Negotiating the Cell Site Lease Agreement
The Bargaining Position of the Landowner
Despite what you may think or hear from other landowners or attorneys, the balance of power in any telecommunication tower lease negotiation depends on the unique characteristics of the site and in turn, its perceived value to the telecommunications carrier. A carrier may perceive that a site is more valuable due to the following reasons:
- The difficulty of finding another suitable location,
- The relative ease of getting approval for a new tower at the site,
- The ease of access to power and telephone service
- The ease and cost of construction
These are just a few of the factors that will influence and impact the bargaining position of each party and ultimately, the landowner’s ability to maximize rental payments as well as reduce obligations and liabilities during the telecommunication tower lease term.
Cell site Lease Terms
Rent - The amount of rent paid for a telecommunications tower is based on various factors, most importantly:
- The amount of space needed to install the telecommunication tower, and
- The demand for a cell site on the property in question or the surrounding area. The carrier typically requires approximately 2,500 square feet of property to construct a telecommunication tower (a little less space to construct a site on a building rooftop). Unlike other commercial leases, however, the amount of rent for a cell site is not necessarily based on a formula of price per square foot. Rather, the demand for the cell site and the coverage it provides to the surrounding area will dictate how much it’s worth and how much the carrier is willing to pay.
Co-Location Fees and Subleases - In addition to the negotiated monthly rent, the landowner should also be mindful of the potential to collect "co-location" fees from the carrier. A "co-location" fee is a percentage of the rent paid to the carrier, typically by another carrier, in the event that the original carrier subleases a portion of its leased property.
As a general rule, most carriers don’t like sharing the revenue they earn from co-locating other carriers on the telecommunication tower, however that doesn’t mean they won’t. A carrier’s willingness to share co-location fees with you and the percentage of that share depend largely on the importance the carrier has placed on your property. Or alternately, it may depend on the gap in coverage that will be occupied by the site in question.
As the landowner, you need exercise caution when demanding co-location fees on the cell site lease because if the carrier has additional options, they may opt for another location for the telecommunication tower.
Lease Term and Commencement - Carriers typically request an initial term (usually five years) with successive options for renewal terms (five, five-year renewal terms) Of course, the renewals are at its sole discretion. Because of the high cost of installation and site improvements if necessary, the carrier will want to occupy the site long enough to see a reasonable Return On Investment. That’s why a carrier will never grant you, the Landowner, a broad right to terminate at the end of a term or renewal term, or to otherwise block the carrier’s right to renew.
If the cell site potentially provides significant value to the carrier, however, you may be able to negotiate a longer or shorter initial term; fewer renewal terms; or the right to terminate the lease upon the occurrence of a specific event, (i.e., the sale of the building). Finally, the value of the cell site may also impact the dollar amount of rent increases or "escalations" every year or renewal period.
- The "Use" Paragraph - "Use" paragraphs come in two forms: Those that are simply descriptive and those that impose limits on the nature or form of activities performed on the property. Depending on the carrier’s interest in your site, you may be able to negotiate a narrowly defined provision to limit the use to the construction, maintenance, and operation of the telecommunication tower. This will provide you with some assurances over the use of your property by the carrier and its sub-lessees, and provide leverage should the carrier seek to renegotiate the lease in the future.
- Access - The carrier typically requests the ability to repair or maintain its equipment 24 hours a day, 7 days a week. Although the carrier needs this flexibility to provide uninterrupted service to its customers, it may also interrupt other businesses on the site and risk the overall security of your property. If you know your property is useful to the carrier's network, you may be able to define the situations and the limit the time of the day the carrier may access the site.
- Interference - This is one of the most important provisions of the cell site lease, at lease from the carrier's perspective. If the carrier is unable to operate its facilities because of any interference to its signal or equipment, it must be able to remedy the situation quickly. In such situations, the carrier will always seek to avoid bearing the responsibility for interference by a third party. This is often a highly negotiable paragraph, and if you believe that you have leverage in the negotiation, you may be able to negotiate responsibility or liability to remedy the interference.
- Termination – It’s common for a carrier to seek an early termination clause in a cell site lease. This may happen if a telecommunication tower site becomes unusable because of interference problem; the carrier loses its license or permit to operate; or, more importantly, it finds the site unsuitable due to advances in technology. If you understand the value of your property relative to other available properties, you might be successful in eliminating some of these reasons or increasing the notice period for termination under these circumstances. In some instances, the carrier may agree to some form of termination fee in exchange for the right to terminate the lease before it reaches term. Many landowners who had their Cingular/AT&T leases terminated due to the merger will end up receiving nothing after the cell site lease is terminated. This could have been avoided if the cell site lease was negotiated wisely.
- Assignment/Sublease - The issue of the carrier's right to assign or sublease is another critical provision in any cell site lease. The carrier wants flexibility in assigning or subletting the Agreement, specifically the ability to assign without having to obtain your consent. This is important to the carrier for many reasons including the ability to transfer the Agreement freely in the event of a merger or acquisition. Finally, the carrier may want to sublease a portion of the leased premises to other wireless communication companies. Because of this, the carrier will generally not accept any restrictions in the assignment or sublet provision. However, if there is a strong demand for your property, you may be able to retain some control over an assignment or sublet by requiring consent in specific situations or absent consent, negotiating acceptable minimum standards for a prospective assignee or subtenant.
The provisions described above emphasize the point that the successful negotiation of a cell site lease comes from thoroughly understanding the perceived value of your property to the carrier. Once you understand that, you may begin to negotiate additional benefits through the carrier's willingness to accept changes to the Agreement.
Please feel free to contact us for additional information.