My mentor and colleague, John Pestle of the Varnum, LLP and I teach online lectures about wireless leasing matters. We have taught these wireless leasing
lectures for many years. Our lectures, taught through Lorman Education Services and the International Municipal Lawyers Association focus on key things a wireless site landlord should be thinking about when entering into a decades-long cell site lease, or modifying a lease already in effect.
The number one question we get from our lecture participants is always the same: ‘How much is the going rent?’
John has a splendid way of answering that question. He replies socratically asking the question: ‘How much is an acre of land worth in the United States?’
The point, of course, is that every parcel of land is unique; therefore there cannot be a single right answer. Rather, the more complete answer is ‘How much is a specific acre of land worth to the Lessee and Lessor.’ The potential cell site landlord has one opinion of worth, while the potential wireless carrier tenant has its own view.
The question is then, how to figure out the ballpark.
You will find precious few wireless lease rates on the web. A few years ago, John and I conducted a national survey of lease rates for cell sites on government properties, and the findings can be summarized as follows: Lease rates are all over the map, but there’s a general range between a few hundred dollars per month to over $5,000 per month. What makes one cell site only worth a few hundred dollars a month and another many times that amount?
Location, location, location and need, need, need.
A cell site lease in a rural area will produce lease income for the landlord than will one in a suburban area. A downtown lease will most often induce a higher rent than a suburban lease. An interstate-adjacent lease will induce a higher rent than some downtown rents. A financial district lease is somethings at the top of the pile as goes rent.
Here’s a kicker…
What is an exceptionally desirable area to lease in for one wireless company can be completely worthless for another wireless company. That is because each carrier deploys it coverage in a different manner.
Consider each company’s coverage needs to be a jigsaw puzzle of the same outside dimensions, say 10 miles by 10 miles, which each puzzle having different shaped pieces to fill in the coverage picture inside the edges of the puzzle. A missing piece for one carrier might already be found and inserted for another.
Here’s another kicker…
Lease rates can be completely disconnected from the size of the leased area. That’s because the wireless carrier will often try and grab land claiming that some elements of your land are less valuable to them than others. They might say something like, ‘we value the space occupied by the equipment cabinets to be more valuable than the space occupied by the tower, so you should, too.’ (By the way, don’t fall for this sucker punch. Your land is most likely to have a single per square foot or per cubic foot rent (yes, some leases have three dimensions specified of height, width and depth, rather than the more common two dimensions of width and depth).
There’s more to say about this, and I will, but for now I’ll leave you with this…
BEWARE of leases where the wireless carrier wants to occupy a 100 foot by 100 foot space (10,000 square feet). This rather magic number is far greater than I’ve ever seen a wireless carrier need for its own site, which can be from 250 square feet to about 700 square feet. So why would a wireless carrier want the extra many thousands of square feet? So that it can sublease your land to other wireless carriers, broadcasters, two-way radio companies, paging firms (yes, they still exist) and the like so that your tenant can collect and put that subrent in their pocket instead of your.
There are some very effective means to avoid the sublease trap. We commonly implement those means in leases we write for landlords to maximize the sublease rental income of the wireless landlords who rely on our expertise and experience.
My law firm professionals and I have negotiated hundreds of leases, lease modifications, agreements, ordinances, etc. over the years. We repeated hear the wireless carriers talk about the ‘rights’ they must have.
Nope. That’s not how it works for the savvy landlord.
We advise clients (and just about anyone else who will listen) that the wireless carrier is negotiating for privileges, not rights.
For example,
The very valuable privilege to have a lease extend for 25 or more years;
The very valuable privilege to deny the landlord virtually any means to get out of the lease;
The very valuable privilege for the carrier to get out of the lease on 30 to 60 days’ notice;
The very valuable privilege to take hundreds or thousands of square feet of land for sucker rents of as little as 10¢ per square foot;
The very valuable privilege to suspend rent for some casualty, even when the casualty is the due to the carrier;
The very valuable privilege to impose great duties on the landlord compared with those imposed on themselves; and
Many other valuable privileges that solely benefit the wireless carrier, most commonly to the detriment of the landlord.
You get the idea…the boilerplate deals offered by carriers are hardly equal or fair to landlords. That’s a great reason to use an attorney who knows where the obvious (and the hidden) landmines are to be found in the documents, but I digress.
