controlling the activities of the owner on its property that is not included in the leased premises.
The commencement date of the lease should also be reviewed. The owner should request that the lease commence within a certain minimum number of days after the lease is executed or risk tying up the use of its property for years, without receiving rent, while the wireless company determines whether it wants to build.
It is difficult to offer a legal opinion on the market rent for a cell tower lease. Different rates are paid for different locations, depending upon geographical desirability and call volume. Also, keep in mind that there are different rates paid for different types of facilities, such as rooftop facilities. The owner may wish to consult with the local municipalities to see what they receive as rent– such leases are public records and many administrators are willing to discuss their understanding of market rent and perhaps even information about statements made by representative company regarding the importance of your location. Regardless, there is usually room to negotiate with regard to rent, so exploring the rents paid to other public entities is likely worthwhile.
A rent escalation clause should be requested, ideally no less than three percent per year. Wireless companies usually request an initial five-year term, with multiple subsequent options to renew in additional five-year terms, frequently adding up to at least fifty years. Care should be taken to understand the financial consequences between a rent escalation clause on a term (usually five years) versus an annual escalation clause. The tenant will usually request the ability to sublease space on its tower or other facilities to other carriers, and not share any of the rent from this subleasing or co-locating. At a minimum, the owner should request the right to approve any ground lease with the subtenant and should also consider the pursuit of a share of the additional rent received from subleasing.
Wireless companies will also request that the owner’s use of its property not interfere with its wireless communications during the term of the lease. Even if there is not a currently foreseeable issue, significant changes could result during the lengthy period of the lease. One approach to this situation is to provide protection to the party whose equipment was “first in time.” For example, the wireless company would agree not to interfere with the owner’s use of equipment installed before the date of the lease. Similarly, the owner would agree not to interfere with the wireless company’s equipment installed after its initial development of the facilities. Please keep in mind that it is difficult to predict the future needs of each party during the potentially long term of this lease. As another comment, there should be a materiality component to the concept of interference. Some slight interference should be tolerated without giving rise to a breach of the lease.
Given the possible length of the lease, and the possibility that the owner may wish to expand its facilities or develop the area where the tower is located, the owner may wish to consider requesting the right to relocate the tower at the owner’s expense.
Unlike general commercial leases, cell tower leases typically include clauses whereby the tenant may terminate essentially at will, with a short notice period. The owner should request that the tenant be responsible for removing all of its improvements, including the foundation of any towers. Some wireless companies have been requesting that they only need to grind down the foundation a few feet, but that could stick the owner with a hefty bill to have the remaining parts of the foundation removed later. Also, the owner should request that the tenant be responsible for payment of rent until all of the improvements have been removed and the ground is restored to its prior condition. The owner may also wish to request that a fee is incurred with regard to an event of early termination.
While this checklist is not intended to serve as an exhaustive list of all the issues in every lease involving a cell tower, it is intended to serve as a starting point in considering and negotiating the terms of such a lease from the owner’s perspective.
For questions regarding this article, please contact the author, Attorney Ann L. Patteson (email: firstname.lastname@example.org; telephone: 844.833.0825), or your Strang, Patteson, Renning, Lewis & Lacy, s.c., attorney.
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