What’s A Cell Tower Lease Worth?

by Varnum LLP
Contact

People with cell towers on their property are frequently contacted by companies offering to "buy-out" their cell tower lease. The resulting question we get is "What's my cell tower lease worth?"  This post will attempt to answer that question.

Generally, four things drive the price for a cell tower lease

Location: Is this a rural location where there are multiple sites for a cell tower and landowners are willing to lease land at low rates? Or an urban setting or college town with high demand for wireless services but limited locations to put an antenna? Or a suburban location with medium demand but almost no locations for cell towers? Prices are higher in the latter two cases (high wireless demand and scarcity of locations). 

Number of years remaining on the lease: Cell phone companies are to a certain extent "over a barrel" if a lease is near expiration because it will cost them $250,000 or more to find a nearby site for a tower, lease it, permit it, zone it, build it, and then take down the old tower. They have to do this to prevent a gap in service. Thus, a lease that is one year from final expiration is worth far more than one that has fifteen years to go. And the key here is the FINAL expiration of the lease - - although leases normally renew in five-year increments, for the reason just noted the cell company effectively can't cancel a lease. They have to renew it.

Current rent that is being paid: If the buy-out price is just one lump sum payment to the landlord, then a tower with multiple tenants collectively paying the landlord $3,000 per month is worth far more than one with a single lease paying $500.00 per month. This is less of a factor if the landowner gets to keep all the rents until the current leases expire (such that the buy-out company is mainly buying the revenue stream after the current leases expire and from new providers who go on the tower).

Number of providers on the tower now (collocators) or who could go on the tower in the future: A tower with three companies on the tower is worth more than one with only one. Similarly, the potential for even more cell companies to put their antennas on the tower also drives up the price. This is especially important in urban and suburban areas with few sites for new towers. Part of what buyout companies are banking on are changes in Federal law which limit local zoning or other problems if they increase the height of an existing tower or make other changes so as to "collocate" additional providers. Landowners should be aware of this, even though the law may be challenged.

Buy-out companies basically make money by buying leases cheaply and then charging a large amount to cell companies to use the tower. Buy low, sell high. So (surprise!) their initial offers to landowners are quite low. As a rule of thumb, landowners should probably view buy-out offers at a "cap rate" of less than 10 or 11 times the annual revenues they are currently receiving or for less than $150,000 as being "low ball offers" that should be rejected. Usually buyout prices should be well above these figures. The good news for landowners is that bargaining or getting an auction process going (where multiple buyout companies are bidding on the tower) usually drives up the price substantially.

Finally, landowners can and should insist that their legal fees get reimbursed as a part of any sale. This is in addition to the buyout price and is really important because the buy-out price is only half the battle -- the terms and commitments in the buyout company's proposed documents to purchase a lease are often too one-sided against the landowner and need to be corrected. A typical example occurs where the buy-out company purchases all the rights to put towers on some land BUT leaves the landlord as the "owner" of the property. Thus the landlord will generally be sued if anyone is hurt by the tower - -  but the insurance, indemnity and related provisions in buyout companies' proposed documents can be inadequate to protect the landowner in the event of such a suit. The landowner could have to spend tens of thousands of dollars on legal fees defending a suit, and more if it loses. 

This is one example of why knowledgeable landowners spend several thousand dollars on legal fees to revise the buyout documents so they are fairer and the landowner is not unduly exposed to liability and why they insist that their legal fees get reimbursed. 

Finally, landowners should make sure they have a lawyer review the FIRST document they sign about a buyout, even if it appears to be an informal "letter" or "letter of intent" because it could bind a landowner to terms that are too one-sided.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Varnum LLP | Attorney Advertising

Written by:

Varnum LLP
Contact
more
less

Varnum LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!