The Easement – Most lease buyout companies prefer to obtain an easement on the Property to secure their interests in the lease and their right to sublease space within the easement in the future. The easement can either be a perpetual easement or a fixed easement.
Perpetual – Most lease buyout companies will seek a “perpetual” easement. Depending on the state the cell site is located, perpetual has different meanings. For example, in California, “perpetual” will mean 99 years, whereas in some other states, the easement will be in place as long as the rule against perpetuities is not violated. Usually, property owners receive the largest purchase price for the granting of a perpetual easement, however, whether to grant such a term is a question for careful consideration. Depending on your future plans with the property, in some instances, a perpetual easement may be a good idea. One such example is where a cell site exists on raw land that will not be developed and where the underlying property has a low value. However, if the cell site is on a building rooftop and the property upon which the building sits will be redeveloped in future, then granting a perpetual easement may not be the right fit.
Fixed Term – The majority of property owners we represent grant a fixed year easement interest to lease buyout companies. Our clients typically find that they can agree to a specific number of years to maximize the value of the cell site lease, while still allowing for some flexibility in the foreseeable future. While the perpetual easement takes the cell site out of the future of most heirs alive today, a fixed year easement will allow the cell site easement area to revert to either the original Grantors or their heirs. Thus, depending on estate planning or future property development, the fixed term offers the ideal term with a near term high return on investment
The Assignment of Lease – A few of the lease buyout companies are willing to forego the easement and assume what amounts to a partial assignment of lease (primarily the right to receive rental revenue). The assignment of lease is also for a term certain. With the assignment, the property owner (landlord) agrees to assign certain landlord rights under the lease with the carrier to the lease buyout company. This product can be useful in certain circumstances where an easement area is not easily identified or a property owner does not want to place an easement on the title record of the property.
Many property owners seek our counsel on whether to pursue an easement or an assignment. First, not all lease buyout companies will agree to an assignment. So if you have accepted an offer from a company that only offers an easement product, then an assignment of lease(s) will not be an option. Second, you should factor your taxable rate into the consideration of whether to pursue an easement or an assignment (see previous tax discussion). Third, if you are a real property investor and you want to pursue a 1031 exchange with the proceeds from the sale of a real property interest, then you will likely elect to pursue selling an easement underlying the cell site(s) on your property. The assignment and easement documents are structured similarly and both are recorded on the title record to the property; however, an easement creates an interest in the underlying real property, whereas an assignment of rents is only secured by the rents from the lease. Most lease buyout companies pursue an easement because it is an actual interest in the real property, whereas an assignment of rents is only an interest in the lease. While both documents are legally binding, an easement interest is perceived as being easier to enforce with both the property owner and the wireless carrier – as there is statutory and well settled case law surrounding the grantee’s rights and the enforcement of an easement interest.
Which form of document used for the sale depends largely on individual factors and the projected use of your property. We work with our clients to carefully consider their near term needs, tax considerations, and the best solution for their circumstances. Each and every lease buyout transaction has its own nuances, which can be driven by the specific use of the property, the land owner’s desires, or both. It is important to carefully weigh and balance the information we provide as it will help you decide how best to proceed. In any event, be sure to speak to your attorney before you sign anything from any of the lease buyout companies, even if you are told that it is not legally binding
How would I know?
In most cases, you don’t. When a landowner gets multiple offers for the same lease(s) at roughly the same amount, they often have to make the difficult choice between the offers without knowing much information upon which to make the decision. Each company’s salespeople will make claims about how their offer is different from the others. They will use terms like expanded easement, specific easement, and/or assignment. Here is what they mean:
Specific Easement or Assignment: Under a specific easement, you are only selling the rights to the current lease footprint as described in your lease agreement. Thus, if the lease specifies that the lease area is for 10’x20′, you would only be selling the rights to that 10’x20′.
General Easement: Typically, a general easement only applies in the cases of rooftops. A general easement means that the buyout company takes the rights to the entire rooftop whether or not the wireless leases take up the entire rooftop area. The buyout companies prefer general easements because they get the right to future income in the event that other wireless companies need to rent your rooftop. The buyout company will often offer to give some percentage of the revenue to you from future tenants.
