Landlord’s Checklist For Cell Tower Transfers
By Gerard Lavery Lederer
The Federal Communications Commission recently closed a spectrum auction that raised more than $41 billion. Among the companies making a large investment in the auction was Verizon. It reportedly spent $10.4 billion for this newly available spectrum. The question for Verizon now is where does it find the funds? The answer arrived last week as Verizon announced it is selling parts of its wireline business in California, Florida, and Texas to Frontier Communications, and its cellphone towers to American Tower Corporation. (Look for a discussion of the sale of Verizon’s wire line facilities soon).
If you have a ground lease or rooftop agreement with Verizon, or one of its many predecessors (GTE, Alltel, Surewest, Unicel, among others) what does such a sale mean to you — not as a regulator, but as a landlord?
- Rights — First, communities should determine the scope of their authority under existing agreements to review any transfer. Most leases or licenses require the landlord’s consent in writing before any transfer can be made. (You should also make sure that all future licenses have such an approval requirement.)
- Needed Additional Protections — Learn a little about American Tower. Does it have the same characteristics as Verizon? For instance, many communities, often against the advice of counsel, accept self-insurance to protect all parties’ interests. Does American Tower warrant that type of trust?
- Enforcement — Verizon was not just a tenant, but a regulated provider in your community. The community was able to leverage Verizon’s government licenses as a means to enforce license terms and conduct. Since American Tower is a pure real estate player with few assets in your community (i.e. a tower company), do you need additional means to protect your citizens?
- Clean Slate — Communities should determine whether there are any noncompliance issues on towers before agreeing to approve any transactions. For instance, it is advisable to ensure that Verizon is current on the rent it owes and is not otherwise in violation of its agreement with you. It is also a good time to police the site to ensure there are no unapproved co-tenants on the tower. Localities should also take care not to sign any estoppel certificates or other documents that might waive their rights going forward.
- First Tenant or Co-Tenant? — Most agreements provide that the tower owner may deploy its equipment on the tower for a set price, but that the rent generated by any additional tenants must be shared with the landowner. The new tower owner may try to argue that Verizon is not a co-tenant. The answer to the question of whether they are the first tenant or a co-tenant is not clear, and will turn on your agreement’s terms.
- Different Business Plan — Localities should be aware that traditional tower owners’ business plans are different than Verizon’s. Verizon viewed the tower as a means to provide service to its customers. A real estate provider will view the tower differently. It is the tower itself, not the services the tower makes possible, that makes the new owner money. A tower to a tower owner is no different than an apartment building to a landlord. Tower owner/operators must sublease space to multiple carriers simultaneously to generate a profit. Increased subleasing provides the possibility of improved services throughout the radius of the tower. These potential benefits to the tower owner and cell customers will result in increased administrative burden for rent collection and wear-and-tear on the site.
Verizon’s decision arrives in the wake of AT&T’s sale of wireless towers last year, which netted the company nearly $5 billion. So everything said above applies equally to that transaction.
Note: This article originally appeared on the now-defunct BBKnowledge blog, where Best Best & Krieger authors shared their knowledge on emerging issues in public agency law.