The Value Of Your Verizon Cell Tower Lease Agreement
With a market cap of over$133 billion Verizon Wireless (NYSE: VZ) is THE 800 pound gorilla! However do not fear! The financial strength of Verizon can benefit you as a credit worth tenant ready to pay you rent. A Verizon cell tower lease agreement typically pays landlords some some of the highest rents in the industry!
Verizon Wirelessis a very stable wireless provider with a low risk of removing their cell towers in the near future. According to mobile evaluator RootMetrics, Verizon Wireless maintains the best mobile network carrier for overall quality in the United States.
It is great that Verizon wants to be your tenant. Still it is important not to be taken advantage of when dealing with the 800 pound gorilla that is Verizon.
Verizon’s real estate representatives are experts in cell tower leasing. Their goal is to secure the lowest rental rate with the most favorable lease terms for Verizon. Their goal is not to put more money in your pocket or to get you better terms.
In the spirit of David vs. Goliath, we want to share with you a few tips on leasing to Verizon:
1. Capture Rent With Verizon’s Expanding Footprint
Verizon Wireless is always expanding their footprint. Verizon is also one of the few US carriers pro-actively installing cell tower generators outside their lease area. This action is in response federal legislation requiring cell tower generators at all locations in response to Hurricane Katrina. According to the FCC, When Hurricane Katrina hit it knocked out 1,000 cellular sites in New Orleans in 2005. When Superstorm Sandy hit the eastern United States in 2012, roughly 25% of the wireless networks in the area were offline.
Generator projects aside, Verizon has been actively expanding their footprints in plans presented to landlords especially rooftops. Often we review Verizon plans and drawings for their rooftop installations with antennas installed on the roof or the facade of the building. Their site acquisition agent presents the plans requesting “landlord consent”, however, after reviewing the plans it is clear it is an expansion.
Remember that the representative for Verizon is not always going to be truthful or straight-forward with Verizon’s project. They may know that they are expanding outside their client’s footprint, however, it is up to you to catch them. Sometimes we review plans and find the tenant has been in breach of the lease for over a decade! In a situation like that they owe our clients, the landlord, back-rent and future rent to settle the breach.
“Trust, but verify” – Ronald Reagan
Always have any cell tower or cell site plans reviewed by a cell tower lease expert. Have the plans reviewed by best in the nation, Nick G. Foster. Plans for Verizon upgrades present you with a time-sensitive opportunity. You can renegotiate business terms, increase your cell tower lease rent, and demand one-time payments to you.
If Verizon expands their lease area, that is worth more rent paid to you, but how much more?
2. Focus On Current Lease Economics, Don’t Get Distracted
Often Verizon, or their representatives, will try to negotiate a low rental rate with a promise to the landlord that there will be collocation opportunities in the future.
This is likely a pipe dream.
The tenant is trying to get you to give up dollars today, hoping that there will be even greater dollars coming in the future. The reality is that those co-location opportunities rarely – if ever – happen.
The largest US cell tower owner, Crown Castle, has over 40,000 cell towers. On those 40,000 cell towers they average 2.2 tenants per tower. The largest cell tower owner in the United States is barely hanging on with two tenants per a tower. What is the probability that your cell tower will acquire another tenant? It may never happen – so focus on the economics you can secure today!
We have reviewed thousands of cell tower leases over the years and the majority of cell towers that we see have one tenant on the tower. Even with the tower being up and running for decades. If a tenant has co-located on the tower in the last thirty years, why would they all the sudden want to jump on the cell tower now? We have to keep in mind the history of the tower when we are trying to predict the future.
Make sure you do not get distracted with future promises. Focus on the cell tower lease economics that are in front of you, economics that you can capture today.
What is the rent they are proposing to pay you? What is the proposed rent escalator? How long is the entire cell tower lease agreement? These all affect the cell tower lease on day one. A discussion regarding a proposed revenue share on a future tenant, may be nice to have, but the results may never come in.
3. Require A One-Time Fee Payable to YOU
It is important to remember that when you sign a cell tower lease, the rent typically does not start until they construct the cell tower.
So what about the expenses you accrued in negotiating the cell tower lease?
No one likes starting off a business deal in the red. Require the Verizon pay you a one-time fee within thirty days of signing. This is a common request in the cell tower industry and Verizon will likely accommodate your request.
How much money should you ask for? This is where having a cell tower lease expert to let you know how high to push it comes in!
4. Have An Expert Tackle Verizon’s 36 Provision Agreement
Verizon has the lengthiest lease agreement of all major US carriers. We wouldn’t recommend you try and tackle this agreement on your own, as Verizon’s cell tower lease has been carefully crafted by their attorneys. The objective in the agreement is to of course secure the best rights for Verizon. The Verizon cell tower lease agreement looks out for Verizon’s best interest – not yours. The Verizon cell tower lease typically includes approximately thirty-six provisions.
