By: Michael J. “Mick” McGirr, Esq., Phocus Law
I love writing this monthly article for AZREIA because it provides an opportunity for me to crystalize thoughts I’ve encountered during my work from the previous month. Often, inspiration for articles comes from items that have been recent recurring themes. Such is the case this month. At an increased rate, the real estate transactions I have handled recently have had various issues related to cell tower and billboard agreements. The purpose of this article is to give you a quick overview of what to be looking for on your investment properties related to cell towers or billboards.
It is quite common that engineering companies that handle cell towers and billboards will lock up their interests in properties where they believe it may become beneficial, in the future, to construct a cell tower or billboard. In this instance, they will enter into an option agreement with the property owner. In essence, these contracts are between the property owner and the engineer, providing that, in exchange for some up-front money, the engineer will have the right to acquire an interest in the subject property for a future period of time, often within one to five years. If, during that option period, the engineer elects to move forward with the construction of the cell tower or billboard, a separate purchase agreement would be entered into whereby the engineer’s interest in the property would be perfected through an acquisition or easement.
Why would a property owner consider allowing a cell tower or billboard to be constructed? First, because it can be quite lucrative. I’ve seen deals vary greatly, but it’s not uncommon to see a cell tower deal worth tens of thousands of dollars up front to the property owner. It’s also not uncommon for a billboard lease to be worth more than that up front and include a provision for the property owner to receive a healthy portion of the advertising revenue generated by the billboard.
While those factors make this type of deal attractive, there are also negative factors that need to be considered. In some instances, a cell tower or billboard can have a negative impact on the value of the property to future buyers. Additionally, the engineer or end-user of the cell tower or billboard are often granted extensive rights to access it, meaning that, without notice, they may enter your property for maintenance or other needs. Finally, depending on the design, cell towers and billboards can be eyesores depending upon the type of property we are discussing.
While the above may be helpful in deciding whether to enter into an agreement to allow use of your property for a cell tower or billboard, I want to also quickly discuss what to be aware of as you are acquiring properties. First, you should make it a practice to expressly request that any cell tower or billboard option or purchase contracts be disclosed. While these often will show up on a title report, I have also seen instances where the agreement was not recorded. Once you’ve received any relevant agreement, review it to see whether the right of the engineer is ongoing, whether there is a monetary impact (positive or negative) to the agreement, what access rights are granted, and whether there are any restrictions to transfer. By that, I mean whether the engineer drafted into the agreement a right-of-first-refusal to purchase of the property, or whether there is any notice requirement when a transfer of the property is going to occur.
Ultimately, billboard and cell tower uses can be financially beneficial and can have a positive impact on deal cashflow. However, you, as the investor, need to be aware of all of the impacts such uses will have on your investment. If you are considering investing in a property that is impacted by a cell tower or billboard agreement, I would love to assist. I can review the agreements and give you a synopsis of the legal and monetary impact. Feel free to reach out to me at (602)457-2191 or via email at firstname.lastname@example.org.