Lease Terminology

May 13, 2016

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.

    Leases will generally define a period of time that allows the tenant to do their due diligence. Typically this appears early in the lease and is called the “option” or “option period”. It describes the area to be considered and should also state a certain period of time—usually 1 year—for their due diligence and the consideration to be paid in order to make the agreement binding. At this point the landlord is locked in and gives full rights of use to the tenant, should they choose to take it. The option section will also provide some information as to what the due diligence will entail.
    Along with the defined area to be leased, the carrier or tower company will also need access to the site and available area to run fiber, utilities, or other underground cables or equipment to operate the site. Additionally, the type of easement to be granted (access, utility, etc.) and the location of said easement will be identified here.

  • 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 25-30 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.
    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.

Termination Risk Web

  • 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% per year or 10-15% per term is typical.
    Occasionally a property owner will see their property taxes go up due to the site being built on their property. In anticipation, this section of the lease outlines how to account for the increased tax. It is standard for the tenant to pay the added tax whether directly or indirectly by reimbursing the property owner. All other taxes originally associated with the property remain the responsibility of the owner.
    Similar to the “taxes” portion of the lease, “utilities” defines the portion of utilities that the tenant is responsible for due to the existence of their site. The tenant can either pay directly or indirectly by one of two options: 1reimburse the landlord, or 2establish a baseline to be paid regularly in addition to the rent.
    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.
    Simply put, this identifies the time and method that the tenant has to “cure” or remedy any breach of the agreement.
    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)
    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.
    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 and we would be happy to assist.

Lease Terminology was last updated June 22nd, 2016 by APWireless
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