Last week we touched on cell tower valuation for lease buyouts. This week we’re going to run through the types of buyouts. The types of lease buyouts are perpetual easements, land purchases, term easements, prepaid leases, and capital leases.
A perpetual easement is the most common of all buyouts. Typically, this is a lump sum payment in perpetuity but not all landlords may want it as a lump sum. Tower operators offer this lump sum payment over monthly or annual installments with interest added to future payments. The tower operators don’t divulge the interest rate, but it has decreased over the years which doesn’t make these installments as attractive anymore.
Land Purchases are a lump sum buyout in which the tower operator obtains fee simple ownership of the property. It’s important that the tower operators have proper access to the tower. Over the course of time, some of these parcels have been subdivided incorrectly where access might not have been reserved. Land purchases require an environmental as part of the clearing of the transaction for closing. These deals can take longer than a perpetual easement to close, but it’s the cleanest transaction of them all.
Term Easements are buyouts over a certain period. Usually, you’ll see a term easement for a 50-year term. Once these term easements expire, the lease reverts to the landlord. In almost all instances a new ground lease will need to be negotiated.
Prepaid leases are leases and not as restrictive as an easement. These prepaid leases follow a specific term and after that term expires a renegotiation would occur. These agreements were extremely popular in the mid-2000s as many property owners didn’t know how long towers would be around. A company called Wireless Capital Partners did many of these 20–25 year lease prepaid buyouts. Lots of these deals are coming up for expiration, so it’s important to note how long your deal was with them. You may be close to a renegotiation.
Finally, capital leases are the last form of buyout and are rarely seen. They are a lease that includes a purchase option after the term expires. These deals aren’t as popular.
In conclusion, if you are approached by a cell tower operator or 3rd party company to sell your lease, most likely they are looking to buy a perpetual easement. If the land is subdivided correctly, they’d much rather purchase it. In all these instances, it’s important for a landlord to have the cleanest title possible. Buyout deals can be delayed due to an SNDA needing to be signed off from the bank since there’s still a mortgage on the property. If you are thinking of selling your lease and you have a balance, it’s best to start talking to the bank about them signing an SNDA. Other items that could delay closing are delinquent taxes, judgments, or any other types of liens. These hurdles are important to clear so that you can move forward and close your transaction. JP Tower Consulting has an extensive history in closing buyouts and will work with you on checking all these items off the list, so your transaction closes as quickly as possible.