Here is an examples of a lease provision that need to be addressed immediately:
ANNUAL TERMINATION. Notwithstanding anything to the contrary contained herein, provided LESSEE is not in default hereunder beyond applicable notice and cure periods, LESSEE shall have the right to terminate this Agreement upon the annual anniversary of the Commencement Date provided that three (3) months prior notice is given to LESSOR.
Here is another clause that makes you want to shake your head. They want you to commit to the terms of the agreement for 25 years, however, Verizon want’s the ability to terminate the agreement at will any year they want. Does this sounds fair and reasonable?
We suggest that you engage cell tower lease experts, such as Airwave Advisors, to ensure that your interests are being protected. Level the playing field and bring knowledge and expertise to the table to secure the best deal for you!
5. Always Say NO To A Right Of First Refusal
One notable lease provision that should be removed immediately is the “Right of First Refusal“ . It typically reads as follows:
RIGHT OF FIRST REFUSAL. If LESSOR elects, during the Term (i) to sell or otherwise transfer all or any portion of the Property, whether separately or as part of a larger parcel of which the Property is a part, or (ii) to grant to a third party by easem*nt or other legal instrument an interest in and to that portion of the Building and/or Property occupied by LESSEE, or a larger portion thereof, for the purpose of operating and maintaining communications facilities or the management thereof, with or without an assignment of this Agreement to such third party, LESSEE shall have the right of first refusal to meet any bona fide offer of sale or transfer on the same terms and conditions of such offer. If LESSEE fails to meet such bona fide offer within thirty (30) days after written notice thereof from LESSOR, LESSOR may sell or grant the easem*nt or interest in the Property or portion thereof to such third person in accordance with the terms and conditions of such third party offer. For purposes of this Paragraph, any transfer, bequest or devise of LESSOR’s interest in the Property as a result of the death of LESSOR, whether by will or intestate succession, or any conveyance to LESSOR’s family members by direct conveyance or by conveyance to a trust for the benefit of family members shall not be considered a sale of the Property for which LESSEE has any right of first refusal.
Should you ever want to sell your cell tower lease for a lump sum payment, this provision will absolutely destroy your chances of obtaining the highest offer in the market.
Why is a right of first refusal so bad?
Many potential buyers of cell tower leases simply won’t spend the time to bring you a competitive offer. With the right of first refusal provision they know that Verizon may purchase the lease and steal their deal.
As a result, a right of first refusal provision removes your ability to tap into a competitive market. This bad provision guarantees you will not receive the largest and most competitive offers with your cell tower lease buyout.
If you are willing to live with the provision, often Landlords negotiate higher Verizon cell tower lease rates.
6. Never Agree To Additional Extensions Language
In Verizon’s lease template around Section 6 they try and sneak in a “gotcha” clause. The language typically reads that at the end of the final extension term if the lease has not been terminated, than it continues for another 25 years. Here it is…
ADDITIONAL EXTENSIONS. If at the end of the fourth (4th) five (5) year extension term this Agreement has not been terminated by either Party by giving to the other written notice of an intention to terminate it at least three (3) months prior to the end of such term, this Agreement shall continue in force upon the same covenants, terms and conditions for a further term of five (5) years and for five (5) year terms thereafter until terminated by either Party by giving to the other written notice of its intention to so terminate at least three (3) months prior to the end of such term.
This provision is ridiculous and needs to be deleted in its entirety. It is stating that 25 years from now if you haven’t marked on the calendar to terminate this agreement, it automatically renews for another 25 years. What a sneaky “gotcha!” clause to try and remove the landlord’s ability to renegotiate a higher-rental at lease expiration.
Gotcha!
Verizon is betting that you will not have the lease expiration date on your calendar 25 years from now. Which you won’t. They are also betting that if the property changes hands the new property owner will not have the lease expiration date on their calendar. Which they won’t. Either way Verizon wins.
Don’t let Verizon Wireless pull a fast one on you! If this language makes it into the cell tower lease, you will have removed your ability to negotiate a higher rent at lease expiration.
7. Always Consider Redevelopment & Temporary Relocation
Most Verizon lease agreements are twenty to thirty years in length. What if you need to redevelop the property, or re-roof your building? Always make sure you plan for the future.
We had one site were working on where our client had to re-roof their building. Verizon wanted $55,000.00 to move them temporarily so the property owner could re-roof!
Don’t let your cell site tenant hold you hostage! Make sure you are protected with language that plans to accommodates your future.
Conclusion
Remember that Verizon and the professionals they hire are not looking out your best interest.
Airwave Advisors can help you secure the highest rents with the most favorable lease terms when leasing with the 800 pound gorilla. Verizon hires experts to secure them the best terms, shouldn’t you?
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