When a landowner is approached to possibly allow a cell tower or other wireless equipment on their property they need to first establish what their bargaining power is in this transaction.
Cell tower lease negotiations rely heavily upon the distinctive characteristics of the proposed cell tower location involved and, in turn, what the property’s perceived value is to the cell phone carrier or tower company with that perceived value varying from site to site and cell tower company to cell tower company.
There are several factors that need to considered in negotiating with these companies, including 1)the characteristics of your property or building such as how tall is your building relative to the adjacent buildings in your immediate area or does your land contain topography attributes that distinguish it from others in the areas; 2) what options does a cell tower company have as it pertains to other buildings or properties in the area with a similar layout and zoning classifications: and 3) does your property provide sufficient space for a cell tower company not to only to construct a tower but allow for possible expansion in the future.
So with all that being said ultimately, a landowner’s bargaining power and leverage in negotiations is going to be directly related to the options that a cell phone carrier or tower company has and the overall value of your potential tower location to that cell phone carrier.
If a landowner moves forward with a cell tower lease transaction the following are the primary areas of such transaction he or she should focus on:
- Rent – Rent offered will be based on numerous and varying dynamics. The most important factors are: a) Space requirements of a cell phone carrier or tower company to install its equipment, and a) the overall utility and functionality of the cell tower location to that cell phone carrier or tower. The amount of space (either ground or rooftop) will be dependent upon the type of equipment to be located on a property. The cell tower company will not only be looking for enough space to install its equipment but enough space to accommodate potential subtenants/co-locators. This will typically mean that they will need anywhere from 500-5,000 square feet or ground area on a tower installation and can need as little as 100 square feet on a rooftop installation. However, contrary to other commercial leases a property owner may be familiar with, the amount of space needed is not the most crucial component in the value of a site to a cell phone carrier or tower company and a result rent is not directly tied into the amount of space required.
- Co-Location Fees and Sublease – Cell phone carriers build cell towers for functionality but a cell tower company builds cell towers for their revenue potential only. Just think of a cell tower as a strip mall in the sky. As a result, a landowner should share in this revenue shouldn’t they? In addition to the monthly base rents, a landowner should also be aware of the potential to garner certain additional rent from revenue sharing with the tenant. It is advantageous for a property owner to accurately determine what options a cell phone carrier or tower company may have and more importantly what value the site will ultimately garner for the tenant in the form of revenue during the term of the lease. This knowledge will assist a property owner in obtaining the favorable terms in any lease negotiation, including, but not being limited to, its ability to request revenue sharing from a tenant.
- Cell Tower Lease Term and Commencement – A landowner is usually asked to make a long-term commitment when it comes to leasing a portion of its property. These leases typically have an initial term of five (5) years, with between three (3) to five (5) successive options for renewal terms at the sole option of the tenant. The reasoning behind the long-term nature of these leases is due to the costs involved in not only installing the tower and other equipment installed at that location but in the necessary improvements at the site itself. This can cost hundreds of thousands of dollars. Therefore, a cell tower carrier or tower company must occupy and use the site long enough to be able to recover a reasonable amount of their invested money. Because of the time and money involved, a cell phone carrier or tower company will never grant the property owner a broad right to terminate at the end of a lease term or renewal, or to otherwise bar the carrier’s or tower company’s right to renew. While this does in some ways limit the property owner in its control of the location, as it relates to the term of the lease, this can prove to be a positive for the property owner as well. For the most part, due to the tenant’s investment in the site it, will serve as some form of security in the long-term source of revenue that will be received by the property owner. A property needs to structure a cell tower or roof top lease that allows the property owner not only the most flexibility when it comes to the term of a lease but also making sure the property owner receives “true value” for the tenant’s occupancy and use the tower site during such term.
- Lease Termination – Well as mentioned above a cell tower company or cell phone carrier is making a large investment in a property and needs a long-term commitment so why does that same company insist in having a right to terminate a lease on short notice. A property owner will commonly notice that a cell phone carrier or tower company will seek an early termination clause in a cell tower lease with as little as thirty (30) days prior written notice. The reason for this early termination clause is that the carrier must be able to terminate if a location becomes unusable because of technology problems, or if it loses its license or permit to operate, or, more importantly, it finds the tower site unsuitable due to changes in economic conditions.
A property owner can work to negotiate terms that establish rights that are beneficial to the landowner while limiting the obligations that same party may have under that same agreement, or more to the point get the most and give up the least. A property owner’s first step will need to be to establish “True Value” of its site and go from there.