How much should the lease escalate and how often?

In new cellular lease negotiations, landowners rightfully question whether or not the wireless carrier’s proposal is in their best interest or “fair.” Escalation rates range from 1% to 8% per year, although most people don’t see anywhere near the up side of that range. If you examine the last 10 years, you will see that that the consumer price index (a measure of inflation) has averaged 2.3% per year. This means that to maintain the same value of your lease you would need to receive annual escalation of at least 2.3%. From 1990 to 1999, the average CPI was 3.1% per year. Over the last 100 years, it has averaged 3.2%. Recently, the wireless carriers have been pushing hard to reduce the escalation rates of their leases, offering 7.5% over five years or 2% per year. Your decision to push for a higher escalation should depend upon how unique your property is (or is not) and what you are asking for in terms of lease rate and other financial terms. In other words, escalation, lease rate, signing bonus, revenue share payments, option payments, and other lease terms should not be considered in isolation, since they are all factors in determining the overall fair market value of your lease. If you need help figuring out what to ask for, contact us. we are experts in evaluating ALL components of a proposed lease.