Take Four Steps Before Signing Cell Tower Lease

Over the course of the past 15 years, wireless communication has changed from a novelty to a necessity for everyday life. The rapid growth has given rise to the need for wireless carriers to install and operate a greater number of cell tower sites in greater concentrations and over larger expanses of area. If you are approached by a wireless carrier about leasing part of your property—most likely, your rooftop—to be used as a cell tower site, make sure you take the following four steps, urges Alain M. R'bibo, Esq., an associate in the Real Estate group of Allen Matkins Leck Gamble Mallory and Natsis LLP.

Step #1: Contemplate Potential for Sale, Redevelopment

Even a lucrative cell tower lease may be a potential impediment to the sale of your property. That's because if you want to sell your building during the cell tower lease term, the buyer must be willing to assume the cell tower lease. The carrier has the right to use the rooftop for its cell tower, so you or a new owner can't just tear down the building. That can limit the number of potential buyers, or impede your own opportunities for redevelopment.

In a deal R'bibo worked on, an owner failed to disclose the existence of a cell tower lease on his property when he tried to sell. It was a big problem because the potential buyer planned to tear down the building after the sale. Ultimately, a deal was worked out with the carrier, which agreed to relocate the tower, but the huge cost came out of the seller's pocket.

A failure to disclose your cell tower lease will cost you a lot of money. If you have plans for selling down the road, knowing that the building cannot be redeveloped because it's tied down by a cell tower lease will bring down the value of your property because you're limiting the use.

Step #2: Perform Cost-Benefit Analysis

In theory, cell tower leases can be a win-win situation: The carrier gets the benefit of installing and maintaining its tower inexpensively, and the owner collects money for something that isn't costing it anything. In reality, this isn't the case all of the time. So what owners are in the most advantageous position to lease their properties for a cell tower?

If you have a relatively new building, you're not planning any redevelopment, and it's a multi-tenant building—so there is not an expectation of exclusive use of the property—it could be a good source of income, says R'bibo. Still, if the carrier has to put additional reinforcements on your roof or do other work, you might think twice about the hassle and potential disruption to your tenants. You have to look at the amount of money you are making on the deal and ask yourself if that's enough, he notes.

Step #3: Negotiate Extension and Termination Rights

Cell tower leases typically are drafted by wireless carriers and therefore usually contain various provisions that are more favorable to them, including extended lease terms and unilateral termination rights. How can an owner strike a deal that also is favorable to itself?

“Owners may enter into a cell tower lease focused primarily on the income stream it will generate, without fully considering other important implications of the agreement,” says R'bibo. The problem with giving a carrier the right to use space on top of your building is that usually it sets the lease term at five or 10 years with multiple extension options that could lock up the property for 20, 25, or 30 years. “You should have some benefit in exchange for that,” R'bibo points out. Conversely, these leases usually don't commit the carrier to any extended terms. You're locked in to a cell tower on your space for an extended period, but if the space no longer works for the carrier, it usually can walk away on relatively short notice.

“An owner can ask for its own termination right,” R'bibo says. However, cell towers are big investments, so a carrier won't want you to have the same right as it does to terminate quickly. “If you can't negotiate something that is exactly mutual, try to get something a little more favorable—like several months' prior notice of the carrier's termination.” R'bibo also recommends trying to limit the amount of extension options that you give to the carrier, because you don't know what you want to do with your building in 25 or 30 years.

The key: Focus on making as many rights in the lease as you can mutual, knowing that the carrier may resist doing so in every instance, given its substantial investment at the site.

Step #4: Negotiate Terms Requiring Notice of Entry

Most cell tower leases include provisions that grant carriers unimpaired access to the cell tower site, often without prior notification to, or supervision by, the owner. This can raise security issues with your tenants.

While giving the carrier the right of unimpaired access is less critical in the case of a multi-tenant building, such as a mixed-use high-rise that includes shops and restaurants with residences or offices, this type of access may interfere with a single-occupancy tenant's right to quiet enjoyment. Multiple tenants ordinarily expect that there will be some traffic in and out of the property.

In a single-tenant situation, such unimpaired access may also give rise to security concerns since the tenant will not be the only party with access to its premises, says R'bibo. He advises owners to negotiate terms requiring notice of entries to the site and the right to have a representative present. A key point: Owners should negotiate access terms that do not conflict with the rights of existing tenants, R'bibo stresses. For model language you can adapt, see our Model Lease Clause: Require Notice for Access to Cell Tower Site.

Further reading: “Beware of Traps in Standard Rooftop Lease Agreements,” Insider, October 2008, p. 1.

Insider Source

Alain R'bibo: Associate, Allen Matkins Leck Gamble Mallory and Natsis LLP; 1901 Ave. of the Stars, Ste. 1800, Los Angeles, CA 90067-6019; (310) 788-2400; arbibo@allenmatkins.com.

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