In our recent report, we told you about The Top 5 Ways to Lose Money on Your Cell Site in 2016. Now we want to provide some straightforward advice on how to avoid these common mistakes – or fix them if they’ve already happened. Read about each pitfall and solution below.
RENT BELOW MARKET
You know from last week’s report that all too many cell site landlords are receiving below-market rental payments. How do you guard against this? The most obvious solution is to make sure rental rates are fair before the lease is signed. However, market rate information is not widely reported which can make this a guessing game for site owners.
The key is understanding which factors actually determine the “market rate” for your cell site. For example, where is the site located? Is there an abundance of potential cell sites in the surrounding area? Is your site unique? What type of installation do they want to build? Is the tenant a tower company or a wireless carrier? Carriers tend to have more flexibility to pay higher rents because they deal directly with landlords and property owners. Conversely, tower companies may be more restricted in what they may be able to negotiate.
All these characteristics should be studied before you agree to a rental rate. A cell site consultant can provide guidance if you need help with your analysis. Even if you are already stuck in an unfavorable lease there may still be opportunities to renegotiate. Read on to learn more.
The owner of the tower will commonly allow a second, third, or even fourth wireless carrier to install equipment on its tower. The new wireless carrier then becomes a subtenant and pays rent directly to the owner of the tower. In the telecom industry this
practice is referred to as “co-location.” If you are the owner of the property where co-location is occurring then you may feel that the new rents should be shared with you.
Unfortunately, most tower owners are extremely reluctant to pay “co-location fees” to a cell site landlord. However, it is not unheard of for rights to co-location fees to be added to seasoned or near-term expiration renewals.
Upgrades are a very difficult area for landlords to capitalize on because in most cases the tenant does have the right to modify
or upgrade the site. However, many leases give the landlord an opportunity to increase the rent or obtain other lease enhancements.
If your cell site tenant is requesting permission to upgrade or modify the equipment on the site then a knowledgeable wireless expert needs to examine your lease and the written request.
Wireless tenants try to limit the percentage of rent increases and may also attempt to tie them to options. Landlords are often at a disadvantage because they do not know how large of an increase is fair – or how often rates should go up.
Industry standards for rent increases are 15% every 5 years or 3% annually. Carriers and tenants may be inclined to provide higher than average escalators depending on multiple factors such as availability and location. Educate yourself further on rent increases.
RENTAL STREAM OFFER OR
RIGHT OF FIRST REFUSAL (ROFR)
Tenants sometimes push for lease terms that seem unjust. One prominent example is the “Rental Stream Offer” clause – also
known as the “Right of First Refusal” – which limits the site owner’s ability to sell their lease to a third party. This is an egregious provision that landlords should seek to remove from their lease. Unfortunately, this can be quite difficult to achieve. If you have trouble negotiating the removal yourself, it’s best to speak with an experienced cell site consultant.
*Reprinted with permission
NAI Capital Wireless