Cell Tower Subleases, Compensation and Revenue Sharing
Property owners engage in cellular leases with tower companies and wireless carriers who act as tenants, gaining the rights to a particular ground area in exchange for paying rent. In the case of a cell tower or a rooftop cell site lease, a sublease is a lease between the tenant (cell tower or wireless carrier who leases ground space from the property owner) and a third-party (likely another wireless carrier).
When tower owners lease ground space from property owners, it’s typical for them to include a sublease clause, which allows them to lease to a third party, such as a wireless carrier.
When wireless carriers’ own their own towers and lease ground space from property owners, they may or may not include the “sublease” clause. The language of the contract, may refer to collocation instead.
The Language of the Lease and Rights to Compensation
Some leases allow for subleasing provided that the tenant notifies property owners in advance. Other leases requires that tenants establish consent before they sublease. In some cases, property owners are entitled to additional compensation for subleasing, and in other instances, they are not.
Many property owners have contacted us regarding letters of consent that they have received from their tenants, which request that they agree to allow their tenants to sublease. We recommend our clients to take caution and get an expert opinion (either from us or an attorney who specializes in contract law) before signing anything.
If you fail to object to the Consent Request, you might be waiving your rights to future revenue.
If you have questions about whether you are obligated to consent to a sublease, review your lease agreement and look for the Assignment and Sublease clause. This clause will indicate whether the tenant is allowed to sublease and if they must notify you or receive your consent before they do.
If the cell tower company is required to secure your consent prior to subleasing or if the lease area is not large enough for the necessary equipment, it would be common for you, the landowner to be compensated. This compensation might be for allowing the sublease or for the expansion of the lease area. Because every cell tower site is different and every sublease is different, cell tower compensation will vary greatly. Certain tenants may be worth much more than others – because their need to utilize your structure is greater than others. To further complicate matters, there are many different ways to compensate a landowner for consenting to a cellular tower sublease. They can range from a one-time payment to an ongoing monthly rental payment or a revenue share arrangement on a percentage basis. Steel in the Air‘s experts can review your location and help you decide which option is best for you.
Steel in the Air has assisted hundreds of landowners with sublease issues. Over the last four years, we’ve accumulated thousands of cell tower leases and developed a lease rates database of information that includes the location of the lease and whether there was cell tower compensation for subleasing. Furthermore, we’ve developed, owned, and built cell towers ourselves, so we understand the tower industry revenue model inside and out. Most of the time, we can provide you with an estimate of cell tower compensation including the proposed sublease by looking at pictures of the tower.
Revenue Sharing might sound good at first, but that’s only because you don’t realize that that the alternative to revenue sharing is keeping all the money, instead of giving a percentage of it away. Wireless carriers and tower companies sometimes try to insert this clause into wireless leases, and they market it by saying that they will, in fact, “market” your cell site to additional tenants, and give you a share of whatever rent the new tenants pay. Typically they offer to give you anywhere from 20% to 50%. We don’t recommend accepting this deal, because we believe that when and if a carrier is interested in collocating on your cell site, it will do so of its own free will, regardless of any so-called marketing efforts.
In particular, as it pertains to sublease agreements, most wireless carriers and tower companies will not offer any revenue sharing to landlords, unless the landlord is in a position to command it. So the difference here is that in the first case the lease agreement is between the carrier and the landlord and in the latter case, the agreement is between the carrier and a sublettor.
A Word to the Wise
You should never feel pressured or otherwise obligated to extend your lease agreement just to receive cell tower compensation or sublease revenue. Furthermore, don’t assume you must agree to a sublease agreement just because a cell tower company tells you so. Check with your attorney (or Cell Tower Attorney). If it’s determined that you can demand compensation, please contact us to help you evaluate what your cell tower compensation rights are worth.
We advise our clients to remove the blanket “Right to Sublease” clause from rooftop cell site leases. Contact us for more details.
Finding the sweet spot in lease negotiations requires knowledge of industry dynamics and company-specific deployment plans. Relocating cell sites is expensive, however if their gears are already moving, companies might eat the costs – especially when they’re dealing with property owners who are difficult or too demanding.