With the privileges the carrier seeks come payments to the landlord. The greater the bundle of privileges, the greater the payment to the landlord for granting those privileges.
Only when the lease is executed do the privileges convert to rights. Not one second sooner!
Landlords negotiating with the carrier’s agent (and all the better if the landlord has competent legal counsel helping…ahem…) should carefully listen for the words and phrases ‘rights’ or ‘we need’ or ‘we must have’ when uttered by the negotiator for the carrier. Every time that those words and phrases rear their ugly heads…and that will happy often…remind the rep that they are negotiating for privileges, which only convert to rights when the deal is done, fully valued, and the paperwork is fully executed.
The skill and mindset of the landlord’s negotiator for a cell site lease most often makes a huge difference in the result and value produced for the landlord.
John Pestle and I will once again present an updated version of our very popular lease buy-out lecture, “Selling Your Cell Tower Lease.” This time we’ll present on April 9th, 2014 at 1:00 p.m. EDT/10:00 a.m. PDT. Lorman Education Services hosts many of the lectures John and I present, and they do an outstanding job at it.
Here’s the updated lecture description:
Property owners with a cell tower or cell antennas on their property routinely receive six-figure offers to buy the cell tower lease and future leasing rights. While very attractive, those offers-typically structured as perpetual easements-pose unusual legal, financial, and technical risks that the property owner and its regular attorney typically are not familiar with. This live webinar will guide property owners and their attorneys as they evaluate and respond to such offers. It includes covering what drives the offers, typical prices, how to evaluate financial terms to determine whether selling makes sense (and when it doesn’t). Those who attend will be better able to evaluate purchase offers, identify and modify the very one-sided documents offered by purchasers, and address some of the risks involved in a sale. Risks include making sure the property owner is not hindered in developing or using its property, ensuring that future sums promised by the purchaser in fact are paid and the contract honored (and the sale terminated if they are not), insurance and bankruptcy protections, as well as questions as to the financial solvency of the buyer. These risks increase as the easement term increases (typically from 50 years to perpetual) given that the property owner continues to own the underlying property. Government agencies face all of the preceding issues, plus special and fundamental questions of municipal authority, compliance with municipal finance/procurement statutes, prohibitions on waste, and risks of accidentally triggering property reverters.
Learning Objectives:
– You will be able to know when a sale does and does not make sense for you.
– You will be able to discuss revising documents to protect property owner and address the preceding issues.
– You will be able to recognize sales terms preventing the property owner’s future use or development of its property.
– You will be able to define the major legal risks involved in selling cell tower leases and easements.
A “casualty” clause in a lease is commonly included to provide a way of altering the terms of a lease or outright terminating a lease before its natural expiration if something bad happen.
Something like a fire.
Take a look below at the standard template language found in a very well-known carrier’s boilerplate agreement. After that, I’ll tear it apart for you, as a potential cell site landlord, to better understand what’s going on, and how it might come back to bite you.
CASUALTY. Landlord will provide notice to Tenant of any casualty or other harm affecting the Property within forty-eight (48) hours of the casualty or other harm. If any part of the Communication Facility or Property is damaged by casualty or other harm as to render the Premises unsuitable, in Tenant’s sole determination, then Tenant may terminate this Agreement by providing written notice to Landlord, which termination will be effective as of the date of such casualty or other harm. Upon such termination, Tenant will be entitled to collect all insurance proceeds payable to Tenant on account thereof and to be reimbursed for any prepaid Rent on a prorata basis. Landlord agrees to permit Tenant to place temporary transmission and reception facilities on the Property, but only until such time as Tenant is able to activate a replacement transmission facility at another location; notwithstanding the termination of this Agreement, such temporary facilities will be governed by all of the terms and conditions of this Agreement, including Rent. If Landlord or Tenant undertakes to rebuild or restore the Premises and/or the Communication Facility, as applicable, Landlord agrees to permit Tenant to place temporary transmission and reception facilities on the Property at no additional Rent until the reconstruction of the Premises and/or the Communication Facility is completed. If Landlord determines not to rebuild or restore the Premises, Landlord will notify Tenant of such determination within thirty (30) days after the casualty or other harm. If Landlord does not so notify Tenant, then Landlord will promptly rebuild or restore the Premises to substantially the same condition as existed before the casualty other harm. Landlord agrees that the Rent shall be abated until the Premises are rebuilt or restored, unless Tenant places temporary transmission and reception facilities on the Property.
