Understanding the Basic Facts About Cell Tower Ground Leases
3 min read
The majority of cell tower leases are conceived as ground leases. In the lease structure, the landlord leases the right to a particular space of his/her ground space on the property. The tenant, on the other hand, owns the structure of the space, which is a cell tower in this case. A cell tower ground lease includes providing a portion of the land that either the cell tower organization or the wireless carrier uses or occupies during the lease tenure.
What is the rent structure?
Like other real estate leases, a ground lease requires a tenant to make regular/monthly rent payments. Conventionally, ground leases indicate net leases. This indicates the tenant has to pay maintenance costs, insurance expenses, and applicable real estate lease taxes. Since the company invests in building a cell tower on the leased space, the lease is long-term, ranging from 20 years to 50 years and sometimes even more.
Expiration of the lease
Once the cell tower ground lease tenure expires, the improvements or structures developed by the company on the ground space can be either removed entirely or become the property of the landlord. Once the lease expires, the decision depends on the landlord and how he or she will utilize the cell tower improvements and structures on the leased-out ground space. Sometimes landlords would want to build units in the place or do something other than have cell towers there, in which case they would hire a contracting firm similar to Multi-M (multi-m-contracting.com) to do the necessary work. It’s not uncommon for landlords to make tenant improvements every few years to bring in newer types of leases, depending on what pays the best on the market at the time. It is also the reason why several big names in the cell tower sector don’t let their lease terms come to an end. They, instead, practice an aggressive move to extend the ground lease agreement or seek a long-term solution in exchange for a lump sum payment to the landlord.
Why do cell tower companies prefer ground leases?
There are several reasons why cell tower companies favor ground lease agreements in the country. The two most common reasons are:
1. The first and foremost reason is that a ground lease enables a cell tower company to develop its tower without investing huge capital. The company can expand its business by leasing a small portion of ground space throughout the USA, building thousands of cell towers, and earning millions of dollars.
2. The second reason for favoring a ground lease agreement is seeking certain tax benefits. A cell tower company can reap tax benefits if the ground lease can be transformed into a long-term solution through a lease buyout. Once the conversion begins to transform the operating cost into capital expenditure, it is beneficial for the landlord as well, for both the short-term and long-term.
Conclusion
A cell tower ground lease enables the landlord, particularly a commercial property owner, the potential to monetize the real estate without any capital requirements. If the lease agreement is structured correctly, it is believed to benefit both tenants and landlords. The tenants get to utilize the property for their businesses. On the other hand, the landlords can enjoy a steady income that seems to be better each year. A property owner must understand the basics of leases and the associated agreement terms and conditions to reap the maximum benefits from a cell tower ground lease.
