By Andrew N. Jacobson
Wireless telecommunications technologies, including paging services, wireless telephone services, wireless access to the Internet and other emerging technologies and services, have experienced explosive growth in recent years. This growth has been spurred by technological advances coupled with deregulation intended to inject competition into the traditionally monopolistic and duopolistic telecommunications markets. One of the most visible aspects of this growth is the proliferation of antenna sites for traditional cellular telephone service and the more recent PCS (personal communication service) sprouting up in communities across the country. In many instances, these wireless telecommunications sites are located on private property under a written lease or license (site agreement) between the property owner and the telecommunications carrier. This article addresses the relevant legal issues for site agreements from an owner's perspective.
A site agreement can generate welcome (but often relatively minor) additional income from a property. Recently, site agreements for freestanding monopoles in the San Francisco Bay area have ranged from about $1,200 to $2,500 per month, with a number of exceptions at both ends of that spectrum. (Monopoles are solid, 2' to 6' diameter cylindrical hollow steel poles, up to 180' tall, with one or more horizontally mounted triangular platforms at the top on which arrays of telecommunications antennas are mounted.)
Because site agreements tend to be minor ancillary transactions, most owners do not want to invest significant energy or legal fees to negotiate them. Unless the proposed site is uniquely situated, such as on a hilltop or the highest rooftop in the area, the carrier is likely to have potential alternative sites. Consequently, if the owner's counsel "over-lawyers" the transaction, the carrier may simply choose another site. At the same time, the owner should be aware of the potential risks of any agreement, regardless of a carrier's threat to take its business to another site.
A site agreement can take the form of a license, a lease, a permit to enter or some combination of those forms. If the carrier will be sharing a site or supporting infra-structure with other carriers or users, as may be the case for rooftop sites and existing communications towers, a license or permit to enter is often the most appropriate form. Leases, by contrast, are best suited for situations where the site, or large portions of it, will be under the exclusive control of the carrier, such as monopoles and ridgetop applications. This article focuses on structuring a site agreement as a lease, with the owner as landlord and the carrier as tenant.
Form of AgreementAs with any transaction, one of the first decisions will be choosing the form of agreement. Most carriers' site acquisition people will present an owner with the carrier's "standard" form site agreement. Often a lawyer's first involvement in the site agreement is when the owner asks him or her to review and approve the carrier's standard form. Unless the lawyer has dealt with many site agreements and developed an owner-oriented form, the lawyer will often be stuck using the carrier's standard form as a starting point.
Not surprisingly, many carriers' standard forms tend to be short and biased towards the carrier. Site acquisition people often stress to an owner that site agreements are just simple deals that can magically generate extra income with little or no impact on the owner. Because telephone services have historically been tightly regulated and tariffed, many owners may also assume that a carrier's form agreement is either fair or approved by regulators. Neither of these assumptions is correct, and both can cause an owner to incur unnecessary risks and liability. It is crucial that the owner and its lawyer view a site agreement as any other long-term property lease.
From an owner's perspective, carriers' standard form site agreements tend to have two fundamen- tal problems. The first problem relates to the express provisions in the standard form. Carrier forms often reverse the landlord and tenant duties typically seen in a standard commercial lease. For example, the agreement may require an owner to make indemnities and warranties that are traditionally made by a tenant. Hazardous materials provisions may apply only to the owner. The second and more troubling problem involves the provisions that are often missing from many carriers' forms. Unlike a standard commercial lease, many carrier standard form agreements do not include even rudimentary provisions addressing important issues such as indemnities, casualty and liability insurance, waivers of subrogation, assignment and sub- letting, subordination, estoppel certificates, damage, destruction and condemnation. An owner's lawyer should compare any carrier's standard form agreement against a standard lease checklist to help spot the missing provisions and avoid unpleasant surprises for the owner in the future.
Term/Termination RightsMany site agreements are structured using five year base terms with a series of automatic five year extensions. The overall term of a site agreement can often extend up to 25 or 30 years. The owner's lawyer should consider potential transfer tax or reassessment issues that longer leases can trigger in some states. While insisting on lengthy overall terms, most carriers will also vehemently insist on a unilateral right to terminate on short notice. This odd juxtaposition results from the carrier's need to stabilize and minimize its property acquisition costs while hedging against future changes in market conditions or technology that might make a particular site unusable, uneconomical or undesirable. Except in rare instances, a carrier will not enter into a site agreement without the long-term commitment and short-notice termination right. It is often more productive for the owner to negotiate for a decent prior notice requirement, a termination fee or both.
