A compound expansion is when a cell tower operator lacks the space in the current leased premises to accommodate a new carrier, generator or other improvement. If you are a property owner with a cell tower lease, it’s important to understand how the lack of additional space in a compound could affect you financially. In some situations, it could trigger a negotiation of the lease for the cell tower operator to get your approval to expand the compound. In those situations, you may have leverage to negotiate better financial terms even if your lease doesn’t expire anytime soon.
When cell tower operators look to build towers, they try to get as much space as possible. In rural America, you’ll typically see compounds of 100’ x 100’. At these cell tower locations, a compound expansion will most likely never be needed. However, if your cell tower exists on the East or West coast, that may be a different story. In states like California or New Jersey, the leased space in a compound may be 400-1,000 square feet. Some of these compounds are only big enough to accommodate 1 or 2 tenants. At this stage most carriers have their own generators as well, which further tightens the space at these sites.
When a cell tower operator reaches out to pursuing extra ground space, it’s important to find out what tenant needs the space. If the answer is Verizon, T-Mobile, or AT&T, you’ve got incredible leverage to get not even more money but improve other provisions in your contract. For example, if you agreed to a Right of First Refusal in a previous deal, that would be one term I’d try to get removed even if it’s unlikely. Cell tower operators are going try to obtain the compound expansion with a one-time payment and maybe a marginal increase. Never rush into these negotiations as they can take time to finalize. Once the carrier has identified this location meets their network demand, they realize it takes time to negotiate this agreement. There may be an extreme case in which you reach out to the carrier and lease them that space directly.
If you find yourself ever in this position, take your time and obtain as much information as you can. When a carrier identifies a cell tower site especially via a compound expansion, it’s a site they desperately want for their network. This is all upside for the cell tower operator so it’s important to get your fair share. These negotiations can take anywhere from 3-12 months so know what you’re getting yourself into. As always, hiring an industry expert who has a pulse on the market dynamics will be your best bet.
