Many owners and operators have fallen in love with an unexpected source of revenue at their self-storage facilities: a cell tower. Once it’s up and running on your property, it may seem like easy street. Getting there, though, can be a different story.
Real Estate Taxes
Covenants and Warranties
Right to Assign
Finding a Cell-Tower Company
Assuming you can entice a cell tower company to take interest in your property, the real challenge becomes carefully negotiating the terms and conditions of an agreement before you sign a long-term commitment. While you should not skimp on professional advice, this two-part article provides an overview of the related issues storage operators have faced over the years.
Part I, which appeared in last month’s issue of Inside Self-Storage, discussed leases, options to leases, automatic renewals, cooperation, land leased, involved parties, terms of rental and interference of property. Part II, below, focuses on issues of utilities, expansion, equipment renewal, fencing, antenna repairs, access, real estate taxes, covenants and warranties, right to assign and, finally, tips to find a cell tower company to work with in the first place.
Most of the options/leases state the cell-phone company will try to get individual utilities to the tower; but if it’s unable to, it will use your utilities, and you’ll have to bill back. Many concerns arise with this provision, not the least of which is how you divide a singular utility bill into cell-tower use and your use.
There are often also provisions that require you to bill the cell company promptly for utilities or waive your claim to billing, so you’ll need to follow these requirements carefully. Be aware, too, that the cell company may take 90 days to reimburse utility fees. Since this can be problematic, you may want to negotiate a shorter pay time or some sort of finance charges if not paid within a certain period.
If the cell tower uses separate utilities, where are its lines going to run? Keep in mind the utility company may not put the equipment where you expect. Consider adding a provision in the option/lease that allows you to back out if the utilities run in such a way that they will cause damage to or diminish your business.
For example, one operator thought the utilities would run underground along the south edge of his property line. Instead, the utility company determined the best way to run line was to install utility poles through about six RV-parking spots. Once the poles were in, the operator lost the ability to rent those spaces. Although he collected rent from the cell tower, it ended up being a wash.
Also inquire about trenching. You may think it will be dug outside the fence, but if the utility company decides to trench inside and you have 100 RVs in the way, this could pose a serious short- and long-term problem for this easement.
Speaking of easement, make sure everyone is in agreement that if it’s going to run through your property, you are allowed to continue to conduct business over it. Many of the cell-tower option/leases call for 24/7 access to the tower and any utility lines that serve the tower within the easement area. If you’re going to run an easement through 50 RV-parking spots back to the cell tower, it needs to be clear in your agreement that you are allowed to continue to park vehicles there as long as you have a plan for evacuating them in a hurry should the cell tower company need access.
Many option agreements state the cell company has a right to expand antenna facilities and, if it does so, rent will proportionally increase. Realize the cell tower may now earn you an additional $40 per month, but knock out two $100-per-month RV spots. Contemplate this early in the negotiation process.
Further, the cell company generally will not pay extra to increase the antenna height unless you negotiate such an arrangement into your agreement. Normally, a height increase is made to allow other cell companies to use the tower. The new company may only need space on the tower but not the ground, which means it only pays rent to the original cell company, not you. Yet you end up with the burden of additional companies using your property. Consider having the option/lease agreement mandate that any new tower user results in a rent increase to you.
Probably one of the most important things you can negotiate in this agreement is clear stipulations for equipment removal. The cell company should be responsible for removing the antenna and equipment and returning the land to its original condition after any termination, even if caused by your breach. Don’t sign an agreement that leaves you responsible for dismantling the 100-foot cell tower and disposing of all of the assorted ground-based equipment.
Many option agreement/leases say the cell company has the right to fence the area around the cell tower. Note: You want fencing to be an obligation.
Watch the provisions that discuss problems with the antenna. Some clauses say that if the antenna is disturbed, damaged or destroyed, the lease simply terminates. You want to negotiate a requirement to repair or replace rather than a right to walk away. And again, you want to make certain that, if nothing else, the tower and equipment is properly and completely removed at the end of the term.
