Communication infrastructure leasing and purchase agreements

By Mike Estadt, Ohio State University Extension Educator in Pickaway County and Jeffrey Lewis, Research Specialist, OSU Ag and Resource Law Program

The coronavirus pandemic has revealed to rural Ohioans that broadband internet is no longer a luxury but a requirement for work, school, and daily activities. Recent legislation in the Ohio House of Representatives and policy from many organizations and governmental agencies are calling for the buildout of communications infrastructure to address the discrepancies in broadband technology.

One of the proposed alternatives is increased 5G cellular network coverage. Many current cell towers will be converted, but additional towers may be required to increase the range of this high-speed wireless technology. Landowners in deficient areas may receive inquiries into the purchase of or rental of a parcel of land to construct a tower on. The questions of how much is my land worth and should I sell it or lease the property will arise.

Selling 

The benefit to selling the tower site is your ability to get all your money now, instead of later. Think of the lottery. Most people take the cash option because they can get a better return with other investments than they can with the lottery’s annuity payment. It is the expectation of an improved future Return on Investment (ROI) that motivates them more than the ROI itself, which often does not materialize. If the time value of money is a motivation, a conversation with a financial advisor is advised because the flip side is you could be selling something now that could provide you with a more profound benefit later.

Leasing

The biggest advantages to leasing the cell tower site is your long-term stability of income and the ability to negotiate lease terms. Leases will vary upon length and terms. As the final renewal term comes close to expiration the tenant might be very motivated to negotiate newer terms. It generally will be financially advantageous to keep the same site, since vacating the site would require the cell tower company to remove the tower and remediate the site to its original condition, then buy/lease a new site and install a new tower at the new site.

The downside to leasing the tower site is the site remains a part of the parent tract. If the fee owner of the parent tract tries to get a loan against the property, the tower site could affect the type of financing available. Residential lenders might have concerns with blended-use properties. One might consider subdividing the tower site from the parent tract to mitigate this issue.

General considerations of a cell tower lease include:

• Value — the lease amounts will always depend upon various factors. The dollar amount will depend on the type of tower, location, and availability of other sites. Some sites may fetch rates of a thousand dollars per year, while others can garner six figures.

• Legal description and access — the lease needs to include a detailed legal description that specifically identifies the tower site and the means of access. Will you be granting the network company an easement to access the tower site? Or is the network company dropping the tower in the back yard next to your pool and using your driveway? If so, you may be damaging the value of your house.

• Maintenance and taxes — Who maintains the access driveway, takes care of noxious weeds and pays the real estate taxes? Will your property taxes increase? Will your insurance premium increase? Contact your insurance provider to determine if you may need to increase your liability insurance. Make sure increased operating expenses are either factored into the rent or you can work an expense pass-through into the lease.

Duration, renewal options, and escalation clauses

• Usually, long-term. Initial term may be as short as 5 years or as long as 15.

• Renewal terms could be anywhere from 1 to 10 years in duration. Some leases may contain a series of renewal options that could total the term of 30 years if all renewal options are exercised.

• Escalation clauses sometimes activate with each renewal. An escalation allows the landowner to increase the rental rate according to a pre-agreed timeline. This escalation could be a negotiated as a percentage every year or an adjustment every 5 years according to Consumer Price Index.

• If the lessor chooses not to renew the lease, make sure the lease clearly states who is responsible for the removal of the tower and remediation of the property back to its original state.

It goes to say that before entering into any type of lease or purchase agreement, have an attorney review the documents.