Let’s make a re-deal
While reviewing my tower owner clients’ site agreements with broadband carriers, paging outfits and other tower tenants, I failed to see the line in any of them that says, “We hereby invite tenant to renegotiate rent terms at their convenience.” But that’s the language you might expect to see given what’s going on in the industry.
From sea to shining tower, carriers are seeking amendments to site agreements to reduce rents, lower escalator percentages and alter terms. These discussions usually begin with a letter from a tenant broker that refers to “lease optimization,” a phrase that makes no sense for the tower owner.
What the broker is trying to do is obtain a lower rent for the tenant, sometimes a lot lower. In each case they tell the tower owner that unless the rent is lowered, the tenant will relocate its equipment to an alternative site. They do not, however, identify where that alternative site might be located — often one does not exist.
Undeterred by the facts, the broker sometimes will talk about the tough times that the tenant experiences in paying the rising costs of tower rents for operation of networks. When the tenant is, say, AT&T, it is quite difficult for the tower owner to feel much sympathy for the tenant’s measly multi-billion dollar profit margin. But the broker will still rattle off a tale of woe as though Joe’s Tower Inc. will be moved.
When the broker comes to a tower owner and begins this bizarre process, the tower owner should take some logical steps. First, read the tenant lease. It is not unusual for the broker to get the terms wrong in the re-negotiation attempt. Give special attention to any early termination language in the agreement and double-check the expiration date.
Second, do a quick site survey and determine to your satisfaction whether an alternative site exists that would serve the tenant. Often, no such site exists and — despite what the broker might say — tenants are not going to want to build another site down the road.
Third, do some math. Find out what the broker is really asking for in the way of a discount and what, if anything, is being offered as an incentive. If it’s more of an accommodation than an economic beat down, you might be able to find common ground and do a deal to amend the agreement. But remember, no one should ever amend an existing deal unless something material is received in return.
Fourth, get creative. Carefully look over your existing deal to see whether other term adjustments exist that would improve your position and might not even cost the tenant any out-of-pocket dollars. If you can lower your risk materially by adjusting terms in exchange for a rent discount, it might be worth it.
Finally, negotiate. Whatever the broker offers you is a starting point, and the tenant will likely do better if you ask. So be bold and propose terms that work for you and your company. Anyone that offers you an initial “take it or leave it” deal should be told to pound sand.
The reasons behind this activity are varied, but essentially it’s all about carriers trying to save a buck by beating up tower owners. Because most of my clients’ agreements do not contain early termination language, my clients have more leverage than many owners who are being harassed by rent brokers — but they are still getting calls from brokers.
As one last piece of advice, remember that good business practices require a cool head. Although the tenant’s request is a bit offensive because a deal’s a deal, you cannot blame carriers for trying to save some bucks. But it’s up to you whether they do — and how much.
Attorney Robert H. Schwaninger Jr. is the president of Schwaninger & Associates. He can be reached at [email protected].
