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Right of First Refusal

Hidden In Plain Sight

A major landmine hiding in plain sight in virtually every cell site lease is the Right of First Refusal (“ROFR”) provision. This provision basically provides that you, as the landlord, are required to give notice to the tower company or carrier tenant of any offer you have received from a third party to purchase your property (including the lease area) or the rights to the lease, for the purposes of managing or operating the cell site. The tower company or carrier would then have the exclusive right to elect to match the third-party offer or decline to do so.

Decreasing The Value Of Your Lease

You may ask yourself, “Where’s the harm in simply providing the tenant the right to match the offer?” Among many reasons, the most important is this — you are decreasing the value of your lease by agreeing to this provision. Because your prospective tenant is only obligated to match the third-party offer (and not exceed it), the tenant has no incentive to be competitive in its bid to buy your lease. Since the ROFR will almost certainly be included in any related publicly recorded document, third parties will also be aware of the presence of the ROFR, and therefore, the tower may appear to be a less attractive venture for the lease buyout company. On a related note, these types of provisions can also be viewed as “clouds” in title, which discourage potential purchasers of the property, regardless of whether the provision is triggered under the particular circumstances.

Can I have the ROFR provision removed from the lease?

The short answer is…it depends. This is a provision which many companies treat as a must-have in their leases. However, it is not impossible to have the provision negotiated out of the agreement. Typically, if the property in question is of the type or is situated such that it is crucial to the tower company to meet its objective, the likelihood of omitting the ROFR provision increases. (This tends to be true especially for commercial properties, rooftop sites, sites involving municipalities or large corporations, etc.). On the flipside, the more comparable alternative properties the tower company has nearby, the more difficult the prospect of removing the provision becomes because the tower company may attempt to find other candidates who will agree to the language. It is not uncommon for tower companies to treat the issue as a deal-killer if they can move on to the next candidate who is ready to sign the lease including the ROFR provision.

Getting Paid What Your Lease Is Really Worth

At any rate, a landlord negotiating a lease on his or her own (particularly involving a ROFR), without the assistance of a consulting tower lease expert, is at a severe disadvantage. Remember, the tower company is not only paying you for the use of your property, they are also paying you for the concessions you make in the lease, as well as the liabilities you are willing to expose yourself to. The ROFR is among those items and should be accounted for in financial consideration if the language ultimately remains in the lease.