Are Cell Site Lease Rents an “Answer to Prayer?” A Cautionary Tale for Non-Profits and Religious Institutions

Non-profit organizations (“NPO”), churches and other religious institutions are always looking for consistent streams of income to fund the inevitable budget shortfalls that come with their missions. Given that these organizations are often looking for supplemental and long-term income, cellular providers are known to approach NPO’s, churches and other religious institutions to lease space on their buildings or elsewhere on their properties.

Unfortunately, cellular carriers often view NPOs and religious institutions as unsophisticated players in the commercial real estate arena (specifically when involving cell site transactions) and seem to believe they can take advantage of these organizations to get very favorable economic and legal terms. While cell site lease transactions may appear to offer lucrative benefits, it is critical that these deals be structured correctly by the landlord lest they create long lasting devastating consequences through buried legal landmines commonly found in carrier template leases. As attractive as consistent income from a credit-worthy tenant can look to an NPO budget committee, it is essential that the cell site does not become the “tail that wags the dog.” In other words, the adage “sometimes the best deal you do is the one you walk away from” is best illustrated by my client’s experience below.

A few months ago, I represented a developer seeking to purchase real property from a church. The developer was interested in buying the property for several million dollars in hopes of redeveloping the site for a national quick service restaurant. This particular church, which was located in an economically disadvantaged community, was having severe budgetary problems. The potential opportunity to sell for such a significant amount of money was therefore undoubtedly appealing.

At the church, the cell tower antennas are located inside the church steeple. This is a common design because it helps appease the surrounding community because the cell site is completely hidden, which is one of the primary reasons that cellular companies approach churches. This type of hidden installation, especially at a church, commonly allows for the antennas to be placed much higher above ground compared to surrounding buildings. Placing the antenna higher allows the cell provider better connectivity.

While this arrangement may provide a benefit to the cell provider, a church should be aware that incorporating this income producing element into the church design might cost the church part of its tax exemption. This is why it is vital to have a qualified non-profit focused CPA opine regarding whether the cell site lease will trigger Unrelated Business Income Tax (UBTI) affecting the church’s tax exempt status.

Placing a cell site hidden atop an existing church building or inside an existing or new church steeple or bell tower is usually more expensive to build compared to a non-camouflaged design. It might require a zoning variance from the local government, but governments zoning authorities tend to favor hidden cell site designs, especially inside or immediately adjacent to residential areas, and the zoning and permitting time may be reduced compared to a non-camouflaged monopole type design. Under these circumstances, the knowledgeable church can more effectively stand firm on requiring a higher rental rates, and (in some cases) even more important relocation and early-termination terms in their leases.

Returning to my client in this story, while placing the cell antenna inside the church steeple was initially a “win-win” for both the church and the cell site company, at the time the developer came looking to buy and redevelop the property, the steeple was not a workable architectural structure for my client, the developer. The developer intended to demolish the church—including the steeple—and build a drive-thru quick service food restaurant. Unfortunately, as is usual for a long-term cell site lease, the cell site company’s form did not allow for the church or any subsequent property owner to terminate the lease early or relocate any part of the “communications facility installation” – a overarching term including all of the antennas and antennas supports, and also all of the transmitting/receiving equipment, wires/cables/conduits connecting the cell tower or monopole to the equipment and/or the power source, a back-up power generator, as well as 24/7 site access and utility easements or rights-of-way. Without the ability to terminate the cell site lease upon a sale of the property or the dropping of the church building, or the ability to relocate any portion of the communications facility to adapt the site for a different use, my developer client was left to negotiate with the cellular company during the due diligence period and attempt to find a solution that was acceptable to both my client and the cellular company. Absent a clear early termination or relocation provision, a cell site landlord (or, in my case, a developer) can easily expect to ‘give’ the cell company a relocation incentive fee somewhere in the high six figures to the low seven figures to clear out, and that might take a year to happen if there is another suitable nearby property with a willing landlord, and that the local government will approve the new sites. These are big “ifs,”and developers don’t like “ifs”.

As one might imagine, my client had very little leverage to negotiate a favorable deal with the cellular company because the lease, when originally negotiated by the unsophisticated church, wasn’t structured to give any flexibility to them or subsequent owners of the property. Here, the cell site lease did become the “tail that wagged the dog.” Although there are some circumstances where the church (the seller in this case) may be able to induce the cellular company to cooperate with the buyer, a church is rarely willing to put its relationship with the cellular carrier (and the steady income it brings) at jeopardy to force a workable solution to the buyer’s design problem. In this case, my client benefitted from the fact that this particular site had not yet been upgraded to 5G and the carrier company was therefore willing to entertain a relocation to another part of the property (entirely at my client’s cost and expense) including the cost of replacing all of its outdated equipment to accommodate 5G and expanding the capacity of the antenna tower/monopole to accommodate other users as subtenants (with the entire amount of the income from these subtenants going exclusively to the cellular carrier). Even though my client agreed to pay for these upgrades (which would clearly only economically benefit the cell site company), the cellular company continued to make other demands throughout the negotiation process. Every time my client thought it had reached a deal with the cellular company, their requests to “sweeten the deal” kept coming.

After six months of intense (and expensive) negotiation and exhausting all extensions of the due diligence period paid for by my client, my client grudgingly concluded it would never come to an economically-acceptable deal that would allow for its intended redevelopment of the church site for the national quick service restaurant chain. As a result, my client’s deal with the church fell out of escrow and the church learned a valuable and expensive lesson about dogs and tails.

Although the terms the church negotiated with the cellular company decades ago may have seemed favorable at the time (an extra ‘free’ $1,000 a month was a significant benefit to a church’s bottom line), the church ultimately realized it could only realistically sell the property to another church given that the cell antenna tower integrated into the church steeple would really only make aesthetic sense for another church. This factor ultimately and negatively impacted the church’s ability to sell its property at the much higher price expected from a developer aiming to redevelop the property into a higher and better use.

If the church had originally hired an experienced cell site attorney (as opposed to a generalist real estate or corporate attorney), it very well might have included carefully crafted terms that would have allowed them to realize several million dollars on the sale to pay off their mortgage and pull cash out, and relocate the church to a location that better meets their budget.

Given that landlord signing bonuses to cover landlord negotiation costs are increasingly common, there’s every incentive to use an experienced and knowledgeable cell site leasing lawyer to help negotiate away the legal potholes in the boilerplate carrier leases, and to negotiate in protections that would have saved the church and the future owner the headaches and disappointments in the actual story you’ve just read.

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