The Real Deal - Summer 2021
Date: August 2, 2021
Navigating the Rental Stream Sale of Antenna Leases
It has become increasingly common that property owners are approached with offers to liquidate their future recurring rental income stream received from tenants providing telecommunications services from equipment located on the subject property. Such offers typically take the form of a lump sum payment at closing in exchange for a long-term easement encompassing the affected area of the property and an assignment of the property owner’s rights under existing and future leases of space within the easement. Such leased areas could be on the rooftop of an existing building, on another existing structure providing attachment points for the tenants’ equipment (such as a communications tower or water tank) or ground space on which such an existing tower or structure is located. In connection with such arrangements, it is important to be aware of and address issues related to notice, consent, the scope of the assignment, the defined area subject to the new agreement or easement, the scope of the easement rights, rent sharing, subordination and the necessary parties to the agreements.
For sites with existing leases, the parties need to be aware of whether or not consent is needed from the tenant in order for the lessor to assign each lease to the purchaser of the easement rights. If tenant consent is required, tenant may seek to include the property owner and the new rent payee as signatories to an agreement documenting the tenant’s consent to the assignment and the property owner’s consent to the redirection of rent to the new rent payee. Since such a consent agreement would include the parties to the existing lease, it will have the effect of amending the existing lease. Therefore, the parties should scrutinize such an agreement for unintended or undesirable changes to the lease terms.
Careful consideration should also be given to how the easement area is defined. Narrow language may limit the new rent payee’s rights to managing a defined portion of the property, such as the rooftop of a building, or even a portion of a roof. Alternatively, broader language could (intentionally or not) convey such management rights to the entirety of the subject property. The rent payee will be seeking broad authority to amend existing leases and to negotiate new leases for available space in the easement area to maximize the value of its purchase. A larger easement area is consistent with this goal. On the other hand, the property owner may want to keep certain areas of the property off limits for expansion or new leasing entirely, due to other existing or proposed uses, or may agree to grant limited easement rights in certain areas solely for certain defined uses such as utility runs and/or antenna placement. Existing and prospective tenants will want clarity as to the extent of all such areas and as to which party has authority over each area. The easement agreement should address the possibility of tenants seeking to expand their existing leased areas and how revenue from new or replacement tenants is shared, if at all, between the property owner and new rent payee. It is important that the scopes of the easement area, the rights conveyed to the rent payee and the rights retained by the property owner all be clearly defined and aligned with the intent of the parties.
If there is an existing lender holding a deed of trust or mortgage on the subject property, the terms of the applicable loan documents should be reviewed to determine if the proposed agreements would trigger a default by borrower, or if the lender’s written consent is required prior to entering in to such an arrangement. The easement agreement should address the subordination of the easement agreement to any existing or future mortgage or deed of trust on the property, the non-disturbance of the new rent payee’s rights to the easement and to collect rent from tenants therein and the rent payee’s agreement to attorn to any future holder of the property owner’s interest in the easement agreement.
Ultimately, the existing tenants will need to be notified of the assignment of their lease with instructions as to the redirection of rent payments and the nature of any limitations on the new rent payee’s authority as lessor under the leases.
Whether you are a property owner who just received such a proposal, an existing telecommunications tenant, a telecommunications service provider negotiating a lease for a new site, or a third-party company in the business of managing rooftops or tower sites, the attorneys at Whiteford, Taylor & Preston can help you navigate these issues by advising throughout the negotiation of such easement agreements or by drafting appropriate cell site lease language from either the landlord’s or the tenant’s perspective.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.