5 things you need to know BEFORE you extend your cell tower lease
Over the past 30 years, my colleagues and I have worked for AT&T, in private equity with backers like Goldman Sachs and AIG acquiring cell tower assets and as a consultant to government and private property owners all over the US negotiating lease extensions, buyouts and amendments all over the US. Over that time, I have read and or analyzed 1,000’s cell site leases of all types from both sides and there are at least five things I have found all Landlords should know but before we begin let me make one VERY IMPORTANT POINT.
YOUR perception is not reality. I often hear Landlords say they’re going to wait until near or after their lease expires before they begin any negotiations on a lease extension. If you get one thing out of this article, DO NOT WAIT UNTIL YOUR LEASE EXPIRES TO EXTEND!
Wireless carriers and or tower companies like Crown Castle, AmericanTower, SBA generally want to negotiate lease extensions when there is 10 years or less remaining in your cell tower lease.
Why? LEVERAGE! None of your tenants have an interest in waiting until your lease expires to start negotiating an extension. In fact, the closer your lease gets to expiration without lease extension you increase not decrease the chances of having your site being terminated.
Why? Whether you have AT&T, Verizon or T-Mobile as tenants, all wireless carriers on your site want “certainty” that your tower will be available to them for as long as they need it and a lease that is near expiration tells tenants they should start looking for alternative sites just in case the lease expires without an extension. So to hedge their bets, wireless carriers hire companies to find opportunities to build new sites near existing sites and if they are able to find someone that will give them better lease terms and or lower rent rate they will gladly terminate your lease to go to a more cost effective site.
So, don’t fool yourself into believing your site will never go away when actually all cell towers will eventually be terminated. This article is designed to help Landlords like you get the most out of your site before that happens. So, with that in mind here are five things all Landlords should do and know BEFORE going into any lease negotiation:
1) READ YOUR LEASE
One of the most common mistakes Landlords make is not reading and understanding what is in their lease. For example, is your consent required to add tenants to your tower or upgrade equipment? If so, you may already have the leverage you need to increase your rent each time work is done on your tower. Having a working understanding of each lease term and how it affects what you or your tenant can or can not do on your property will help avoid giving away valuable opportunities to increase your rent. CSA has created a common lease term matrix to help Landlords, just give us a call at (213) 986-7620 and we’ll be glad to send it to you free of charge or if you need direct help reviewing your lease call us and we’ll be glad to explain each term at no cost.
2) Do a REAL risk assessment
Another common mistake Landlords make is they think their site is “must have site” so they’re justified in asking for a premium rent increase when in reality their site is more likely to be shut down for one of three reasons:
Redundancy - Carrier mergers create network overlap that results massive terminations. Fact: The Sprint/T-Mobile merger cause no less than 20,000 cell tower leases to be terminated due to redundancy
Obsolescence - Satellites and cell sites on lamp posts are two ways the carriers are reducing their need for cell tower leases.
Bankruptcy - DISH wireless a new carrier is the 4th major carrier that is likely to fail or be bought in the next 5 years and many sites will be terminated early should that occur.
4) Know what you’re willing to give to get
No doubt there are things your tenant wants and is willing to pay to get added to your lease (additional space, right to sublease, or expand). You need to know in advance the things you are willing to concede to get the rent increase and or lease terms that work in your favor to meet your goal.
3) Know your goal
Is your goal to keep the site paying rent for the next 20 years or are you planning on selling the lease once you get the rent increase you want? The answer to that question will drive how you set up negotiations and the terms you need to hit your goal.
5) Get the tenant to offer first
After you have read your lease, determined the risks, your goals and what you are willing to offer to meet your goals, contact your tenant, ask if they would like to discuss a lease extension, if so, have your tenant submit their proposal first. Doing so will reveal:
Lease terms your tenant wants - Your tenant is not likely to want offer more than as 15% increase in rent and if they don’t have a right of first refusal in the lease they will want you to add it. Should this occur contact CSA for further guidance on how to respond.
Your tenants own risk assessment - Your tenants offer will be based in part on the risk of losing an existing sublease, or your towers marketability in terms your tenants right to sublease, available space on the tower and on the ground.
The leverage what you have to get what you want - Once you have an idea about your tenant wants counter by asking for terms that makes your site more secure and or more profitable. For example, if your tenant needs additional space then you might consider giving the space in exchange for an immediate increase of X and an addtional increase y should the tenant use the additional space.
BONUS NEGOTIATION TIP: Trade on what your tenant wants to get what you want. Remember, you and your tenant are trading certainty for uncertainty. You want to be certain that what you are negotiating will result in years of uninterrupted rent payments, an immediate increase in rent or other terms and your tenants want to be certain they can project their lease costs in future years to forecast their operating expense going forward. So as they say, you have to give to get. Your goal should be to get the most secure terms at the highest rent because it won’t mean a lot if you double your rent but lose your site 6 months later.
FOOD FOR THOUGHT: We know staying on top of the latest wireless industry news to know what you want and how to get it can be hard to do. Many Landlord’s try hiring their business attorney to do their negotiating but quickly find that they are paying someone $400/hr who knows the law but knows nothing about cell towers, technology or what’s valuable when negotiating. If you find yourself in a similar place, no worries, just give us a call and CSA we’ll:
Review your lease for errors
Perform a risk/need assessment
Create a game plan based on your needs
Then negotiate your extension
In return, you’ll get
The lease terms you want
An amendment you can live with
At the lowest possible cost $0
Call now (213) 986-7620 and ask us to explain how deliver the lease extension you want at a net cost of $0 to you.