More and more real property owners across the country are finding themselves in the enviable position of receiving an out-of-the-blue offer to lease space on their property for a cellular telecommunications antenna site. Normally, the space sought is a small, little-used or unused portion of the property, such as a portion of a rooftop or the back of a parking lot.
But while almost any property owner will be interested in generating income from an unused portion of his property, cell site leases are a different animal and the smart owner will not simply jump at any offer. These differences exist in even the most basic ways. For example:
• Parties – Frequently, a 3rd-party site acquisitions specialist will be the only representative working with the owner, yet his negotiation authority is not absolute. This can cause confusion and delay. Having this specialist clarify his relationship with the actual tenant early on will help, as will an early understanding of who that tenant is – a telecommunications carrier such as T-Mobile or Nextel, or a “tower company” who will turn around and sublease to carriers? The type of tenant can impact major deal points such as structuring the rent.
• Term – For business reasons such as high front-end costs, cell site tenants will normally require much longer terms than other commercial real estate tenants. The desired term is typically 5 years with 5 or 6 renewal terms, for a potential 30 to 35 -year term. It is important for owners to consider how this long duration could impact future plans for the property (redevelopment, for example), and requires special attention to rent escalation provisions.
• Rent – Market data is very difficult to come by, and as a result owners have difficulty determining a reasonable rent to charge. Site acquisition reps may use this lack of information, as well as owners’ naivety of the industry, to seek a low-ball rent figure. Further complicating matters are (a) the long-term nature of the lease and the need for reasonable escalators, (b) the fact that many tenants will sublease to multiple carriers, the profits from which owners should expect a share, and (c) technological unfamiliarity and uncertainties. This third point exacerbates the prior two – for example, how will changing technology alter the capabilities and value of an antenna site?
• Leverage – Another difficulty for the owner is that he doesn’t know how much leverage he has. His site may fill a key coverage gap, or it may be one of numerous equivalent sites available to the potential tenant. If a property owner is willing to play hardball, he might learn that he has quite a bit of leverage.
While the basic business issues create several issues for owners to consider when negotiating a cellular telecommunications site lease, the “legal language” of the agreement deserves careful attention in its own right. We will delve into that topic here in the near future.
Scott M. Toussaint, Real Estate Group