When a tenant insists upon including a right of first refusal, it can negatively affect the value of the lease?
What is a Right of First Refusal?
First, let’s better understand what is a cell tower lease right of first refusal (ROFR). A ROFR allows the tenant to match any offer to purchase the lease. Typically, the time frame to match the offer can range from 20 days to 90 days. If they decide not to purchase it after being notified, you have the right to sell it to the third-party buyer. In that case, the tenant “waives” the ROFR. Basically, the tenant wants the option to purchase it to “protect” its asset from future rent increases.
Why Would a Landlord Sell Her Lease?
Often, landlords will sell their lease and its rent stream in exchange for a lump-sum one-time payment. Alternatively, they can sell it for several lump-sum installment payments. This transaction is typically called a cell tower lease buyout. It allows the landlord to generate capital without having to wait years to collect the same amount of money. It also helps offset the risk of any future loss of rent due to either the termination of a subtenant, or the decommissioning of the cell tower entirely. Savvy landlords that understand the time value of money, can often create more value by “cashing out” an asset. This is due to a variety of reasons, including using the lease buyout proceeds for capital improvements, on-going business concerns, funding a retirement plan, or funding an educational account for children.
But a ROFR Doesn’t Seem Negative
Although wireless tenants, and their agents, assure you that it will not affect the value, it simply is not true. That is because if you ever consider to pursue a cell tower lease buyout, most third-party buyers will not offer the largest amount of money for it. The buyers know that the holder of the ROFR – the wireless tenant – has the “last-mover advantage”. Consequently, the tenant does not need to be competitive with any offer until they are presented with one by another buyer, which discourages buyers from presenting offers. Moreover, many buyers have “unspoken” rules that they will not offer to purchase any lease that has a ROFR, as it will create bidding wars when the situation is reversed.
Before moving forward with a lease that has a right of first refusal, contact Tower Advantage today for your free consultation.
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