Cellular (“cell”) site leasing has become popular in San Diego County with the proliferation and increasing demand for cell phone and wireless bandwidth. This demand has created new opportunities for landowners in areas such as San Marcos, Oceanside, San Diego, Vista, Valley Center, Del Mar, Encinitas, Carlsbad, Escondido, Fallbrook, Rancho Bernardo, Poway, Ramona, Julian, and Temecula seeking to develop a stream of passive income through leasing their property for use as a cell site.
Cell sites are situated on open land, rooftops, or buildings, and are comprised of a base or tower and an antenna. A site also includes other electronics such as radio transceivers, cables, and power supplies. Generally, the site may also have several “collocations,” meaning that the site will have multiple antennas and equipment in a single area.
There are many laws that affect the telecommunications industry including the Federal Telecommunications Act of 1996 and other various local regulations and ordinances. These laws can drastically impact the ability of the landlord to lease to a wireless carrier. For example, a wireless site in a residential zone may be disfavored more than in a commercial zone. Other times, the locality will require that the cell site be camouflaged in order to reduce the visual effect of its presence.
Landowners should understand that leasing their property as a cell site can be risky. These risks include neighbor or neighborhood complaints, the unwanted transformation of a lease into an easement, the financial insolvency of the cellular re-seller/tenant, and large-scale liability for the hazardous materials – such as batteries, fuels, and other toxins that could result in personal injury, property damage, or environmental destruction. There may also be risks for your property on resale (potential decrease in value of the property) and future development restrictions.
Cell site leases usually consist of a long duration of twenty to thirty years. Therefore, it is especially important to properly negotiate a lease upfront, prior to commencement of such a long relationship. The standard form lease, which may be presented to you by the wireless carrier or its agent, is most likely inequitable and highly favors the interests of the wireless carrier. YOU SHOULD NEVER SIGN A FORM LEASE WITHOUT CONSULTING AN EXPERIENCED ATTORNEY.
You and your attorney should negotiate your lease with several things in mind. First, you want to make sure that your lease will never convert into an easement. An easement could inhibit your full use and access of your property. Second, the scope of the lease should be narrowly defined to prevent the expansion of the site by way of additional collocations added on by the tenant. Further, landlords should retain the ability to dictate the terms of access to the site and also the scope of improvements, costs of repair, and maintenance. Third, the lease should reserve the right of the landlord to modify the property. For example, a cell site placed on top of a warehouse could prevent the warehouse owner from expanding or modifying the warehouse.
Landlords should also understand who the actual tenant will be. Many times, a third party or agent will be sent to initiate negotiations or to make a preliminary offer. Often, these parties lack the authority to negotiate deviations from the form template. The initial rent price should reflect the market rate. This can be determined by an appraisal and a search of similar leases in the locality. These leases, which are required to be filed with local government, are subject to disclosure through the public records act. Provisions in the contract should be made for rent adjustments based on inflation. Rent obligations should begin as soon as the agreement is executed, since the landlord will be prevented from leasing the property thereafter. Landlords should understand the ramifications of subleases and the impact that a potential assignment could have.
Landowners should be cognizant that laws such as the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and the Hazardous Substance Account Act (HSAA) assign liability for the cleanup of pollution. A landowner should seek experienced counsel to help provide legal protection in the form of protective agreements and other prescriptive measures. At a minimum, the lease should impose the duty on the tenant to disclose any hazardous materials on the landlord’s property, and the potential (or likelihood) of pollution and contamination. Steps should also be taken to provide for the tenant’s accountability for hazardous radio emissions. The tenant should agree to be in compliance with FCC’s RF emission guidelines at all times.
Casualties are an inevitable part of life and need to be accounted for. The lease should clearly define the landlord’s liability for damage to the tenant’s equipment. One protective measure could require the tenant to waive any claims for consequential damages (which could be staggering). An indemnification agreement would also help insulate a landlord from the harm caused by the tenant’s equipment.
Remember that it costs tenants a substantial amount of time and money to relocate their cell site. This may provide landlords more bargaining power in coming to terms with a renewal. Be cognizant of a tenant’s desire to establish an easement. An offer for an easement of an upfront payment of around 15 times the annual rent might seem attractive, but this amount ends up being considerably less when factoring the discounted interest rate. Make sure to consult with an attorney who is attentive to these important financial considerations.
Leasing your property for use as a cell site can be lucrative. However, there are many important considerations which need to be made to protect your interests. Before entering in to any lease agreement, make sure to contact an attorney who can inform you of all the risks, and who can tailor a plan to your specific needs.
Fred Pfister is an associate at White and Bright specializing in real estate matters. For questions relating to this article or for assistance with a cell site negotiation, please contact Mr. Pfister at White and Bright (760-747-3200).