Most cellular tower site agreements have a provision that increases the rental payments every set period of time. If you are presented with an agreement that does not have a rent escalation provision, you should demand one immediately! While these provisions are fairly straight forward, we want to provide you with some insider advice on achieving an optimal rent escalation provision.
Typically, when presented with a new agreement, and often times when presented with an amendment to an existing agreement, cell tower tenants will include a provision that increases rent upon the beginning of each new 5-year term. For example, the cell tower company may propose an increase of 15% every 5 years. This increase every 5 years is not optimal for landowners who would be much better served with rent escalations occurring every year.
In the example above, the landowner would be much better off with a 3% increase every year. It is easy to look at 15% every 5 years and come to the conclusion that it is equal to 3% every year, or that the differences are marginal. In fact, the tower companies depend on landowners making this mistake. A 5-year escalation clause can cause property owners to pass up on large amounts of rental income over the lifetime of an agreement.
The reason for these lost rental incomes is that with an escalation every 5 years, landowners minimize the benefits they would otherwise receive through compounding increases. The same financial tool that allows retirement accounts to grow so large will work to make your rental payments grow as well! Take the example above, assuming, for simplicity sake, a $1,000/month initial rent. The total rent paid over 30 years with an annual 3% increase would come to $570,900. The total rent paid with a 15% increase every 5 years would come to $525,225. That is over $45,000 in lost rental revenue!
As you can see above, insisting on an annual rent increase is key to obtaining the optimal cell tower or rooftop lease agreement. Along with the timing of the increase, landowners should pay attention to the amount of the annual increase. Prospective tenants may be difficult to work with in regards to rent escalation provisions; however, Vertical Consultants routinely negotiates annual rent increases with all of the various tower companies and telecommunications companies in the industry. This applies not only to a new agreement, but we have successfully inserted annual rent escalation provisions in amendments on existing leases as well.
Rent escalation is an important detail that property owners need to consider when discussing a new agreement or amendment with a tower or telecommunications company. No matter what your question or concern is, Vertical Consultants is here to assist you. Call us today for your free consultation.
In 2022, Vertical Consultants averaged an immediate 302% increase in rents being received by its clients, and since 2010, has been able to assist its clients in the recovery of over 300 years worth of combined underpaid, and, in some cases, unpaid rents and other expenses that were rightfully due to these property owners located throughout North America.
To learn more about our services, visit https://www.celltowerleaseexperts.com or contact Vertical Consultants at info(at)vertical-consultants(dot)com or 877.456.7552.