Best Practices: Cell Tower Lease Considerations

No matter where you drive today, you are likely to see a cell tower rising above the landscape, sometimes disguised to resemble the surrounding trees. Cell towers have become a necessity of modern life, and their numbers continue to increase. As a result, it is increasingly common for real property collateral to include a cell tower located on the property pursuant to a lease agreement between the owner (or a prior owner) and a cell tower company.

When a cell tower is located on collateral, lenders should obtain and review a copy of the lease to determine whether any terms or provisions could affect the lender’s rights, including its ability to foreclose on the property.

One provision a lender should hope to find in the lease is a subordination clause. Such language subordinates the tenant’s interest to the lender’s interest in the real property. If the lease does not contain subordination language, or if the language applies only to existing liens and not future liens, the lender should request that the tenant subordinate its interest. This is typically accomplished through the execution of a Subordination, Non-Disturbance, and Attornment Agreement (“SNDA”).

Under an SNDA, the lender recognizes the lease and agrees not to disturb the tenant’s rights under the lease so long as the tenant is not in default. In return, the tenant agrees to pay rent under the lease to the lender should the lender take possession of the property. The tenant also acknowledges the lender’s superior rights under its loan documents and agrees to subordinate its leasehold interest to the lender’s lien.

Another important provision that may affect not only a lender’s ability to foreclose, but also a borrower’s ability to purchase or sell the property, is a right of first refusal (“ROFR”). An ROFR gives the cell tower tenant the right to purchase the property before it can be sold to another party. Lenders should obtain a subordination of any ROFR rights held by the tenant.

Additionally, if the loan is being made to finance the purchase of property subject to a cell tower lease containing an ROFR, the lender should confirm that the seller has provided the tenant with any required notice and that the tenant has waived its ROFR, either expressly in writing or through the expiration of the applicable response period set forth in the lease. If title insurance is involved, the title company may require an executed written waiver from the tenant in order to insure over the related title exception.

It is also important to note that if the cell tower occupies the property pursuant to an easement rather than a lease, the easement should be reviewed with similar considerations in mind. The lender should address any provisions that could affect its rights or remedies in the event of a default.

For these reasons, lenders should identify any existing cell towers on collateral as early in the lending process as possible. Early identification allows sufficient time to review the relevant documents and negotiate any necessary agreements with the cell tower tenant.

For more information regarding cell tower lease considerations, please contact the SBA attorneys at Starfield & Smith, P.C. at 215-542-7070 or by email at info@starfieldsmith.com.