As a cell tower or rooftop antenna lease owner, otherwise referred to as the landlord, it is important to understand the structure of and terminology within your lease. While we can’t cover all lease terminology, we can help demystify the legal language of the most common terms within your lease, license, rooftop, or other surface use agreement. Having reviewed thousands of these agreements, we have found the following terms to be used in the majority of cell site leases: Option, Easement, Use, Term, Termination, Rent, Taxes, Utilities, Indemnification and Insurance, Default, Assignment and Subletting, Right of First Refusal, and Amendment.
USE
A description of specific purpose for the leased area will be outlined in the “use” section and in some cases will also identify and/or limit the type and amount of equipment to be placed within the area.
TERM
This section of the lease defines the amount of time that the agreement covers and how that time is broken up. It isn’t uncommon to see varying term lengths but the most common is 20-25 years broken up into 5 year increments. At the end of each 5 year period, or term, the carrier will have the right to renew if they choose. The majority of leases will automatically renew but there are leases that require that the landlord be notified if the tenant wants to renew.
TERMINATION
This clause is considered to be the most important in any lease, but unfortunately it is the one that is most commonly misunderstood by lease owners. While the lease is typically broken up into 5 year periods that the tenant can choose to renew at the end of every term, it is fairly standard for the tenant to include language that reserves their right to terminate the lease every 30-90 days. In effect, this makes it more of a month–to–month lease.
Not only does this reserve the tenants right to terminate, it also makes the lease less valuable. A typical lender will see the site as an unstable asset because of this termination language. Therefore, you can’t take a loan out against the value of the site, nor will your site add true value to the property it’s located on. Essentially, your lease is only as good as the next guaranteed rent check because of decommission risk.
RENT
This is the fun part—how you get paid. In general, leases will start paying when the option at the beginning of the lease is exercised and all due diligence checks out. The tenant can pay in a variety of fashions whether it be monthly, annually, or semiannually. This section not only outlines the increment at which the rent would be paid, but should also include a provision for escalations so that the value of money you collect every year doesn’t decrease with inflation. An escalation of 3-5% per year is typical.
INDEMNIFICATION & INSURANCE
This is another very important clause, which protects the landlord from any injury or damage caused by the site on their property. The type and amount of insurance the tenant will provide is outlined in this clause.
DEFAULT
Simply put, this identifies the time and method that the tenant has to “cure” or remedy any breach of the agreement.
ASSIGNMENT & SUBLETTING
This section outlines the tenant’s ability, or lack thereof, to sublet the premise either with or without the landlords consent. It also states how and if the tenant and/or landlord can assign this lease to a third party. (Also see Right of First Refusal)
RIGHT OF FIRST REFUSAL
This clause is most commonly found in newer leases, and it states that if the landlord desires to sell or otherwise convey the leased or entire property, the tenant has the right to first match or beat that offer for a predetermined period of time, typically 30 days. While seemingly innocuous, this drastically limits the amount of potential buyers for a property.
To put it into perspective, imagine if you went to an auction knowing that no matter what you bid on an item, Moneybags McGee in the back could bid even after the bidding is done and sweep up the goods, why would you even bid? As the bidder wouldn’t you rather save yourself the time and effort and just let him take it at whatever price the seller thinks is fair. Conversely, if Joe in the back is a regular bidder like everyone else, he has to abide by what the market determines is a fair price for the asset.
AMENDMENT
This is separate from the original lease and adds language to modify the agreement after it has gone into effect.
Other terms such as Subordination, Attorneys Fees, Binding Effect, Entire agreement, and more, where not covered here as this was just a general overview of the most common lease terminology. If at anytime you need further clarification or would like to discuss the specifics of an existing or proposed lease in more detail, please feel free to email info@apwireless.com.au and we would be happy to assist.