Okay, now let’s rip this bad-boy paragraph apart and see what’s under the hood…
“Landlord will provide notice to Tenant of any casualty or other harm affecting the Property…” This sentence places an affirmative duty (a burden) on the landlord to notify the wireless carrier of “any casualty or other harm” affecting the property. So what qualifies as a casualty or other harm affecting the Property? Well, it might be a fire burning down the building, or earthquake, or airplane crashing onto the property, but those are all obvious. What about a toxic gas cloud from a tanker spill 3 miles away wafting over the Property? Yup. How about a small fire in a
“…within forty-eight (48) hours of the casualty or other harm.” Well, that’s 48 hours after ‘it’ happens, whatever ‘it’ is. If you are a landlord who does not live at the property, you might now become aware of the ‘it’ that happens on a Friday night at 7:30 p.m. until you come in on Monday morning. By this time you’ll be in breach of your duty to notify the tenant within 48 hours!
“If any part of the Communication Facility or Property is damaged by casualty or other harm as to render the Premises unsuitable, in Tenant’s sole determination, then Tenant may terminate this Agreement by providing written notice to Landlord, which termination will be effective as of the date of such casualty or other harm.”Okay, let’s break this into even smaller chunks:
“If any part of the Communication Facility…”which would mean the cell site, or any element of it…
“…or Property…”which is your property, upon which the cell site resides…
“…is damaged by casualty or other harm…” which, as we’ve seen above, is anything bad…
“…as to render the Premises unsuitable,…” Unsuitable? Perhaps they just don’t like the Premises anymore. ..
“…in Tenant’s sole determination…” which means that only the tenant gets to decide, and missing the magic word “reasonable.”
“…then Tenant may terminate this Agreement by providing written notice to Landlord,”… Okay, we’re outta here because we sent you a letter…
“…which termination will be effective as of the date of such casualty or other harm.”This allows your tenant to backdate the termination date to the date of the oops.
“Upon such termination, Tenant will be entitled to collect all insurance proceeds payable to Tenant on account thereof…” If your tenant is named as an additional insured on your fire policy, get who gets to collect.
“…and to be reimbursed for any prepaid Rent on a prorata basis.”So, you the tenant just paid you the day before the oops for the entire month, you get to refund all but one day’s rent back to your tenant.
“Landlord agrees to permit Tenant to place temporary transmission and reception facilities on the Property, but only until such time as Tenant is able to activate a replacement transmission facility at another location;…” Hold on, the cell site burned down and they terminated the lease, but they still get to bring a temporary cell site on your property? Yup. You got it. For how long? Good question! Since the lease is terminated, they get to stay for as long as they want, somewhere on your property.
“…notwithstanding the termination of this Agreement,…“ Read it this way: ‘even though the Lease is now terminated…’
This is a “casualty” under most cell site leases, even if the fire was caused by the tenant!
“…such temporary facilities will be governed by all of the terms and conditions of this Agreement, including Rent.”…it’s as if you are on a day-to-day agreement, which you cannot terminate, under the terms and conditions of the old lease.
“If Landlord or Tenant undertakes to rebuild or restore the Premises and/or the Communication Facility, as applicable, Landlord agrees to permit Tenant to place temporary transmission and reception facilities on the Property at no additional Rent until the reconstruction of the Premises and/or the Communication Facility is completed.”But if YOU or the tenant decides to rebuild or fix the cell site and your tenant does NOT terminate the lease, you agree to allow the tenant to bring a temporary cell site on your property…for no additional rent…while the fixing is taking place.
“If Landlord determines not to rebuild or restore the Premises, Landlord will notify Tenant of such determination within thirty (30) days after the casualty or other harm.”if you do not intend to fix their cell site, you have to tell them that within 30 days after the oops occurs. Do you think you’re going to have your insurance settlement nailed down in 30 days? Nope, me neither.
“If Landlord does not so notify Tenant, then Landlord will promptly rebuild or restore the Premises to substantially the same condition as existed before the casualty other harm.”Let’s just say that if you forget to notify the tenant within the 30 day window? Get who gets locked-in to fixing the damage? By the way, get who’s going to get stuck with the bill? Yeah, that’s right.
