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A telecommunications lease is a 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.
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.
Rooftops are leased for many different communication purposes, including many different types of antennas. Panel antennas are commonly placed on rooftops in urban and densely populated residential areas. These antennas typically range from 1–10 feet in height and have the ability to service multiple technologies, including: cellular antennas, PCS antennas, specialized mobile radios, fixed wireless services, and paging services.
Satellite dishes are also mounted on some rooftops, primarily for satellite TV service, but in other cases much larger dishes are used. These antennas generally address Internet and cable needs and therefore are used for services such as video conferencing.
Rooftop leases include details about the amount of space leased, installation methods, and upgrade procedures that allow the tenant to operate at the site as needed, while protecting the landlords building.
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 50 and 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.
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.
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- to 90-day cancellation period when the cellular provider has the right to terminate the lease within 30 to 90 days of giving notice to the landowner. This specific portion of a telecom lease is due to recent mergers in the industry, which render some towers useless. Due to cellular providers merging with other cellular companies, one company can double its number 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 a lease is generally determined by the importance of the location to the cellular carrier's network, or the value of the coverage the location provides. Value will also be driven by the availability of surrounding alternate sites. Determining the fair market value of a cellular lease is difficult for most landowners due to lack of available information. Cell tower lease rates are not public information, and these rates vary widely. There are however companies that specialize in providing information and assistance to property owners in this highly specialized field.
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 because 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:
- Are there cell towers owned by the cellular company near by?
- Is your property located in a densely populated area?
- Is there a high demand for cellular coverage near your property?
Collocation is when the cellular company allows other companies to build on their tower. As a result, the cellular company that 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 factors that influence cell tower buyout prices are: current rent, the rent escalator, and the date of lease expiration.
Different types of cell tower lease buyout offers have different implications for landowners. For example, a cell tower lease buyout on farmland is much different than the purchase of a lease on a building rooftop. Some necessary considerations for cell tower lease buyout transactions are:
- Access requirements.
- Tax implications. (easement vs. lease assignment)
- Property redevelopment rights.
- For rooftop sites, how is property damage addressed.
The challenges of selling a cellular leasehold is the acquisition market is highly unregulated. Lease Acquisition agents have the ability to modify and deliver information to the landowner to acquire leaseholds at a highly discounted price. Similar the oil barons of the 1800s, these agents are compensated heavily to obtain these rights, and often the underlying value of expiration and an expanded sale market is shielded from the landowner.
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