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Most cell tower ground leases contain an escalator. That escalation is either a term increase or annual. When negotiating with a cell tower lease operator, you are much better off in the long haul to obtain a yearly escalation rather than a term escalation.
A Term Escalator is typically a 5-year escalation. In some instances, a term could be 10 years but those are extremely rare. Popular term escalators in ground leases are 10%, 15% or 20%. Most leases that are being negotiated now, probably include a term escalator as it’s more favorable to a cell tower operator. On new tower builds, I’ve seen tower developers offer a 5% term increase. Given the state of inflation, a landlord should never agree to that financial term. Term increases help keep the ground rent under control especially if the proposed lease runs past 2050.
An Annual Escalator is the preferred increase that a landlord needs to negotiate in any new agreement or contract renewal. If negotiating a contract renewal and the existing escalation is a term increase, that should be negotiated too yearly. Cell tower operators will make the concession of going from a 15% term escalator to 3% per year. That small update to the contract has meaningful financial consequences down the line as that increase compounds annually. Over time, your lease will be at a greater monthly rent but will also be valued higher by all third-party lease buyout companies.
When negotiating a contract renewal or a new lease, one should not gloss over the escalator. If you do the math on a term escalator vs. an annual escalator, the impact could be tens of thousands of dollars over the life of the lease. There are many financial items that are overlooked in any negotiation with a cell tower lease operator. It’s important to take your time and ensure that you are addressing all these items when you can do so. If you find yourself in a tough negotiation, get yourself an expert that will balance the power.