Expanded Easement: An expanded easement means that the buyout company not only buys the current lease footprint but also additional defined area. For example, the lease buyout company may acquire the same 10’x20′ lease area described above under Specific Easement, but would also acquire an additional 10’x10′ next to that lease area. They do this to control future tenants that come to the property or procure the revenue should your existing tenant need to expand beyond their lease footprint.
In general, lease buyout companies typically pay slightly more for general and expanded easements as compared to specific easements. As part of their marketing pitch, they often make outlandish and unsupported claims about how much revenue the landowner will likely get from granting the expanded or general easements. These claims may suggest that there
is more money in the future from future tenants than from the current tenant. They will even try to show the future revenue as an additional benefit of their offer. In many cases, it may not make sense to sell anything other than a specific easement. In other cases, it doesn’t matter at all. We can help you determine what type of deal format is in your best interest including ones that the buyout companies won’t offer unless you ask them specifically.
Each of the lease buyout companies uses their own form of purchase agreement. Some companies require an easement while others will accept a simpler assignment of rents. The form used will determine what interest is being transferred under the transaction. The difference between an easement and an assignment document is set forth in the previous section (“What is the difference between an easement and assignment?”).
After the lease is sold, you, as the landlord, still retain certain obligations under the lease. Ideally, depending on your attorney, you will also maintain certain rights under the lease to ensure that you still maintain some control over the carrier tenants. The lease buyout company will assume the right to collect and receive rents under the lease; however, you as the property owner will want to retain the right to receive funds for any increase in taxes attributable to the carrier’s presence on the property. Also, be sure to retain the right to receive any other fees, e.g. landscaping, irrigation, or utility expenses that might be payable by the wireless carrier.
The goal should be to preserve as many landlord rights under the lease as possible while balancing the lease buyout company’s need for some control over the carrier tenant(s). How much landlord control is needed is often determined by whether the cell site is attached to a building or other structure. If the cell site is on raw land, then the amount of landlord control over the cell site is not typically as important. If the cell site is on a rooftop, then more landlord control may be needed to ensure that the landlord can maintain and repair the building effectively. Some lease buyout companies are more flexible in their terms than others. As such, if you are not able to maintain landlord rights that you deem important, it is prudent to check out other buyout companies, as some forms are more favorable than others.
When you sell your lease (via easement or assignment), any subsequent buyers of the property take the property subject to that easement or assignment. This means that future buyers of your property will have to live with the terms of the agreement that you strike with the seller and continue to perform certain obligations of the Landlord under the lease. If the buyer is buying the property to redevelop it, they will not be able to redevelop the property in a way that would adversely impact the cell site lease(s). Thus, a buyer may not be as interested or willing to pay as much for the property as they might otherwise.
We have been contacted by prospective buyers of property who were looking to determine what they could do to remove the cell site. Because the previous owner had sold the cell site lease to a lease buyout company, we advised the prospective buyer that they would be taking the property subject to not only the lease but also the lease buyout company’s easement which continued for more than 20 years after the lease expired.
If there is limited risk that a buyer will want to redevelop the property or the placement of the tower or rooftop site is such that it won’t impact future development, then any prospective buyer will be taking the property subject to the easement or assignment. Typically the practical impact of this is that the buyer will have to accept that the easement is in place but not receive any revenue from it. In this way, it is similar to an easement for an electric transmission tower. The tower is there and prevents development near the tower but the owner receives no revenue from its operation. Because the seller of the property has separately sold the income from the tower, the value of the property is reduced. However, it is our opinion that in most cases, it is better to sell the leases separately because most buyers of property aren’t well informed about cell tower leases and won’t pay the same amount for them as specialized lease buyout companies. So while the purchase price of the property itself will be reduced, the combined sale price of the property and the lease will be greater.
One thing we are frequently surprised by is the number of people who recently bought property who call us to find out why they are not receiving revenue from the cell tower lease on the property. In further investigation, in most cases, those people failed to examine their title report which clearly shows that the easement was conveyed previously. Thus, if you are selling your property and have already sold the lease separately, you should disclose during the sales process clearly that the lease is not being sold with the property to avoid any claims of misrepresentation later.