What Does Ground Lease Mean?
Most cell tower leases are typically structured as a ground lease, where the landlord only leases the rights to certain ground space on their property and the tenant owns the structure/improvements on that space, in this case a cell tower.
A cell tower ground lease involves providing an undeveloped portion of your land to either to a cell tower company or directly to a wireless carrier who develops the property to occupy/use during the duration of the lease. During the term of a ground lease, the cell tower owns any improvements made to the property, including the cell tower and any associated structures it constructs.
Just like most other real estate leases, ground leases require tenants to make regular (usually monthly) rent payments. Most traditional ground leases are generally net leases, which means that tenants are responsible for paying insurance, maintenance expenses and applicable real estate taxes for the lease.
Due to the investment that a cell tower company is making by constructing the cell tower on the leased area, a cell tower ground lease tends to have prolonged terms – 20 to 40 years is common in the industry. It is important not to give too much time to a cell tower company, so as to limit your ability to re-enter the lease at a later time and renegotiate.
When a cell tower lease expires, the improvement that the cell tower company has made on the land either should be completely removed or, at the option of the landlord, become the property of the landlord after the lease expires.
Companies like American Tower, Crown Castle and SBA Communications, the three largest cell tower players in the industry, have about 65-75% of their cell towers located on properties they have acquired via ground leases.
These cell tower companies usually have 20+ years remaining on the term of their leases, but they don’t usually let their leases get near the end of their term, rather they aggressively move to extend these agreements for as they can get a property owner to agree to, or, alternatively, they seek a long-term easement in exchange for a one-time payment to the landlord for such right.
Why Do Tower Companies Like Ground Leases?
Ground leases are very beneficial to cell tower companies for several reasons. First, a ground lease allows a tower company to build out its cell tower without the massive capital investment and continued management expenses that would be associated with buying small parcels of land across the United States to build thousands of towers. Furthermore, a cell tower company, when finished with using the property, would be left with a small parcel of land that has no other use and would have very limited marketability.
Secondly, a cell tower ground lease provides a cell tower company certain tax benefits if it can convert that ground lease into a long-term easement via a lease buyout, as that conversion turns operating expenses to capital expenditures, which is advantageous for the landlord both short and long-term.
Are There Any Benefits For Property Owners?
There are some benefits to a property owner by being able to acquire a cell tower ground lease. Cell tower ground leases allow a property owner, especially a commercial property owner, the ability to monetize their real estate without significant capital requirements. Landlords also, if played right, may have the right to retain the tower at the expiration of the ground lease, which could lead to a revenue-producing asset.
A cell tower ground lease is not the perfect arrangement, but, if structured correctly, can be beneficial for both the landlord and the tenant, where one party gets access to the property they need for their business, and the property owner can get a steady revenue stream that could continually get better based upon the utility the cell tower company obtains from the occupancy and use of its land.
Hire An Expert To Get The Best Terms
Remember, the cell tower companies have experts working on their behalf to get the best cell tower ground lease for them, shouldn’t you have an expert working for you?