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Lease Buyouts- Right of First Refusal / HOME

Lease Buyouts - Right of First Refusal

As cell tower lease buyouts become more prevalent, many tower companies and wireless carriers are adding Right of First Refusal or ROFR clauses. A right of first refusal clause gives the lessee (the tower company or wireless carrier) the right to match any offer that a 3rd party would make to purchase your cell tower lease. Please see cell tower lease buyouts for more information about the buyout itself. The clause requires that you, as the landowner or building owner, present an offer that you are considering to the lessee for them to match the offer and purchase the lease themselves.

On the face of it, a cell tower lease right of first refusal clause doesn’t seem like a bad idea. A landowner might assume that the worst case would be that it just changes who purchases the lease, but doesn’t limit the price being paid for the lease since the buyer is simply matching the previous offer. The problem with this line of thinking is that the right of first refusal clause reduces the competitiveness of the lessee to actually purchase the lease. Rather than try to convince you to sell your lease by a higher offer, the lessee can simply wait and match the offer provided by the third party cell tower lease buyout company. Even if they would have made you a significantly better offer than the one you have, you won’t ever know that because the right of first refusal gives the lessee the right to simply match the best offer you can get. Since most landowners really don’t know the value of their lease, that often means that a landowner can leave a significant amount of money on the table because of the ROFR.

To further complicate matters, the ROFR clauses are often drafted such to protect the lessee. In some cases, we believe the restrictions can have far greater harm than the landowner might otherwise assume. Some Right of First Refusal Clauses provide that the lessee can purchase the lease on a pro-rata basis. That is that if the lease buyout offer is for a larger area than the existing lease, the lease buyout company only has to purchase the part of the lease that they want to and pay a pro-rata share of the comparable offer. Put another way, suppose your lease is 300 square feet. You receive an offer for $100,000 for that lease but the offer includes an additional 300 square feet for "a future carrier" (please see our blog post on Cell Tower Marketing). Under the terms of a poorly written Right of First Refusal clause, the lessee can then choose to purchase only the 300 square feet that they lease, and then reduce the purchase price by half. Even though the landowner received an offer of $100,000, they would then be forced to sell for $50,000 because of a poorly written clause.

Lately, some tower companies have been sending letters to landowners asking them to give a Right of First Refusal to the tower company. In exchange, they are offering a one-time payment of $2,000. We suspect that some landowners will see this as a good way to get some extra cash and agree to add the Right of First Refusal clause to their lease. To us, this is a poor decision - and one that may come back to haunt the landowner in the future. We recommend against signing a document that adds a Right of First Refusal to your existing lease agreement. As it pertains to a new cell tower lease agreement, you may not have a choice. Many of the carriers and tower companies won’t agree to lease property without having this language included. If that is the case, at least make sure to have your attorney review the language prior to signing to confirm that it is narrowly drafted. If you need legal assistance, please go to Cell Tower Attorney.

If you need help with a lease buyout, please contact us for assistance.