By Michelle Choi, an insider at Lease Advisors
Owning a cellular site lease provides ancillary income for leaseholders and can be an extremely lucrative, long-term endeavor. However, a number of variables go into determining the value of a cell site lease and likewise, the overall profitability of the lease can be affected in a number of ways. Cellular companies and wireless providers often work to structure cellular leases in ways that will assure their own financial benefit. An example of this is the Right of First Refusal (ROFR) clause. This contractual agreement gives the tenant —wireless carriers or tower companies—the right to intervene in a transaction with a third party by purchasing the landowner’s property at the same terms and conditions of an offer that the lessor—the landowner—receives from the third party. Let’s break down what that really means.
By accepting a ROFR, the landowner is essentially signing away control of the financial asset indefinitely while agreeing to allow the telecom tenant the contractual first right to the cellular lease asset before the landowner can enter into an agreement with any third party. This means that the tenant could have the ability to approve or disapprove any potential buyer in a future sale of the asset, and of the landowner’s property.
A ROFR is triggered when the property owner receives an offer to purchase their property, at which point he or she is obligated to alert the holder of the ROFR, typically the telecom tenant. The tenant then has a time period (usually between 30 and 60 days) to decide whether or not they wish to exercise their ROFR and match the offer, or decline and open the bidding of the asset to other interested parties. Carriers and tower companies typically try to negotiate a ROFR into their agreements when they feel that they would like to own the property someday, even offering one-time, up-front incentives of thousands of dollars to encourage the landowner to accept the ROFR. However, there are a number of implications from this agreement that affect the potential transaction and the parties involved.
Because of the implications of a ROFR and the benefit to the tenant, the probability that the tenant will exercise the ROFR, should the opportunity present itself, is typically very high. Consequently, potential bidders are averse to bidding on the property or the telecom asset if a ROFR is in place. With fewer interested potential buyers approaching landowners with an offer, the property owner relinquishes the opportunity to receive competitive rates, drives down the competitive bidding process and subsequently the value of the property, to one that is artificially low. Additionally, if the tenant draws out the process for the duration of the time frame allotted to decide on an offer, a potential buyer may withdraw the offer completely. With a ROFR in place, tenants feel secure in their control over the property and, by simply meeting the offers, do not need to be competitive with their bids. Often, the tenants purposely deter third party buyers who are more knowledgeable in lease agreements and have the right to negotiate extensions on the lease on behalf of the landowner, as is the case with cell tower lease buyout companies.
Accepting a ROFR can have a negative effect on your future resale value. To avoid any negative impact on the marketability and value of an asset, the landowner should be mindful of the language of the lease, and the implications of any clauses or amendments. Many clauses stipulated in a lease agreement have consequential implications on the future value of the asset. Before entering into a ROFR agreement, it is highly advisable that cell tower lease holders acquire the services of a knowledgeable consultant or attorney. Because a ROFR can ultimately impact the profitability of the lease and can detract the attention of third party buyers, it is in the landowner’s best interest to involve experienced counsel before accepting a ROFR from a tenant.
Reader Interactions