The carrier is not the only party with an interest in retaining a termination right. The owner should negotiate for a right to terminate the site agreement in certain circumstances, such as a casualty or construction on the property. The owner should avoid a scenario in which its ability to use or develop a larger property is unduly constricted by its obligations under a site agreement.
A lawyer should also take care in defining the term commencement date and how that date relates to the carrier's surrender obligations at the end of the term. One carrier in Northern California had a practice of defining the term commencement date as the first day of the first full calendar month following issuance of a building permit for the site. This practice presents an owner with several problems. First, the owner will always want insurance and indemnity obligations to become effective as soon as the carrier enters the property. Second, a carrier can often complete construction of site improvements, such as a freestanding monopole and support equipment, in a matter of weeks. Thus, if the carrier pulled its permit early in the month, it could complete construction of the site improvements before the term commencement date. This possibility is particularly significant when the surrender provision in the site agreement requires the carrier to return the site to the condition that existed "as of the term commencement date." The carrier would have no obligation to remove its improvements, leaving the owner with a potentially large demolition bill to remove any tower, monopole, foundations and equipment facilities.
Rental RatesAlthough rental rates are a function of the market, it is often quite difficult for an owner to get information on comparable sites. Because most site agreements are directly between the owner and the carrier and do not involve a broker or listing agent, there is usually no accessible record of the economic terms of the agreement. These terms vary dramatically and depend on site location and the owner's sophistication. Carriers have an obvious interest in suppressing market information. Freely available market information would establish benchmark values for sites, increase carriers' deployment costs and potentially upset owners of existing sites with below market rental rates.
Often the only way to obtain accurate market information is to contact other site owners in the area or lawyers who have handled several transactions in a certain area. In any case, it is difficult to develop more than a rough sense of the market. The only assumption that generally holds true is that the carriers will pay as little as possible to get access to a site.
In many instances, a carrier's rental obligations begin only when site construction starts. If the carrier decides to abandon the site before construction, no rent will ever be due. In some areas, carriers have simultaneously negotiated deals on several nearby properties and later chosen to use only the site that was most attractive from an economic and performance perspective. A lawyer should make sure that, in a worst case scenario, the owner breaks even and is able to recover its transaction costs. An owner's lawyer can accomplish this in various ways, including requiring key money or a minimum guaranteed rent (such as one year's rent regardless of an early termination by the carrier). The lawyer should also establish a solid outside rent commencement date to prevent the carrier from using the site agreement as an indefinite option to lease the site.
Because a site agreement can last for many years, the site agreement should contain adequate rent escalation provisions, such as an annual CPI adjustment, to protect the owner's income stream from inflation. Nevertheless, because of the unilateral termination rights required by most carriers and potential changes in telecommunications technologies, an owner should understand the risks of early termination by the carrier and should not depend on a site agreement as a long-term guaranteed annuity.
Governmental ApprovalsIn most situations, the carrier will need to obtain some form of discretionary approval, such as a conditional use permit, from a planning commission, city council or other local government entity. Because the site is located on the owner's property, the carrier will need the owner's consent to apply for that approval. In granting its consent, the owner should tightly limit the carrier's discretion to prevent the carrier from agreeing to conditions of approval that might otherwise adversely affect the owner's use of the property or conditions that extend beyond the site agreement term.
RF/EMFCurrently, conflicting studies within the scientific community highlight the debate on the effects of radio frequency (RF) radiation and electromagnetic fields (EMFs). Although the scientific conclusions are unsettled, any risks associated with RF or EMFs clearly should be borne solely by the carrier, including any third-party claims against the owner for having the site on its property. This issue should be specifically covered in the indemnity, insurance and compliance with laws provisions of the site agreement.
InterferenceSite agreements will commonly restrict the owner from doing anything on the property (not just the site) that interferes with the carrier's operation of the site for wireless telecommunications purposes. An owner should be careful about unintended consequences of those noninterference obligations. A broad provision could prevent an owner from developing the property or could hinder the primary use of a property. For example, if a site were located on an industrial property, industrial equipment might cause interference with the carrier's operations. The owner should clarify that the noninterference provision does not prevent or impair the primary uses on the property.
RelocationOver the term of the site agreement, the owner may want to perform major maintenance, such as reroofing, or further develop the property on which the site is located. The site agreement should not restrict the owner's ability to do so. The owner should insist on the right to require the carrier to relocate the site under certain conditions. The major issues for a relocation provision are the required notice to the carrier and the allocation of relocation costs. One effective way to deal with this issue is to require the carrier to pay for its relocation costs but allow the carrier to offset those costs against future rents. Thus, the carrier can make the business decision whether to relocate or terminate, and the owner will not run the risk of paying substantial relocation costs just to have the carrier terminate the site agreement early before the owner can fully recover those costs.