“Landlord agrees that the Rent shall be abated until the Premises are rebuilt or restored, unless Tenant places temporary transmission and reception facilities on the Property.” So if they don’t terminate, and they don’t bring a temporary cell site on the property, you get no rent while their smoldering remains litter your property.
So here’s the kicker: Think about the photograph just above of the burning cell tower. That fire was caused by a welder working on the tower at the direction of the tenant or subtenant. Under the language of the casualty clause you’ve just read, even if a fire (or other casualty) is caused by a tenant’s activities at a cell site…welding, for example…the tenant can still take advantage of all of the benefits of the casualty clause.
Now that you see how the standard cell lease casualty clause does nothing to protect the landlord, and everything to benefit the tenant (and only the tenant), you understand need to revise the casualty clause to limit it to apply to casualties not caused by or attributable to your tenant, and to strike portions of it altogether.
Like I said, don’t be a casualty of a wireless lease casualty clause. We can help you avoid this predicament.
This post is off topic, but as a current Time Warner Cable subscriber in Santa Monica, California; a former Warner Cable manager; and long term cable industry member, I want to speak up. Soap box, here I come…
Time Warner Cable and CBS are engaged in a game of chicken, with the TWC subscribers in New York, Los Angeles, and Dallas being held hostage until one side exclaims, “Give!”
Time Warner says that CBS wants to raise the retransmission fees by 600%, which is disputed by CBS.
Time Warner suggests that because the CBS content is provided free over the air and online, that Time Warner should not pay ‘so much’ for it. This, of course, ignores the fact that Time Warner Cable, like virtually all cable companies, makes its subscribers pay for bundled services that far exceed the cost of those services. It also ignores the fact that the cable industry historically raises its rates for services and equipment far faster than inflation.
CBS’s role in this stupidity is not yet fully known. I challenge CBS to release its demands and current retransmission fees so that Time Warner Cable subscribers can see who is ripping them off: CBS or Time Warner (or both). According to TechCrunch, CBS has blocked major market customers from viewing CBS programming on line, including in the markets where Time Warner has taken CBS content off of their systems.
This blackout, now 24 hours in duration, is bad for both companies; bad for both industries; and especially bad for TWC subscribers who are being held as captives by both sides.
This would be a good issue for the FCC to take up.
Well, as we all know by know, it turns out that T-Mobile would not feast on the insect. Rather, AT&T Wireless bit the Bug. Yum!
Cricket will go to AT&T, but that’s a bit of a misstatement. This deal has nothing to do about acquiring cell sites. This deal has nothing to do about keeping the Bug’s subscribers. AT&T intends to eat the guts of the Bug…it’s bandwidth…and spit out most if not all of the exoskeleton (the existing cell sites).
This deal, like most of the deals today, has everything to do about acquiring frequencies. Bandwidth… Black Gold… Texas Tea… Wireless Whiskey…
Okay, I’m being a bit dramatic and channeling Buddy Ebsen, but the fact is that bandwidth means more ‘go real fast’ for the customers, and more ‘go real fast’ for future customers.
The electromagnetic spectrum chart below makes it clear.
Spectrum poster by Randall Munroe http://xkcd.com/273/. Used with permission. Click on the image to enlarge.
Bandwidth is a scarce commodity, and lots of entities are vying to occupy its valuable slivers. Buying bandwidth from current licensees makes more sense–and is lots faster–than bidding on them in future FCC auctions.
More bandwidth…faster…less competition. Now there’s a recipe for success.
For more on why the Eat-a-Bug deal makes sense for AT&T, and is yet another sign of the bandwidth acquisition wars, see AGL Magazine’s insightful article on the topic: CLICK HERE.
JLK
PS: I think Randall Munroe is brilliant. Read his stuff. It’s deep. xkcd.com.
For those of you who write cell tower leases to protect site landlords, I’m sure you will be interested in a feature scholarly article that I had the privilege of co-authoring with Christina (Chris) Sansone of the Sansone Law Firm.
Titled, “What Landlords Should Know About Cell Site Leasing” and published in the current issue of the California Real Property Journal (the journal of the Real Property Section of the State Bar of California), this is a nuts and bolts guide for practitioners. Its text is also written to be clearly understandable to non-practitioner landlords and property managers.
The text of the article, supported by nearly 100 footnotes, addresses nearly every facet of cell site leasing from initial negotiations through the end of the lease, whether by termination, expiration, or sale.
