Right of First Refusal Clauses in
Cell Tower Leases
One aspect of a lease agreement that confuses many of our clients is the right of first refusal clause. A right of first refusal clause is a clause in a cell tower lease agreement that restricts the owner of the property from selling the property or the cell tower lease agreement to a third party without offering the cell tower owner the right to purchase it. This clause can also be found in rooftop leases. A right of first refusal clause is added to cell tower leases by wireless carriers and tower companies for various reasons. First and foremost, there are a number of lease buyout companies that specialize in purchasing cell tower leases. These companies attempt to buy the income from a lease in exchange for an upfront lump sum payment. When they purchase the lease, these companies in essence take the position of the landowner or building owner and collect the rent. However, the landowner remains responsible to the cell tower owner to maintain the property and grant the cell tower owner access. The key point is that now there is a third party company that is collecting the rent and that has the right to negotiate extensions on the lease on behalf of the landowner. Quite simply, the wireless carriers and tower companies don't like having a knowledgeable third party who will likely negotiate a higher lease rate at expiration. Accordingly, they insert a right of first refusal clause in their lease agreements.
The right of first refusal clause basically states that if the owner wishes to sell either their entire property or a piece of the property that contains the lease area, that they must first offer it to the cell tower owner or wireless carrier first on the same terms and conditions. By allowing this clause, the landowner is in effect devaluing his/her lease agreement should they ever wish to sell it. Because lease buyout companies will review a lease to determine whether there is a right of first refusal clause (abbreviated as "ROFR" in the industry), they will know that the tower owner can and will in many cases exercise its right by matching the offers. When it comes to a tower company lease, if the tower company has inserted a ROFR into the lease agreement, the tower company knows they don't have to be competitive in trying to purchase the lease agreement. They can simply wait until you decide to sell in which case you are obligated to send notice to the tower company who can then just match whatever offer you have.
If you are a landowner who is considering a proposed lease, it is difficult to negotiate the right of first refusal clause out of the agreement. The wireless carriers and tower companies are pretty adamant about keeping the language in a proposed lease. Just like any aspect of a lease, your probability of removing the clause is greatest when you have a unique property location. If you don't, you will likely have to agree to a right of first refusal. However, it is essential that the right of first refusal clause be limited to just the sale of the lease and not the sale of the entire property unless you are selling the entire property to a tower company or lease buyout company. We also strongly recommend that you make sure that the right of first refusal language requires that the company meet the terms of the offer you have. Some tower companies try to insert a clause that says that they don't have to match the same terms and conditions but can purchase on a per square foot basis on the same terms of your existing lease. This is a horrible situation for a landowner in that it means that the tower company will exercise its option to purchase under the ROFR but not have to match the current offer you have. Finally, when negotiating the terms and conditions of the ROFR clause, one should always carve out the landowners right to sell the property to siblings, relatives or other family members. If you need assistance determining how to review and revise a right of first refusal clause or other language in your agreement, please contact us.
If you are a landowner who is considering the sale of an existing lease that has a right of first refusal clause, do not sell the lease without providing the option to purchase to the tower or cell site owner as required by the lease. We have heard of lease buyout company agents who try to tell landowners that their proposal does not trigger any right of first refusal language, but that is rarely correct. You don't want to expose yourself to future liability to both the tower owner or to the cell site owner and to the lease buyout company if it is found that you breached your lease by selling it without first providing the required notice. Accordingly, our advice is to proceed with caution and send the notice as required. If you need help sending proper notice or evaluating how your right of first refusal clause may or may not impact your situation, please contact us.