Cell Tower Leases: The Right of First Refusal Clause

What is a Right of First Refusal Clause in a Cell Tower Lease?

These days, most cell tower leases have a right of first refusal clause also referred to as a ROFR.  A right of first refusal clause is language inserted into to a cell tower lease that provides the lessee (the tower company or wireless carrier) the right to match other offers to buy the lease.  The right of first refusal generally says that if someone offers to buy the property under the lease via an easement or other conveyance, that the lessee has the right or an option to match that offer and purchase the property or easement themselves.  They do not have to exercise the option if they don’t want to and if they don’t, the company making the offer can go ahead and purchase the lease or property.

Why are Right of First Refusal Clauses Used?

These clauses provide protection for the tower company or wireless carrier from having a third party purchase the landowner’s rights to the income from the lease and to manage the lease.  Tower companies have a legitimate interest in protecting their towers from interference from third parties.  They have found that dealing with third party lease buyout companies who purchased their lease is more difficult (and generally more costly) than dealing with the landowner.

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    How Do Right of First Refusal Clauses Work?

    The typical clause is something like this one that came from a Crown Castle proposal.  To make things easier, I have broken down the language from their proposal (in black italics) and then showed a simpler interpretation of the language in blue.  (Please note that this is not intended to be legal advice and you should have any document reviewed by your attorney before signing).    

    If Lessor receives an offer that it intends to accept

    If you receive an offer that you intend to accept

    from any person or entity that owns towers or other wireless telecommunications facilities (or is in the business of acquiring Lessor’s interest in the Lease)

    From a company that owns towers or that buys leases

    to purchase fee title, an easement, a lease, a license, or any other interest in the Property, or Lessor’s interest in the Lease, or an option for any of the foregoing,

    that wants to purchase any interest in your property including an outright purchase of the property or an easement or lease

    Lessor shall provide written notice to Lessee of said offer, and

    You need to notify us and provide a copy of the offer

    Lessee shall have a right of first refusal to acquire such interest, including all of Lessor’s right, title and interest in the Lease, on the same terms and conditions in the offer,

    And we will have the right to purchase the land, easement or lease on mostly the same terms and conditions

    excluding any terms or conditions that are (i) not imposed in good faith; or (ii) directly or indirectly designed to defeat or undermine Lessee’s possessory or economic interest in the Property.

    Except for those terms that we feel are not to our advantage

    If Lessor’s notice covers portions of Lessor’s parent parcel beyond the Property, Lessee may elect to acquire an interest in only the Property, including all of Lessor’s right, title and interest in the Lease, and the consideration shall be pro-rated on an acreage basis.

    If the offer covers the entire property, but we don’t want to acquire the whole property, we can just acquire the portion we want and pay a pro-rate amount based upon the acreage of the small area we want to acquire as compared to the entire acreage of the property.

    Lessor’s notice shall include the prospective buyer’s name, the purchase price and/or other consideration being offered, the other terms and conditions of the offer, the due diligence period, the proposed closing date and, if a portion of Lessor’s parent parcel is to be sold, leased or otherwise conveyed, a description of said portion. 

    You must provide us sufficient detail to match the offer and know if we want to purchase the lease or easement.

    If the Lessor’s notice shall provide for a due diligence period of less than sixty (60) days, then the due diligence period shall be extended to be sixty (60) days from exercise of the right of first refusal and closing shall occur no earlier than fifteen (15) days thereafter. 

    We have at least 60 days after exercising the option to perform due diligence and decide whether we really want to purchase the lease.  If we do, closing shall be at least another 15 days after that 15 day period. 

    If Lessee does not exercise its right of first refusal by written notice to Lessor given within thirty (30) days, Lessor may convey the property as described in the Lessor’s notice.  If Lessee declines to exercise its right of first refusal, then the Lease shall continue in full force and effect and Lessee’s right of first refusal shall survive any such conveyance.

    If we don’t decide to buy the lease/easement/property in 30 days, you can go ahead and sell it, but we still retain the right to exercise our option on future sales.

    Lessee shall have the right, at its sole discretion, to assign the right of first refusal to any person or entity, either separate from an assignment of the Lease or as part of an assignment of the Lease.  Such assignment may occur either prior to or after Lessee’s receipt of Lessor’s notice and the assignment shall be effective upon written notice to Lessor.

    We can assign this right of first refusal to other companies at any time. 

    How Do Right of First Refusal Clauses Work?

    Generally, we think that ROFRs are restrictive and can reduce the value of the lease should you choose to sell it in the future.  Some ROFRs (not the Crown Castle one) do not include a limitation that the offer must come from a tower company or company that purchases leases.  These ROFRs would not only prevent you from selling the lease without offering it to the tower company but would also prevent you from selling the entire property – even to a family member without giving them the option to purchase. 

    However, some companies will insist on a ROFR clause especially in new leases.  On amendments to existing leases, you may have more room to negotiate and refuse the ROFR or limit it significantly. 

    Regardless of the situation, we can strongly suggest that you not sign any ROFR as written above.  This version of a ROFR clause grants rights to Crown Castle that are absurd.  For example, suppose that you own 100 acres, but the tower only takes up 1 acre.  Under the language as presented above, if a tower company proposed to purchase your 100 acres for $500,000, Crown Castle could choose to purchase the 1 acre for 1/100th of the $500,000 or the equivalent of $5,000.   Clearly that is not the intent of the clause, but that’s how it could play out. 

    The Role of Anti-Assignment Language with ROFR Clauses

    As if this wasn’t complicated enough, some tower companies and wireless carriers (T-Mobile) are also adding language to their leases that would prevent you from assigning any right to their lease without their consent, which they can withhold at their sole discretion.  To make matters worse, some companies try to disguise the anti-assignment language by putting it in the end of the document or hiding it in the sublease clause.  Or they include it in a non-compete section that prevents you from entering into a separate easement, lease, or other conveyance that involves communications elsewhere on your property. (Don’t get me started on these clauses – that’s an entire separate article). 

    Best case, the addition of this language will reduce the value of your lease when selling by 10% or more.  Worst case, it could be used to prevent you from assigning altogether. 

    So, What Should I Do?

    Here are our suggestions:

    1. Never agree to anti-assignment language. If the tower owner or wireless carrier is concerned about assignment or sale of the lease, they should push the ROFR clause.  But an anti-assignment clause or non-compete clause is rarely warranted in a cell site lease.
    2. The right of first refusal should only be applicable to companies that own cell towers or that purchase cell tower leases. It should not apply if you want to sell the entire property or gift it to a relative.  It should not inhibit the transfer or sale of your entire property. 
    3. The right of first refusal should never apply to the entire property. That is unless the entire property consists only of the tower site. 
    4. You should never give the lessee the right to exercise the option on a pro-rata basis. If they want to buy the lease, they should do so on the same exact terms and conditions as the offer you received. 
    5. If you are unsure whether you should sign a lease with right of first refusal or anti-assignment clauses or need help with evaluating a new lease or proposed amendment to your lease- contact us at Steel in the Air to discuss it. The initial call is free, and we won’t bill you anything until you sign an agreement with us.  If we think we can’t help, we will let you know without charging you anything. 
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