Cell Tower Leases: The Right of First Refusal Clause
Cell Tower Leases: The Right of First Refusal Clause
What is a Right of First Refusal Clause in a Cell Tower Lease?
As cell tower lease buyouts become more prevalent, Lessees (Tower Companies and Wireless Carriers) are adding Right of First Refusal (ROFR) clauses to their cellular leases. 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 manage the lease and collect the income off the tower. In recent years, Tower Companies and Wireless Carriers have been aggressively pushing to include ROFR clauses in all cellular lease agreements. This is because there has been a rise in the number of third party lease buyout companies who make future negotiations more difficult and costly for the tower company compared to the original landowner. Tower companies also fear that Leaseholders won’t be as diligent in meeting obligations under the original contract when they are no longer receiving monthly payments.
At the end of the day, tower companies will try to save money by owning the rights to your lease rather than be tied in negotiations with a lease buyout company.
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How Do Right of First Refusal Clauses Work?
On the surface, a ROFR clause doesn’t seem like a bad idea. Landowners might assume that since the buyer is matching the previous offer, it only changes the buyer of the lease without affecting the price. The problem with this is that when leases have ROFR clauses, Lessees are less likely to purchase the lease at a competitive price. Instead of proactively bidding on the site, they wait to match the offers from other companies and because many landowners are unaware of their lease’s true value, they may end up leaving significant amounts of money on the table. 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.
The Role of Anti-Assignment Language with ROFR Clauses
To further complicate matters, ROFR clauses are often drafted with strategic language meant to protect the Lessee Some tower companies and wireless carriers add language to their leases that would prevent you from assigning any right to their lease without their consent. Not only can they withhold at their sole discretion, but 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. Another tactic is to include it in a non-compete section that prevents you from entering into a separate easement, lease, or other conveyance that involves communications anywhere else on your property. Tower companies will often try to use language that makes leasing on a pro-rata basis sound appealing when it could result in a landowner losing thousands of dollars of profit. A pro-rata basis means that if a lease buyout company offered to purchase a given cellular lease but wanted more ground space than was currently being used, to account for the possibility of additional future tenants, the Lessee would only have to purchase a section of the land for a cost proportional to the land being used rather than the property as a whole.
Crown Castle Proposal
To better understand the complexities of these proposals, consider the following example of a ROFR clause from a Crown Castle proposal. To make things easier, the language has been broken down from their proposal and then translated to a simpler interpretation of the language.
This is not intended to be legal advice and you should have any document reviewed by your attorney before signing.
If you receive an offer that you intend to accept |
From a company that owns towers or that buys leases
If someone wants to purchase any interest in your property, including an outright purchase of the property or an easement or lease, |
You need to notify us and provide a copy of the offer |
We will have the right to purchase the land, easement or lease on mostly the same terms and conditions, |
Except for those terms that we feel are not to our advantage. |
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 instead of the entire acreage of the property. |
You must provide us sufficient detail to match the offer and decide if we want to purchase the lease or easement. |
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 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. |
We can assign this right of first refusal to other companies at any time. |
Recommendations for Landowners
- 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.
- Limit ROFR Applicability: 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.
- Restrict ROFR Range: The right of first refusal should never apply to the entire property unless the entire property consists only of the tower site.
- Refuse Pro-Rata Basis for ROFR: 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.
- Seek Professional Guidance: If you are unsure about signing a lease with a ROFR or anti assignment clause, or if you need help evaluating a new lease or proposed amendment, contact us at Steel in the Air. The initial call is free, and we won’t bill you anything until you sign a contract with us . If we don’t think we can help, we will let you know without charging you anything.
Generally, we think that ROFRs are restrictive and can reduce the value of the lease if you choose to sell it in the future. Some ROFRs 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. These conditions even hold when it is a family member attempting to purchase.
We recommend not signing any document that adds a Right of First Refusal to your existing lease agreement. With a new cell tower lease agreements, you may not have a choice. If that is the case, at least make sure to have your attorney review the language prior to signing to confirm that it is fairly drafted. If you need legal assistance, please visit our Cell Tower Attorney.
ROFR clauses can seem straightforward, but often come with complexities that can significantly impact the value and control you have over your lease. Landowners should approach these clauses with caution and seek professional advice to ensure their interests are protected.
Even if there is an right of first refusal in your lease, Steel in the Air an still help. If you have a buyout offer for your lease, please call us and we can help you navigate through the process and ensure you get the best possible deal before finalizing any agreements.