Purchasing real property, especially commercial real estate, that already has a cell site on it can be financially rewarding, but it comes with its own unique legal, financial, and practical considerations. The due diligence phase in advance of closing is, therefore, critical in uncovering information that can and will severely impact a cell site lease transaction.
During the due diligence phase, it is extremely important to thoroughly research the property title to determine whether the property owner (or someone further back in the chain of title) “sold” the cell site lease, usually by way of an easement in perpetuity or for 99 years. If so, to whom and under what terms? For example, if a cell site lease has been previously sold, it is important for the potential buyer to understand the dynamics among the various parties that may now be involved. Those parties potentially include a tower management company that conducts all communication with the owner but is not actually the tenant; a tower acquisition company that ‘acquired’ the lease rights; or it might be the cellular lessee at the property. This latter category may change over time if the tower acquisition company subleases to additional tenants within the leased area.
Given the potential series of possible ‘gatekeepers,’ straightforward communication between the current owner of the property or the potential buyer and the actual tenant or tenants operating from the property are likely to become quite complicated and make “problem solving” a huge problem for the potential property buyer.
In certain circumstances, when a cell site lease has been previously sold by way of an easement coupled with a buy-sell agreement for the underlying cell site lease, the potential property buyer must understand that the “owner” of the cell site has business objectives that often do not align with those of the current property owner or potential new buyer. For example, at a multi-tenant property or a property that is an owner/user with a cell site, there can be situations where the operation of one party’s business on the property interferes with the normal business operations of the others. For just one example, where the cell site is located on the roof of the building and the owner needs to replace or expand HVAC compressors on roof, the cell site tenant might object claiming that the new equipment (needed by the building owner to satisfy the needs of other tenants) will interfere with the cell site signal transmissions. That’s a real world example of one business interest competing
with another business interest.
When a cell site lease has been sold and an easement granted to the lease buyer, the primary objective of the new cell site owners/easement holder is to maximize the current and future income from that portion of the property occupied by the cell site. If there is a situation where operation of the cell site is interfering with the operation of the primary business of the remainder of the property, the cell site easement holder has little to no incentive to address the problem because the cellular carrier is its sole income source. Given these circumstances, there can often be various roadblocks to effective communication between the affected parties that are likely to limit effective tools for resolution in the easement/sale documentation. Given that most cell site leases do not adequately cover situations where there is tension between cellular carriers and other non-communications tenants on the property or the owner/user, it is critical that the cell site lease be originally structured
to consider this at the outset, or at the time the cell tenant approaches the landlord (before the easement sale) when the landlord has most of the negotiating power..
One of the first steps a potential property buyer or seller should undertake is to carefully review the actual cell site lease, any amendments (both formal and informal), as well as all other associated documentation. This often includes asking for a tenant estoppel confirming that the potential buyer has an accurate copy of any relevant cell site lease documents, usually by requesting conformation of the documents in the landlord’s possession as an attachment to the estoppel request and certificate.
Most tenant estoppels will miss problematic areas that come up in a cell site lease analysis. There are multiple forms of estoppel certificates depending on the property type and use. In the context of cell site use, for example, it is extremely valuable for a potential buyer to know the details concerning the lease cycle. Options for renewal and whether the lease term ends on a certain date or rolls into an additional option period or a month-to-month tenancy are critical pieces of information to an existing owner and equally to a potential property buyer.
Another commonly overlooked area of due diligence when buying a property with a cell site is the need to research the financial stability of the cellular carrier, tower management company (if applicable), and tower acquisition company (also, if applicable). It is common within the wireless industry for lease and related interests to be assigned to a single purpose LLC or another bankruptcy remote entity—often without notice to the property owner—and rarely with documentation evidencing the transaction (including the terms of the transfer). While you may think your lease is with a REALLY BIG WIRELESS COMPANY, it might be with a very small arm’s length LLC that has none of the financial strength of the parent. Most industry-written cell site leases and easements do not require the transferring carrier party to provide notice or legal documentation without the property owner insisting on it – and sometimes even then it is denied with weak claims of financial security of the remote parent
offered in place of real and reliable assurances. Without knowing who is on your property, issues concerning liability can become extremely problematic. For example, if something unfortunate should happen on the property, property owners need to understand the status, limitations, and terms of insurance, and whether there is a contractual limitation on liability based on the limits of the policy.
While it is often a common part of due diligence when buying or selling a property to give or order an ALTA Survey and to do a physical inspection of the property, it is also important that the survey engineer receive a copy of all unrecorded cell site related documents to verify that the leased premises and all rights-of-way are accurately plotted on the survey. When a cellular company or its tower management company provides a property owner with a survey, they will often qualify that no third party (even the landlord) can rely on the survey, essentially making these surveys useless to the buyer or seller. A potential buyer should therefore always look for unauthorized equipment and site expansions, both of which are very common in the wireless world.
As part of its due diligence, the potential buyer will also want to review the local government’s zoning and permitting requirements, coupled with the permits actually granted for the cell site, to ensure that the site location, setbacks, tower height (if the cell site is a tower or monopole installation), aesthetics, and electromagnetic radiation emissions are all within legal limits and permit conditions. There are specialized engineers that can be hired to vet the radio frequency emissions and cell site configuration against the applicable lease, as well as local, state, and federal laws and regulations.
Given the diversity of potential scenarios to consider during the due diligence phase, it is critical to the buyer that an attorney experienced with cell site transactions be consulted in any type of transaction involving purchasing a property that has a cell site already on it. A skilled real estate or corporate attorney will be able to review the documentation and spot some of the issues but rarely will have the ability to do anything about ameliorating them once the ink is dry on the documents. On the other hand, an attorney with cell site experience will be able to analyze these transactions to determine what specifically has not been included in the documents and that is where years of experience in the wireless communications business can be invaluable in thoroughly advising your clients about the risks and potential liabilities of the transaction so that they can make an informed decision, especially in the due diligence phase.
Without that careful and qualified review, a property buyer can find itself at the wrong one of the tail wagging the dog, and wagging it for many, many years. Don’t be the dog.
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