Despite what many people like to characterize as a long-term lease, cell tower leases are typically structured as a 5-10 year initial lease term with multiple additional 5-year option terms, or 30-50 years in total. What this really means is that carriers may lease the area defined in the original lease terms for up to the total of the initial period and all option periods, but are not required to do so. This also means that a cell tower lease is merely a number of 5-year options which may last the for 30-50 years in total, if all options are exercised by the lease tenant, and which is not the same — by definition — as a long-term lease. The lease tenants hold the options and may choose not to exercise additional option terms as a current option term expires.
In addition, most cell tower leases contain what is commonly referred to as an “Early Termination Provision” which allows for tenant termination of the lease — at any time and for just about any reason (or no reason at all) — with as little as a 30-day notice to the landlord (although most Early Termination Provisions require the lease tenant to provide between a 60 and 180-day notice to the landlord). So, while many property owners may believe they have a cell tower lease with a 30-50 year duration, that is usually not the case.
What the above two paragraphs mean in total is that cell tower leases are not usually a long-term commitment by lease tenants, nor should they be regarded as such. In contrast, lease tenants usually have the right to remain for what could be a very long period of time, while at the same time, having the option to cancel the lease with little notice and no penalty. I like to term cell tower leases as a series of unexercised Early Termination Provisions that may last 30 years or more.
The above should always be a consideration when a landlord is considering whether or not to sell the lease cashflows in exchange for a lump-sum cash payment. And let’s not forget, because of the issues covered here, many lenders will not consider the value of a cell tower lease when appraising a property, but will gladly use the lease as “additional collateral” and most often with no value assigned to it, which means that property owners should become familiar with structuring property financing subject to (otherwise known as “not including”) the lease to maintain maximum financing and property sales alternatives.