Telecommunications lease

A telecommunications lease is the lease that exists between a telecommunications provider or wireless company, and a landowner. Similar to other real estate leases, a telecommunications lease is put in place as an agreement to lease space on the landowner’s property for a telecommunications site or cellular tower for a specified length of time. In exchange for the use of space, the telecommunications provider (also referenced as a tenant) agrees to pay the landowner (a monthly or annual) rent. Telecom leases can be excellent sources of ancillary income, in some cases providing the landowner with thousands of dollars per month in annual rent.

Industry growth

The telecommunication industry is growing as the need for 4G and 5G networks flourishes. As a result of this growth there is a constant demand for cellular networks to increase their coverage. Therefore, more cellular towers are constructed and more leases are drawn up between the cellular provider and landowners, which can include municipalities and private landowners, such as homeowners.

Types of leases

In the telecommunications industry, there are two types of telecommunications leases: a rooftop lease agreement and a ground lease agreement. In some cases, cellular sites are installed on the roofs of commercial office buildings and even residential living complexes. These rooftop installations take advantage of the height of the buildings on which they are installed to provide quality cellular coverage. Ground leases, on the other hand are contracts typically made between the cellular provider and the landowner of a property for space at the ground level on which a cellular tower is installed.

Rooftop leases

Rooftop leases generally address both small and large rooftop antennas. Small rooftop antennas are most common in urban areas. These antennas range from 5–10 feet in height and have the ability to service five technologies: cellular antennas, PCS antennas, specialized mobile radios, fixed wireless services, and paging services.

On the other hand, large rooftop antennas are typically satellite dishes standing six feet tall. These antennas generally address Internet and cable needs and therefore are used for services such as video conferencing.

Ground leases

Ground leases generally address antenna towers or billboards in which the landowner leases the space, or land, to the cellular provider to build the tower. Antenna towers range between 100 to 300 feet tall. These large, free standing cellular towers can sometimes be “disguised” to blend in with the natural architecture of the building or the surrounding landscape. An example of this is a church property that may have a tower built to resemble, or in some cases built into an existing steeple. Alternatively, a property owner for another type of property may have a monopine or monopalm cellular structure. These are built to resemble pine or palm trees respectively.

Cellular providers such as Verizon Wireless and AT&T most commonly use ground leases.

Components of telecom lease

Location

Appropriate locations for a cellular tower are determined by several different factors. First, a cellular company generally searches for properties whose locations render a low impact on the surrounding area. Residential properties typically have zoning rules and regulations, which often make constructing a tower difficult.

Zoning

The zoning approval process generally includes public hearings and notices to nearby property owners, in addition to acquiring the necessary permits for construction. Common issues brought forth at public hearings are health concerns and the aesthetics of the surrounding area. Local zoning boards must follow the rules set forth in the Telecommunications Act of 1996, which sets guidelines for what are acceptable reasons to not permit the construction of a new cellular tower.

Redundancy

Generally cellular providers look for property that is in a densely populated area and that falls outside of a five-mile radius from the nearest tower. For a cellular company, redundancy occurs when two or more towers serve the same area. This often causes a loss of income for the cellular provider, as they generally need one tower rather than multiple. As companies continue to merge, redundancy has become a rising issue within the telecommunication industry.

Duration and termination

Generally, telecom leases are for an initial five-year term followed by additional five-year renewal terms. Leases typically also have a 30-90 day cancellation period where the cellular provider has the right to terminate the lease within 30–90 days of giving notice to the landowner. This specific portion of a telecom lease is due in fact to recent mergers in the industry, which render some towers useless. Due to cellular providers merging with other cellular companies, one company can double it’s amount of towers. This often causes redundancy, as previously mentioned, which often leads to the termination of leases and removal of redundant towers.

Fair market value

The fair market value of your lease is generally determined by the value of your property to the cellular company. In order to make money, cellular carriers often undervalue a lease. Leasing agents typically receive bonuses for signing low priced leases, and therefore undervalue leases seeing as the worse the deal is for the landowner, the greater the benefits are for the leasing agent. There are several methods for a landowner to evaluate their property:

1. Are there cell towers owned by the cellular company near by?
2. Is your property located in a densely populated area?
3. Is there a high demand for cellular coverage near your property?

Footprint

The foot print of your lease refers to the amount of space used by the cellular company. Generally, the footprint for a cell site is no larger than 10,000 square feet or double the height of the tower. The footprint of the lease also typically addresses how the cellular provider will access the tower for maintenance. The tower must be located somewhere on the property where it can be accessed at all times.

Collocation

Collocation is when the cellular company allows other companies to build off of their tower. As a result, the cellular company whom owns the tower receives a rent from the co-locators. Within a lease, landowners can address collocation and receive a portion of the rent received by the cellular company.

Cell Tower Lease Buyout

Property owners have the ability to sell their cell tower lease separate from their parcel. Investors purchase the cell tower lease as an easement or lease assignment. Three main factor that influence cell tower buyout prices are: current rent, the rent escalator, and the date of lease expiration.