Further, “disturbed” is an interesting word to include in an agreement without full clarification. Does this mean that if one of your existing tenants climbs over the fence and messes with the antenna you’ll potentially lose a lucrative 30-year agreement? The term “disturbed” needs to be defined, and the right to terminate should be reduced substantially in the event of a disturbance.
Most options/leases require you to provide 24/7 access to the cell company, with substantial penalties if access is impeded or denied. Some of these penalties can run up to $500 per day. However, what happens if you can’t program your gate to give individual 24/7 access to a cell company and your tower is behind the unit or gate confines? Or what if the gate is out of order, malfunctioning because of electrical or power outage? These items must be negotiated in the agreement.
Further, make sure you reach an agreement with the cell company that allows you to use the space up to the fence line for parking or building. This has to be done in conjunction with the negotiation of turnaround space as discussed earlier. Turnaround space can mean a pickup truck or it could mean a 30-foot-long cherry-picker. Either way, your site may lose a lot of useful storage space. Negotiate how you’ll handle the situation, or you will find yourself with wasted land.
Real Estate Taxes
With a cell-tower lease comes an increase to your income and almost certainly to your real estate taxes. Many options/ leases call for you to pass through to the cell company any increases in those taxes, but rarely do these agreements contain a formula. It’s pretty easy to determine the right amount if you normally pay $10,000 per half in real estate taxes and your taxes go up to $12,250 per half after your tower is built. However, if there are other tax increases, levies, etc., it will be difficult to back out the increase in the assessment.
Include an appropriate formula to interpret this assessment and how to pass it through as your tax increase, since it may be hard to determine which portion of the taxes are based on higher value vs. higher tax rate. Proceed cautiously because these clauses often contain a requirement that you must pass through tax bills within a certain period of time after receiving them or you waive your right to collect.
Covenants and Warranties
As with any contract, you’ll be asked to make certain covenants and warranties, including those regarding your ownership of the property, your right to sign a lease, certain zoning requirements, terms of your mortgage, etc. If you’re not sure about some of these things, change the wording in the agreement from “warrant” to “to the best of my knowledge and belief.” Warranties are strictly construed; be sure you can actually warrant something if you sign as such.
Right to Assign
The right to assign a cell tower is risky because the cell provider can transfer the lease to a different company that may or may not have assets sufficient to remove the tower if the agreement terminates. There’s not much you can do about this except be aware of the right.
In addition, most agreements don’t originally allow you to assign the lease to someone else, making it almost impossible to sell your property for the next 30-plus years. You want to negotiate a right to sell the property and assign the lease as long as the buyer of the property accepts it.
Finding a Cell-Tower Company
There are three websites that purport to register cell towers with providers and attempt to make a match: www.steelintheair.com, www.unisonsite.com and www.wirelessestimator.com. I have never worked with any of them so, don’t I don’t know if they are productive. Proceed with caution. Further, you should work with an expert in cell-tower leases to help you understand appropriate rates of rent and fees based on what market conditions will bear.
If you wander into this alone, you may be sorry. Get assistance from an attorney who can assist you with the various points discussed in this article, as well as any other issues that may come up during the process. Additional revenue collected from cell-tower leases can be a good thing, but not if the your lease ends up giving you a run for the money.
This column is for the purpose of providing general legal insight into the self-storage field and should not be substituted for the advice of your own attorney.
Jeffrey Greenberger practices with the law firm of Katz, Greenberger & Norton LLP in Cincinnati. He primarily represents owners and operators of commercial real estate, including self-storage. He is the legal counsel for the Ohio Self Storage Owners Society and the Kentucky Self Storage Association. His website, www.selfstoragelegal.com , contains his legal opinions and insights into the self-storage industry as well as an article archive. For more information, call 513.721.5151; e-mail email@example.com .