Cell tower leasing comes with risks and rewards
Today’s wireless technology creates new ways for Americans to communicate and conduct business, including transferring data through the Internet and two-way paging.
Innovations in wireless communications, however, require an expansive network of infrastructure in the form of antennas and towers, to transmit wireless frequencies, and the necessary connections to land-based Internet and telephone infrastructure.
Antennas and towers require real estate. The demand for real estate to locate antennas and towers provides landowners with unique opportunities for revenue. Landowners may enter into lease agreements with cellular carriers or tower providers (in the vernacular of the industry, “vertical real estate companies”) to allow equipment to be placed on their land.
When considering a cell tower lease, the landowner’s overarching goal is to maximize revenue and minimize obligation. A landowner should consider the following revenue-maximizing, and risk-minimizing, factors when contemplating a lease arrangement with a carrier or vertical real estate company:
• Location and topography of the proposed site: Prior to entering into a cell tower lease, a carrier will want to conduct a site investigation to determine the feasibility of erecting a tower. A desirable site is generally 2,000 to 2,500 square feet in area, with flat topography, limited natural barriers and easy access.
• Zoning requirements and local approvals: Prior to negotiating a cell tower lease arrangement, the landowner should review local ordinances to determine whether construction of towers is a permitted use of their property. Many municipalities require that the landowner obtain a variance or special exception prior to installation of a cell tower. If local approvals are required for the construction of a tower on the property, the lease agreement should require the carrier to obtain the necessary permits and approvals.
• Term of the lease: Standard cell tower lease arrangements include terms of 20 to 25 years. The leases can be for the full term or consist of five year installments, during which rent or other terms will be renegotiated at renewals. For long-term lease agreements, the landowner should negotiate a rent increase mechanism to increase payments over time.
• Rent: The amount of rent to be paid on the lease can vary greatly for different sites. The range for monthly lease payments can be between $800 and $2,000 with periodic adjustments. Generally, the amount of the rent is a function of the property’s size, the demand for a tower in that general location, the availability of other alternative locations and the alternative uses of the property. A landowner can maximize rent revenue by negotiating clauses that provide for additional rent for “co-locators.” “Co-location” refers to situations in which multiple carriers occupy a single tower. Municipalities often favor co-location as a means of limiting the number of towers located in a given area, and, in some cases, have adopted ordinances that permit taller towers to encourage multiple carriers.
• Lease termination: Carriers often insist that cell tower leases give the carrier the right to terminate the lease unilaterally. A landowner, however, should negotiate early termination penalties to mitigate the potential harm of a carrier’s unilateral termination of the lease. A landowner also should require that the lease include “use it or lose it” provisions, which allow the landowner to terminate the lease if the carrier does not exercise its right to use the property for a tower in a timely fashion.
• Site use: A landowner should ensure that the lease permits the carrier to use and occupy only certain designated portions of the property for its facilities. In addition, the lease should limit the carrier’s use of the property only to “necessary activities” for the construction, maintenance and operation of the carrier’s wireless facilities. The lease will require an easement to connect the cell tower with land-based telephone Internet and telephone systems, and care should be taken in the location of this easement to minimize its impact on the use of the property. The landowner also should ensure that the lease agreement contains provisions allowing the landowner to retain control over other, non-interfering uses of the property. Finally, the landowner should negotiate lease provisions requiring the carrier to maintain the site in a safe and secure condition.
• Other security considerations: The carrier will need access to the site at all times. A landowner should negotiate a lease that limits access to the wireless facilities only. In addition, where a large tract is used for commercial or business purposes, the landowner should require the carrier to secure the site for entry and exit. The landowner also should try to negotiate contractual provisions requiring the carrier to secure the entire parcel.
• Insurance: If a landowner chooses to lease property to a carrier, the lease should require the carrier to maintain liability and property insurance in sufficient amounts. The insurance provisions of the lease should require the carrier to name the landowner as an additional insured under all required insurance policies. In addition, it is advisable for the landowner to notify their own insurance carrier that a cell tower has been installed on their property.
• Indemnification: In addition to requiring the carrier to maintain appropriate insurance coverage, the landowner should require that the lease include appropriate indemnity terms. The lease should require the carrier to indemnify the landowner, its heirs, assigns and agents against any claims, injuries or damages that result from the carrier’s use of the property. The indemnity provisions should also cover risk of environmental contamination and the release of hazardous or toxic substances on the property by the carrier.
• Taxes and utilities: The landowner can increase the value of the lease arrangement by negotiating the payment of a proportional share of real estate taxes by the carrier. Likewise, the lease should require the carrier to pay for its portion of utilities used at the site, including landline telecommunications and electricity. In addition, the carrier should be required to obtain and maintain any necessary utilities without need to involve the landowner. In some rural areas, land to be leased may be in current use and care needs to be taken to assess the impact of the Land Use Change Tax that may result from cell tower development on land in current use. At a minimum, the lease should require an indemnity to the landowner by the carrier if such a tax is imposed.
• Assignment of property: The carrier may want the ability to assign and sublet its rights under the lease. At minimum, the lease should require the carrier to notify the landowner of any assignment before the assignment takes place and describe any continuing obligations of the original carrier. The landowner may also consider requiring a form of payment or guarantee of payment for such an option.
• Sale of property by landowner: The landowner should retain the ability to sell the property in the future without affecting the lease. Any sale of the leased property should be subject to the lease. Many carriers will request that the lease include a right of first refusal on the property. Landowners should consider whether such a right is desirable, weighing the potential adverse impact on market value inherent in the “trumping bid” contained in a right of first refusal.
Ari Pollack, a shareholder and director at the Concord law firm of Gallagher, Callahan & Gartrell, represents business, land use development and environmental clients. James Kerouac, an associate at the firm, works with its multidisciplinary team in the land use, environmental and energy areas of its regulatory law practice.