I’m particularly proud that our missive was selected as the MCLE Self-Study Article for this issue of the Journal. Attorneys may earn 1.0 hours of general MCLE credit for reading the article and then answering multiple choice questions regarding the content of the article. Information about how to secure MCLE credit for reading our work may be found at the end of the article.
If you are a member of the Real Property Law Section of the State Bar of California, you should have already received your copy by mail.
As for the contents of the article, credit Chris for all of the good stuff, as well as her excellent research and analysis. You can blame me for the stuff you don’t like.
Sprint reports that about 98% of its shareholders voted for the deal. The FCC approval seems like it will be pro forma.
Now, with the SoftSprint and SprintClear deals done, I suspect Dan Hesse is considering when and how he’ll exit SoftSprint, if he hasn’t already already worked out the details of that deal with Masayoshi Son.
Actually, I’d bet Dan’s exit plan is already set down on paper, and it says something like, ‘Dan, thanks for the hard work. We’ll have you stay on as a special consultant to SoftSprint for the next three years…yeah, we’ll call it a consulting gig. You’ll start about two weeks after the FCC approves the deal. Something like $5M a year, plus a really nice parting gift.’
At least Dan will be able to keep his SAG-AFTRA membership. Maybe part of the consulting gig will be that Dan keeps on making commercials for his new boss.
Here’s Sprint’s press release from this morning:
OVERLAND PARK, Kan. (BUSINESS WIRE), June 25, 2013 – Sprint Nextel Corporation (“Sprint”) (NYSE: S) shareholders voted today to approve and adopt the previously announced merger agreement providing for a substantial investment by SoftBank Corp. (“SoftBank”) (TSE: 9984). Sprint shareholders overwhelmingly approved the deal, with approximately 98 percent of the votes cast at today’s special shareholders meeting voting in favor of the merger agreement, representing approximately 80 percent of Sprint’s outstanding common stock as of April 18, 2013, the record date for the special meeting.
“Today is a historic day for our company, and I want to thank our shareholders for approving this transformative merger agreement,” said Sprint CEO Dan Hesse. “The transaction with SoftBank should enhance Sprint’s long-term value and competitive position by creating a company with greater financial flexibility.”
Consummation of the Sprint-SoftBank transaction remains subject to the receipt of the Federal Communications Commission approval. Sprint and SoftBank anticipate the merger will be consummated in early July 2013.
As previously announced, Sprint stockholders will have the option to elect to receive cash in the amount of $7.65 or one of New Sprint common stock for each share of Sprint common stock owned by them (subject to the previously disclosed proration provisions in the merger agreement). The total cash consideration available to Sprint stockholders is $16.64 billion. Pro forma for the transaction, the current Sprint stockholders’ resulting equity ownership in a stronger, more competitive New Sprint will be 22 percent while SoftBank will own approximately 78 percent. Sprint and SoftBank have previously mailed to Sprint shareholders forms of election and related instructions and established 5:00 p.m., New York time, on July 5, 2013 as the election deadline, subject to extension.
So, in the latest chapter of the SoftSprint-Clearwire-Dish matrimonial saga, it looks like SoftSprint will indeed take Clearwire to the alter.
Yesterday, Sprint (which had sued Clearwire just three days before to block the sale to Dish) decided to up its offer from $3.40 to $5.00, topping Dish’s offer of $4.40.
Just to make sure that Clearwire doesn’t take the ring off the finger one more time, Sprint’s amended marriage proposal contract with Clearwire provides for Clearwire to pay Sprint a break-up fee of $115 million should Clearwire get cold feet…again.
I have to imagine that there were some very interesting conversations between Japan and Kansas about what would happen to the value of the SoftSprint deal if Clearwire went off and married Dish. Soft needs Clearwire’s frequency allotments to make its Sprint purchase ‘reasonable’…it didn’t need cash nearly as much. Soft so much as signed that point exactly when it made noises yesterday about making a run for T-Metro if the SofSprint deal collapses.
Lest anyone be unclear:
Clearwire is all about licensed frequencies for LTE; not WiMax, facilities or customers;
Sprint only makes sense with Clearwire’s licensed frequencies; forget about the cash;
SoftSprint only makes sense with Sprint’s sites being upgraded to Network Vision and getting control of Clearwire’s licensed frequencies.