CollocationCollocation refers to the presence of more than one carrier on a property. Before entering into a site agreement, the owner should consider whether the property may be suitable for additional sites. A property that is particularly desirable, such as a ridgetop or the tallest building in the area, may be able to yield substantially higher income for the owner if used as a collocation site. If a property is uniquely situated to service an area, it can also be quite valuable. For example, in California's Oakland Hills, an unbuildable 800 square foot patch of hillside now bristles with the antennas of several carriers. That small patch of hillside just happens to align with the western mouths of the three- bore Caldecott Tunnel on the main commuter route linking the eastern suburbs in Contra Costa County to Oakland and San Francisco.
Many carriers seek exclusive rights to locate antennas and equipment on a property both to "lock out" competing carriers from prime property and to minimize the risk of interference problems in the future. Exclusive rights provisions in carrier form agreements can be cleverly disguised and subtle. If an owner wants to retain the ability to collocate other carriers on its property, all of the site agreements should expressly recognize the owner's right to enter into agreements with other carriers and require the various collocated carriers to cooperate with one another in a reasonable manner to resolve any interference issues.
Site Management AgreementsProperties with more intense collocation (i.e., multiple carrier sites) often create technical, coordination and logistical problems for the owner. Whether the property is a rooftop, ridgeline or tower site, these problems can include allocation of infrastructure and utility costs, contract management, resolution of interference problems and compliance with FCC, FAA and other regulatory requirements. In these collocation situations, owners should consider whether to retain the services of a site management firm.
Site managers can benefit an owner in several ways. First, the site manager is a single point of contact for the carriers and the owner, thus relieving the owner of the responsibility for micromanaging a technically complex group of tenants. Second, site managers often have established relationships with carriers (particularly smaller specialty carriers) and thus can maximize the total number of carriers collocated on a property, in turn maximizing revenue. Third, the site manager is likely to have the higher level of the special technical and engineering expertise necessary to manage a collocated site.
Site management firms tend to fall into two general categories: property managers and site operators. Under the property manager model, the site manager markets the site to carriers, coordinates the carriers' equipment installation and maintenance and manages the site agreements. Compensation under a property management model is often based on a fixed percentage (e.g., 15-35%, depending on the specific nature and complexity of the site) of the total revenue the owner derives under the carrier agreement. The carriers continue to have a direct contractual relationship with the owner, and the site manager merely has a management agreement with the owner.
The second model is the site operator model. In this situation, the site manager generally leases or licenses the entire collocation site from the owner, constructs the necessary in-frastructure (e.g., tower, equipment rooms, sufficient power and cable trays) and enters into subleases or sublicenses with each carrier. Building out the infrastructure of a collocated site can cost from $25,000 to $250,000 for small to medium sites and up to millions of dollars for major sites. Payments under this model are often similar to retail tenant leases, with both base rent and percentage rent components. Because the site operator is making a considerable investment in infrastructure, its share of the revenue is often substantially higher than would be the case under the property management model.
Under either of these site management models, the management agreement should clearly delineate the duties of the site manager as well as the allocation of costs and revenues between the parties. As with any revenue sharing arrangement, the definition of gross receipts and permitted exclusions will significantly affect the resulting economics of the transaction.
Master AgreementsIf an owner has a portfolio of properties with potential as wireless telecommunications sites, it may be desirable and most efficient for the carrier and the owner to enter into a master agreement. This approach has several potential advantages. First, if the carrier knows that the negotiations and initial transaction costs will involve several sites and its transaction costs will therefore spread over a number of deals, it is likely to negotiate a more detailed agreement, which is usually in the owner's interest. Second, a master agreement creates a format for future deals, with minimal transactional costs.
With a master agreement, the carrier and owner can negotiate in advance the general terms and rent schedules that will apply to all future site agreements between the two parties. The parties can then use that negotiated form on a site-by- site basis with the addition of an addendum or term sheet for the appropriate site-specific provisions. Alternatively, a master agreement could incorporate an exhibit listing all covered sites, with pertinent site- specific details. The parties could periodically amend that exhibit as necessary. A master agreement can also take the form of an option that grants the carrier the right to choose among the owner's portfolio of properties.
ConclusionEach telecommunications site agreement potentially presents a unique set of issues. When dealing with any site agreement, a lawyer should keep in mind the following general rules. First, remember that a site agreement is typically a minor ancillary use of the property. Second, beware of the provisions in any carrier form agreement.
Third and most important, be aware of the provisions that are omitted from these form agreements.
Andrew N. Jacobson is a lawyer with Wendel, Rosen, Black & Dean LLP in Oakland, California.
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