PREPAID CELL TOWER LEASES AND EASEMENTS – WHAT TO WATCH OUT FOR
In recent years, there has been a significant increase in offers to landowners to “pre-pay” cell tower leases with a single lump sum, instead of regular monthly payments, as is typical for most cell tower leases. Consider these offers as a type of cell tower lease buyout, but occurring in advance rather than after the lease has commenced.
For example, a landowner recently contacted us, puzzled about not receiving rent on a lease he signed. It turned out that a tower company convinced him to grant a cell tower easement for a single payment of approximately $40,000 for a perpetual term. This means the tower company can build a tower on his property, and the only compensation he’ll ever receive is the initial $40,000. While I don’t fault the tower company for securing a lease as economically as possible, I use this example to illustrate why such deals can be highly disadvantageous for the landowner.
Why Tower Companies Make Pre-Paid Offers
There are a few reasons why a tower company would make a prepaid cell tower lease offer.
- They know that landowners typically aren’t sophisticated enough to be able to know the average lease rate in the area and then know how to equate it to the prepayment offer.
- If they contact enough property owners, it is more than likely that one of them will accept the prepayment.
- Prepaid leases increase the value of the tower to the tower owner.
Why Pre-Paid Cell Tower Leases Can Be Bad Deals for Landowners
Let’s assume that instead, the landowner had requested the average rent in his area, which, for the sake of argument, we’ll say is $600/month in a rural setting. Using our lease calculator, we can see that a normal cell tower lease with a $600 monthly payment and a 2% annual escalator would total $230,618 over a 25-year lease.
- Over 50 years, the total would be $608,971.
- And over 99 years, it would be $2,196,933.
However, to be fair, the tower company paid this landowner upfront. Thus, our comparison should account for the time value of money. Looking at the present value of those income streams:
- 25-Year Lease: $230,618 in future rent payments is worth $123,724 today.
- 50-Year Lease: $608,971 in future rent payments is worth $183,664 today.
- 99-Year Lease: $2,196,933 in future rent payments is worth $226,385 today.
This means the landowner sacrificed between $80,000 to $186,000 in today’s dollars by accepting the prepaid lease offer. It’s a great deal for the tower company but a terrible one for the landowner. Had the landowner negotiated a standard cell tower lease at $600/mo. with 2% annual escalation, we could have sold that lease to the landowner for $130,000 the day after the tower was erected and rent payments started.
Furthermore, this landowner agreed to the tower company’s standard easement agreement, which states that the tower company may remove their equipment at the easement’s expiration. Therefore, 50 years from now, if the tower company decides to abandon the tower, the landowner might have to pay more than $40,000 to remove it. Landowners should NEVER have the burden of removing the tower.
What Should You Do If You Receive a Lowball Offer from a Tower Company?
First, consider the characteristics of nearby parcels. If your property, such as a 20-acre farm, is surrounded by similar parcels, the tower company might have multiple options, limiting your negotiation power, especially in areas without strict zoning regulations. However, if your parcel is unique in terms of elevation, zoning, access to power, or public right-of-way, you might be in a stronger position to negotiate.
Second, if the offer seems too low, it probably is. Personally, I would never agree to a permanent easement or a long-term lease for a tower on my property for $40,000, given the potential issues and insufficient compensation. This could mean having to watch a tower being erected on your neighbor’s property without any rent.
Third, if you’ve received a lowball prepaid easement or lease offer and are uncertain about what steps you should take next, reach out to us. Our team will evaluate your property’s unique aspects and help determine its worth. We promise to only offer services that will be beneficial to you.
How Can Steel in the Air Help with Prepaid Cell Tower Leases?
- Just like any lease, we can evaluate the fair market value of the lease on both a prepaid basis and an ongoing rent basis. For more details, see our page on lease negotiation services here.
- Alternatively, if you are comfortable with the amount of the prepaid offer but aren’t sure how the lease will impact you over time or what changes you can make to improve the lease, we offer a Prepaid Lease Primer for $500 that details the pros and cons of a prepaid lease and what clauses you and your attorney should watch out for. Please note that the guide won’t tell you how much your lease is worth or whether you should negotiate the price further, nor will it provide legal advice.
- Wonder if it’s worth the money? Here’s what one of our clients had to say about it:”As a landowner in Tennessee, I recently found myself in a challenging situation when approached with an offer from a cell phone tower builder. Navigating these waters is daunting, as builders often have the upper hand. I was especially concerned about the long-term implications of accepting a lump sum for a permanent easement on my property. That’s when I turned to Steel in the Air for guidance. Their concise yet comprehensive primer was a huge relief. It provided me with the essential knowledge and understanding I needed to navigate this complex situation. With limited time to make a decision, their advice was not only relevant but immediately applicable. Thanks to Steel in the Air, I was able to make an informed decision, confident in my understanding of the nuances of this deal. I highly recommend their services, and especially this primer, to anyone facing similar circumstances.” GG From Tennessee
