What To Consider In A Telecom Tower Deal

As the commercial real estate industry evolves, so too will the Internet and wireless networking. By 2022, it is expected that the number of U.S. smart phone users will climb to 271 million. As this happens, telecom providers must add capacity, and tower companies will provide them with infrastructure to support that capacity. This should present some unique opportunities for commercial property owners to pursue additional revenue channels.

Globest.com asked Matthew Kwasman, an attorney with Nason, Yeager, Gerson, White & Lioce, P.A., which has offices in Palm Beach Gardens and Boca Raton, FL to address some of the issues affecting the telecomm space. Kwasman has significant experience representing both tower companies and property owners in transactions involving the purchase, sale and lease of real property focused on the placement of telecom infrastructure. Before joining the firm, he was a supervising attorney at the American Tower Corporation, where his practice focused on protecting the legal affairs of ATC, the largest telecommunication tower operator in the United States.

Kwasman explained that unlike many other locations, commercial properties provide a great venue for the placement of towers and other forms of communication infrastructure. Large, bulky objects can be placed on rooftops, in alleys and behind buildings so they are not as visible or accessible to the general public. Small cells and other stealthy objects can be placed in parking lots and in high-traffic areas. Tower companies often recognize the value of placing infrastructure in commercial locations and may offer significant compensation to owners whose properties can support it. Depending upon the deal structure, it is not uncommon for tower companies to sign long-term leases, much like traditional “brick and mortar” tenants. Other times, they pay up-front, lump sum payments for perpetual property rights, he noted.

Although property owners may be inclined to jump at the opportunity to boost their revenues, owners should fully understand all of the deal terms and the potential risks of entering into these kinds of arrangements, he stressed. For example, how will the tower agreement affect the marketability of the property going forward? Will the location of any infrastructure or equipment pose safety concerns, and if so, how can those concerns be mitigated?

Once parties agree on mutually acceptable business terms, the tower company will generally send over its standard form of agreement(s) for review and execution. Upon receipt, a property owner may propose edits in order to better control any risks and the parties’ relationship going forward. Depending upon the circumstances, a tower company may accept certain changes and push back on others.

The following discussion addresses a few issues owners should consider addressing when negotiating these types of agreements:

Globest.com: Who is responsible for maintenance and repairs?

Kwasman: The owner should require the tower company and its licensees to maintain and repair the leased premises and any easement areas. If not, the owner may bear such a high cost for acts and omissions of the tower company and its licensees that any profit will be wiped out.

Globest.com: What assurances should the property owner insist on in regard to risk mitigation and protecting buildings and improvements?

Kwasman: When telecommunication equipment sits on the rooftop of a building, the owner should require the tower company to secure its equipment in a manner that minimizes the number of punctures in the rooftop membrane. For example, only the beams and platforms, which sit on the rooftop, should be fastened to the rooftop. All related equipment should be fastened to those beams and/or platforms. This practice will reduce the risk of leaks, and it will help preserve any applicable rooftop warranty at the building.

Globest.com: What access will the tower company require?

Kwasman: Tower companies generally spend more than $150,000 to construct a tower, not including their costs for diligence and governmental approvals. Because towers are expensive, it is imperative that their investments function smoothly. For this reason and others, tower companies generally require unfettered access and utility service to their sites. While it would not be unreasonable for a tower company to require access on a 24/7 basis if the site was located on a large, open tract, it may be best for an owner to impose commercially reasonable rules that regulate the hours during which tower personnel may be onsite in a shopping center, industrial or office building site.

The goal of any such regulation should be geared towards the safety, well-being and productivity of the property, of its patrons, and of other tenants. Tower companies are mindful and generally receptive to owners’ concerns, but still frown on access limitations.

Globest.com: Are there any tax implications for the property owner?

Kwasman: When infrastructure and equipment is placed at a site, property assessors sometimes increase the taxable basis of the applicable property. To avoid paying tax bills, which absorb such costs, owners should require the tower company to take steps to create a separate tax parcel for the tower site and pay that bill directly to the tax collector. Until such a new tax parcel is created, the parties’ contract should clearly state that the tower company will pay for any increase in tax liability sustained by the owner, which is directly attributable to the tower company’s equipment at, and use of, the property.

Globest.com: What tower design options exist to make sure the property’s appearance is not negatively impacted?

Kwasman: Depending upon the circumstances, an owner may condition a tower company’s use of a site on its ability to blend the tower and other infrastructure into its surroundings. For example, tower companies have the ability to construct a stealth tower, which may resemble anything from a cactus, to a palm tree, to a flagpole. In commercial locations, small cell nodes generally blend well into their surroundings.

Globest.com: Are there any specialized lender and legal issues that must be considered?

Kwasman: It is important for owners to understand that tower companies will not agree to terms and conditions that might violate their loan documents, or which might create unreasonable hardships for telecom providers that wish to use the infrastructure. An owner’s insistence upon including terms and provisions that exceed a tower company’s risk tolerance and/or run afoul of its core principles not only jeopardize the deal in hand, but also may strain an existing relationship at that communication site.

Although property owners and tower companies generally agree upon terms that benefit both parties, if during the negotiation process, a tower company insists upon including concepts that exceed the owner’s risk tolerance, the owner should attempt to balance the benefits of the agreement against its effect on the property. Just as tower companies engage counsel to work through decisions and issues that arise during contract negotiations, it often helps for property owners to engage counsel to guide them through the negotiation and risk mitigation process.