Cellular Leases: Interpreting the Right Of First Refusal (ROFR) Clause
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 gives the Lessee the right to match any offer that a Third Party Lease Buyout Company would make to purchase the lease from the Lessor (Landowner/ Property Owner).
On the surface level, a cell tower lease ROFR clause doesn’t seem like a bad idea. A landowner might assume that the worst case would be that it just changes who purchases the lease, but doesn’t limit the price being paid for the lease since the buyer is simply matching the previous offer. The problem with this line of thinking is that when leases have ROFR clauses, Lessees are less likely to purchase the lease at a competitive price. Rather, they simply wait to match the bids of any other companies. Since most landowners really don’t know the value of their lease, that often means that ROFR clauses result in the landowner leaving a significant amount of money on the table.
"In recent years, tower companies and wireless carriers have been aggressively pushing to include ROFR clauses in all wireless lease agreements. Why? Because they’d rather own the rights to your lease then be tied to negotiations with a lease buyout company."
To further complicate matters, ROFR clauses are often drafted with strategic language meant to protect the Lessee. For instance, one might state that the Lessee can purchase the lease on a pro-rata basis. That 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 the original portion of the lease and pay a pro-rata share of the comparable offer. For example, suppose you are a landowner who is leasing 300 square feet of ground space. You receive an offer from a lease buyout company to purchase your lease for $100,000, but this offer includes the addition of another 300 square feet, making the total ground space 600 square feet. The Lessee could elect to purchase only the original 300 square feet for $50,000, and you (the landowner) would have to accept this.
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 Lease Buyout Companies, such as Unison, WCP, APWIP, Tristar, and Landmark Dividend. Tower owners don’t want Leaseholders to sell to Buyout Companies for two reason: 1. Tower owners fear that Leaseholders won’t be as diligent in meeting obligations under the original contract when they are no longer receiving monthly payments; and 2: Tower owners fear that negotiations with Buyout Companies will be more expensive than with the original Leaseholder.
Lately, some Tower Companies have been sending letters to landowners asking them to add ROFR clauses to existing leases for a one-time payment of $2,000. We suspect that some landowners will see this as a good way to get some extra cash and agree to add the Right of First Refusal clause to their lease. In our opinion, this is a poor decision – and one that may come back to haunt the landowner in the future. We recommend against signing a document that adds a Right of First Refusal to your existing lease agreement. As it pertains to a new cell tower lease agreement, 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 narrowly drafted. If you need legal assistance, please visit our partner Cell Tower Attorney.
We can help you if there is an right of first refusal in your lease. We can assess your situation and teach you how to respond to the offer(s) in order to get the best price for your lease. If you have a buyout offer for your lease, please call us and we will help you to level the playing field before finalizing any agreements.