A client of ours has a ground lease with one of the big three public tower companies. Instead of rent, the landowner gets a straight percentage of the revenue from all wireless carriers subleasing space on the tower. The client contacted us to help them sell the lease. However, when we reviewed the revenue share payments, we determined that there were two carriers on the tower but that the tower company was only paying for one. We advised the landowner to ask for a “reconciliation” of their revenue share payments. The tower company reviewed the file and provided the reconciliation.
Surprisingly, the reconciliation showed that the tower company was receiving rent from two sublease tenants but that they were also receiving a revenue share reimbursement on the one they weren’t paying a share to the landowner. The tower company was not only failing to pay the revenue share itself, but they were billing the carrier for reimbursement of the revenue share they weren’t paying the landowner. In other words, the tower company was collecting rent plus an additional 40% of the rent as a reimbursement for the revenue share, and they were supposed to be paying the landowner but weren’t.
To the tower company’s credit, when we pointed out the issue, they did pay the landowner for the missing revenue share (but not the revenue share reimbursement). However, they would not provide a clear accounting of how much the sublease tenant had paid them.
This situation points out two issues: first, it is essential that if you include a revenue share, the lessee should be required to provide an audited and notarized statement on an annual basis that shows what revenue they received and the terms of the underlying subleases. Secondly, if they aren’t providing an audit regularly, ask for one. Even if the lease does not specifically provide for it, most tower companies will provide a reconciliation or business summary affidavit if requested.