Should I Extend or Sell My Cell Tower Lease
We estimate that at least 80% of cell tower lease holders have received offers from the tower owner to extend or buy their lease. This is especially true for landowners who have American Tower, Crown Castle, or SBA Communication tower leases on their property. For landowners in this situation, it may seem like a difficult choice. Should you renew your cell tower lease? Should you sell your lease via a cell tower lease buyout? Or should you just keep the lease as is? Keep reading and we will share some of the most important factors we believe landowners should consider.
Why Tower Companies Want You to Extend or Sell
There are a handful of reasons:
- They don’t want you to be in a stronger position to negotiate. The closer the lease gets to expiration, the less time they have in which to negotiate with you. By approaching you early and often, they can use time to their advantage and wear you down. Ultimately, it is cheaper for the tower company to renew the lease far in advance of expiration than to wait.
- The tower companies regularly report on their earnings presentations about the average amount of years they have their tower sites tied up for. Crown Castle for example reported the following statistics in a recent earnings report:
- Their average ground lease has 36 years remaining until expiration.
- They have purchased 42% of the ground rights underneath their towers – either by a lease buyout or by acquiring the parcel underneath the towers.
- They don’t want you to sell to a third party. They know that generally landowners aren’t as sophisticated as cell tower lease buyout firms. They also prefer not to have a third party who knows more than the standard landowner controlling the lease under the tower.
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Reasons to Do Nothing
Unless your lease is set to expire in the next 5 years, you really don’t have to do anything in most cases. Despite their agent’s bogus claims to the contrary, tower companies aren’t going to terminate your lease simply because you failed to extend or sell the lease to them. They may want you to extend, but you don’t have to. If the tower company’s offer doesn’t improve your lease, in most cases, it doesn’t make sense to do anything. Some landowners we talk to think that extending their lease is to their advantage as it means the rental income will continue longer. The problem with this line of thinking is that a lease extension is almost always a one-way commitment. You commit to the tower company of letting them stay on the property, regardless of what happens in the future. However, they still retain the right to terminate – often with little or no notice. If they aren’t willing to commit to the long term without termination rights, why should you? This is especially true for landowners who have land that may potentially be developed in the future. We are contacted almost weekly by someone who wants to figure out how to get out of a lease or lease buyout because the tower is in the way of future property development or redevelopment.
Why Should You Extend Your Lease?
First and foremost, because the tower company or wireless carrier is offering an increase in rent or other better terms. These can include revenue sharing, a guaranteed term where they can’t terminate, or a large signing bonus. Many of our clients have extended and improved their leases measurably. If you know that the tower is in a location that won’t interfere with future property development, in many cases, it helps to extend the lease prior to expiration.
We like to think of a lease extension as an opportunity to improve the lease. How? It depends on the client’s objectives. Some clients prefer to keep the lease rate the same while getting a larger signing bonus. Some prefer to increase the lease rate to collect more rent now. Some prefer to add revenue sharing to the lease. The tower companies are able to pull each of the “levers” (revenue share, increased rent, increased ground space, etc.) and provide multiple offers. For most landowners though, trying to figure out which offer is best is an effort in futility. If you don’t know how much your lease is worth, how can you know how much of a signing bonus is appropriate or how much rent should be increased? Is a revenue share valuable, or is it unlikely that any future wireless carriers will come on the site?
In rare circumstances, it may make sense to consider reducing your rent. Oftentimes, the tower companies will refer to a landowner’s site as “negative margin.” This means that the tower company is claiming that they don’t make money on the site. These claims aren’t always true and even in situations where they are true, the tower company may have no other alternative. However, when the lease rate is high, and relocation of the tower is possible, sometime landowners are better off by agreeing to a lower lease rate or other terms more favorable to the tower company.
We can tell you how much your lease is worth and what other landowners in similar situations negotiated when they extended their leases. We can also advise you when the time is right to renew your cell tower lease.
Why You Should Consider a Cell Tower Lease Buyout?
A lease buyout makes sense in a few situations. First, for landowners that are looking for capital – either to pay off debt or to make an investment – selling a cell tower lease may be a viable option. The cell tower lease is an asset and there are many companies that are interested in buying these leases. Typically tower companies pay 18 years’ worth of rent or more to purchase a tower ground lease.
In situations where there is a possibility of termination of the tower lease in the future (or you are risk-averse or dependent upon the income), it may make sense to sell the lease and avoid the possible loss of revenue. For example, if you had owned a Sprint-only tower 5 years ago, you likely would be better off had you sold it back then, since many of those leases are being terminated now.
A cell tower lease buyout should be considered if you plan on selling the underlying property soon. Most buyers of commercial or residential property aren’t willing to pay the same amount for a tower lease as lease buyout companies. Some may not be able to buy the property if they also must come up with the cash for the tower lease or try to convince a lender to let them borrow money for acquiring the lease.
One thing that we have learned over time is that it is easy to enter into a lease buyout, but almost impossible to get out of one. Thus, before you consider a lease buyout, we strongly recommend you consider whether the property could be developed in the future.
So Which Option is Best?
If you believe that the tower is in the way of future development on your property, we recommend keeping the current lease as it is. No need to extend it only to find out that you wish you hadn’t.
If the tower won’t impact future development, then the best option depends upon the offers that the tower company or a third party make to extend or buy out your lease. In general, tower companies rarely make their best offers without lengthy negotiations, so it often does not make sense to consider their first offer. If you have a while until the lease expires, time is on your side. Rarely do we see situations where the landowner would have been better off extending or selling their lease earlier.
As to whether selling or renewing the lease is better – in our experience, each of these options is a viable alternative. In terms of which is best, it really depends upon the landowners’ objectives. We specialize in helping landowners make the best decision for their situation. Unlike other cell tower lease consultants (who take a commission or an ongoing percentage of your lease and are therefore incentivized to have you sign a deal), it is our objective to help you figure out what works best for you even if it is to do nothing at this time. We won’t encourage you to sell the lease because we get a bigger payday.
How Can SITA Help?
If you decide to sell, we can broker the lease and make sure you receive top dollar.
If you know that you don’t want to sell the lease because you prefer to have regular income, we can help you negotiate a lease amendment that maximizes the rent you receive.
Likewise, if you don’t want to sell but would like to take out some money from the lease, we can help you negotiate towards a higher signing bonus while keeping the lease rate similar or only slightly higher than you currently receive.
Want to Know More?Call us or contact us. All initial discussions are free and there is no commitment on your part until you sign an agreement with us. Your information will be kept confidential whether you choose to engage our services or not. If we feel that the time is too early to do anything, we will tell you as much. Our goal is to help you make intelligent decisions about your lease. Whether that generates revenue for us or not is secondary.