Cell Site Leases: Interpreting the Renewal Clause
Steel in the Air would like to stress the importance of understanding not only the terms of your cellular lease, but also the motives of the players with whom you are engaged in negotiations. One seemingly insignificant sentence can change the entire value of your lease, especially if the subject site is up for expiration or if there is a buyout offer on the table.
For new leases, we highly recommend that you retain an attorney who is a cell site lease expert to review your lease and remove any unneeded clauses. If you are already party to a cellular lease, and have questions regarding specific clauses, please see below, or contact us.
How Does the Expiration Date Affect the Value of My Lease?
The amount of time left on an existing lease is probably the most important factor when deciding what to ask for in terms of a lease rate extension or a buyout amount. In general, the less time left on the lease, the more aggressive the offers we see from cell tower owners and lease buyout companies. Though the majority of current cell tower leases provide for multiple five or even ten-year terms, which are renewable entirely at the discretion of the wireless carrier or the tower company, many of the older cell tower leases don’t have an automatic renewal clause, which is a favorable position to be in if you are a landowner.
Many landowners think that they have a chance to renegotiate every time the lease comes up for a renewal term. That is, most leases are for 5 years, plus either four or five 5-year renewal terms (for a total of 25-30 years). However, this doesn’t mean that you will get a chance to re-evaluate your lease rate every five years. Whether or not you do is dependent upon many factors, including current industry dynamics, which affect wireless carriers’ desire to collocate on specific cell sites, versus their tendency to terminate sites due to redundancies. Infrastructure deployment goals, emerging technologies and the general economic climate are also factors, as are specific carriers’ revenue streams, all which affect the relative worth of your cellular lease as it’s valued by the carrier with whom you are engaged.
How Real is the Risk of Termination
Most leases do not allow the the landowner to initiate the termination of the lease, except in the case of a breach by the tower owner, so the lease will only terminate when the last renewal term is complete. If your lease is up for expiration soon (especially within 5 years), you may be able to negotiate a much more favorable lease rate starting now. However, if you ask for too high a lease rate, the tower owner will look for relocation options in the area and may terminate your lease at the expiration (or earlier). Steel in the Air can help determine the value of your specific lease, and we will guide you on how to approach the tower owner in order to get the best value. We can suggest conservative, moderate, and aggressive counteroffers – depending on how much risk you want to take that the tower owner will begin to look elsewhere for an alternate location. If your lease is expiring soon, please reach out to us so we can help you decide what alternative is best for you.
Lease Rates Calculator
Steel in the Air is excited to offer a free lease rates calculator, which allows landowners to calculate and compare the values of an existing lease with a proposed lease, based on the following metrics: monthly or annual rent, escalation rate, escalation terms, and lease expiration date. You can see a visual representation of the total revenue received in each case to determine what is more profitable now and in the future.
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Take caution when lease modifications contains “Right of First Refusal” language. If at some point, you were interested in selling the rights to your lease, this clause would likely lower the final purchase price.
The trend with new cell site leases is to include a “Right of First Refusal” clause. This means that if a third-party were interested in buying your lease you would first have to offer it to the original Lessee. This could substantially lower the final purchase amount. While it might not be possible to avoid the ROFR clause altogether, you might be able to negotiate away from “pro-rata” matching.