Getting Your Signals Straight: The Nuts and Bolts of Cellular Telephone Tower Leases

[This article originally appeared in the New Hampshire Bar News.]

On February 8, 1996, President Bill Clinton reformed communications policymaking by signing into law the Telecommunications Act of 1996, Pub. L. No. 104-104, 47 U.S.C. 151 et seq. (1996) (the “Act”). The Act dramatically increased the development of new services and facilities by the players in the burgeoning telecommunications industry. One of the Act’s key objectives was to promote competition in the cellular telephone business by enabling wireless service providers to increase the number of sites upon which they could construct towers and antennas. Consequently, the “Wireless World” was born, the demand for suitable tower sites skyrocketed, and many landowners soon became landlords to the cellular telephone service providers. Cell towers have since become a ubiquitous feature of our physical landscape, and the demand for new sites continues to be strong, particularly in many under-served geographical areas. With this demand, attorneys are often asked to assist landowner clients through the process of negotiating a cell phone tower lease agreement.

In order to maximize revenue and minimize risk for your client when negotiating the terms of a tower lease, several issues should be taken into consideration.

A. Rent and Co-location Fees. The rent payment provisions in a cell tower lease should clearly spell out the lessee’s obligation and should make clear that rent is due without notice, deduction, set-off or demand. In addition to monthly rent, the lease should specify that the lessor is entitled to “co-location fees” if the tower is used by more than one wireless communications company. If your client’s lessee sublets its tower space, the landowner should be entitled to a percentage of the rent being paid under the sublease.

B. Survey; Access. A potential lessor should insist on being provided with a survey of his or her property that clearly delineates the proposed location of the cell phone tower in relation to the entire property. A legal description for the proposed site should be prepared as part of the lease agreement, and the survey should identify any easements or rights of way which the lessee shall be limited to for access both pre- and post-construction. Additionally, utility easements may be necessary if electrical service is not already furnished to the proposed site.

C. Permits and Approvals. Most municipalities in New Hampshire have enacted specific regulations regarding the location and installation of cell phone towers. Many zoning ordinances also provide that a variance or special exception is required to permit the construction of a tower. The lease agreement should provide that the lessee shall obtain, at its cost and expense, all necessary local and state permits and approvals prior to erecting the tower.

D. Kick-Out Clause. If possible, the lessor should try to negotiate for the payment of rent to commence immediately upon the execution of the lease agreement. However, many leases are structured so that the requirement to begin paying rent is triggered only after all necessary permits are obtained and/or construction of the tower has been completed. If the lessee does not get its government approvals or does not complete construction in a timely manner, the lease agreement should permit the landowner to terminate the lease in order to market and make the property available to other telecommunications companies.

E. Mortgages. If the landowner’s property is subject to a mortgage, the lender will need to consent to the lease of a portion of the mortgaged premises. An issue may arise over the priority rights of the mortgage and the lease, and the lender or the lessee may need to subordinate its lien.

F. Taxes. The lessee should be required to pay its proportional share of real estate taxes imposed on the landowner’s property. If the property is in current use, the telecommunications company should be obligated to pay any land use change tax penalty that may be imposed by the municipality. Of additional importance to note for a client are the tax consequences to the landowner of receiving rental income. For churches and other nonprofit organizations, cell tower leases offer a much needed income stream. However, income from a lease is likely considered unrelated to an entity’s charitable purpose and therefore may be subject to income tax. The landowner should be advised to consult with an accountant or tax attorney on the income tax implications and to confirm with the municipality that entering into a lease will not jeopardize the property’s tax exempt status.

G. Warranties; Indemnification. The lease agreement should limit the landowner’s warranties and representations about the condition of his or her property. Also, the lease agreement should include indemnity provisions to hold the lessor harmless from any and all claims, damages or injuries which arise in connection with the lessee’s use of the leased premises, including mechanics’ liens that may arise during construction of the tower.

H. Termination; Restoration. Given the fast paced and ever-changing nature of the technology world, the wireless communications company will likely demand that an early termination clause be included in the lease for protection in the event wireless services become obsolete or unprofitable. The lessor should negotiate for an early termination fee if such clause is exercised. Alternatively, the landowner may wish to require higher monthly rent payments in exchange for assuming the ongoing risk of the lessee unilaterally terminating the lease early. Also, upon either the natural or early termination of the lease, the phone company should be obligated to remove all structures and equipment from the leased premises and to restore the property to the same condition it was in prior to the construction of the cell phone tower.

If your client has been contacted about entering into a cell phone tower lease agreement, then it is likely that his or her property is very valuable to the telecommunications company. Consequently, take advantage of your client’s bargaining power by limiting his or her obligations and responsibilities under the lease and shifting as much of the burden and risk as possible to the lessee. With thorough review of a proposed cell tower lease agreement by competent legal counsel, the Wireless World can be a win-win situation for the landowner and the cell phone service provider.