Weird Revenue Sharing Clause
One of our clients received a proposal from a tower company that included a revenue share clause. Generally, revenue shares are not proposed by wireless carriers and even less so by tower companies. However, because our client is a governmental entity, I assume the tower company figured it would be better to put a revenue share out for discussion instead of waiting for it to be added.
However, this particular revenue share being proposed is a bit odd. For tenants added in the first 5 years of the lease, the landowner will get $150/mo. per tenant. For tenants added after year 5, the rate drops to $75/mo. For tenants other than AT&T, Verizon, Sprint, or T-Mobile, the rate is $50/mo. no matter when they are added.
There are a number of issues with this proposed revenue share language. First, we generally advise landowners not to accept fixed-rate revenue shares; instead, they should look for a % of revenue. A revenue share is intended to give the landowner participation in the revenue and often comes with a lower base lease rate to accommodate the future upside. A fixed revenue share though does not tie the landowner’s upside to that of the tower company- instead, it limits it no matter how much the tower company is getting for the lease. Furthermore, the reduction here from $150/mo. to $75/mo. after year 5 is ridiculous and serves no benefit other than to take advantage of lesser informed landowners. Even worse is the $50/mo. for any other tenant – which could include tenants that will pay more than traditional cellular tenants and would exclude future entities that enter the business regardless of how much they pay. From the tower company standpoint, having a fixed rate revenue share is much simpler from an accounting standpoint and much more profitable.
This particular proposal won’t be accepted by the landowner- who will and can counter with a % based revenue share given the fact that they own pretty much everything around this location. However, in other situations, the landowner may have to accept these types of terms especially if there are other readily available options. The key of course if trying to figure out whether your property is unique or not. If you need help, please contact the experts at Steel in the Air.
For those of you in the industry- have you seen other revenue share proposals that are innovative or outright ridiculous?
2 thoughts on “Weird Revenue Sharing Clause”
This is totally backwards from what advice we received when negotiating our lease. It is to the landowners advantage to make the lessee come back and renegotiate when five years have expired and there is less than twenty years left in the lease agreement. We were advised by SITA that other tenants would not sign with the tower owner unless they had at least twenty years left in the contract. The percent of revenue is always the way to go in contract negotiations but we were advised not to ask for this as VZW does not like to revenue share.
Ron and Lynn, Hi. I apologize for the delay in responding- I don’t check the comments on the blog that often (but should). In your situation we advised against revenue sharing because we identified that there were other properties nearby that could be used by Verizon and that if you pushed for revenue sharing, we suspected that Verizon would move to the other property. Less than 20% of leases have any revenue sharing and that % is declining as companies negotiating new leases won’t agree to it as much as they did before. This article also isn’t saying that everyone should have revenue sharing, just that when it is offered (which is rare), it should be better than these terms.
We also don’t agree that you could have added language to your agreement that would have forced Verizon to renegotiate each 5 years. You weren’t in the position to command those terms and you would have found yourself looking at a tower on your neighbor’s property and not receiving anything had you requested the renegotiation language.
I am sorry that you feel that you were given bad advice, but in reviewing your assessment, I would give you the same advice today as I did back then.