ROFR – Right of First Refusal
Right of first refusal (ROFR) is a contractual term that requires you to give notice to your wireless tenant (wireless carriers and tower companies) that you have received an offer for your property (whether it is a wireless lease or your building and land). Your wireless tenant has the right to match the offer, and you must sell it to the wireless tenant instead. In a standard ROFR clause, a wireless tenant will generally have twenty to sixty days to respond to your notice regarding whether or not they intend to match the offer. In all instances, this clause is an advantage for the tenant and a disadvantage for the landlord in several ways.
Why A Tenant Wants a ROFR?
Wireless tenants such as AT&T, Verizon, Crown Castle prefer to work directly with landlords rather than financial investors because property owners are not as informed about the value of their properties and are unlikely to ask for increases at certain critical stages of the cell site’s life cycle. Cell tower companies and wireless carriers also prefer to communicate directly with landlords to get approvals for site modifications rather than having to go through the investor’s property management company. Tenants are also concerned that new lease owners know the wireless technology and industry and will not allow the carriers and tower companies to get away with free use of the landlords’ property, e.g., utilities, easements, walls, power rooms, increased access, extra structural loadings. For these reasons, they do not want the lease to be handled by the “wrong” hands, and they would prefer to purchase the lease themselves through the ROFR clause.
During negotiations, wireless carriers or tower companies will automatically insert the right of first refusal term because it is a significant advantage for them, as it places an obligation on the landlord and a right to themselves. As innocent as the term may appear, it depreciates the value of the landlord’s lease and property. Therefore, we advise our clients to strike the term from the initial draft contract right away. This shows the tenant that you are knowledgeable about the effects of the clause and want it removed immediately from discussions. Once they know this is important to you, they will likely remove this clause without much opposition. However, if a landlord is not represented by a professional in the wireless industry, wireless tenants will demand that this term be in the final language of the contract.
Disadvantages to the Landlord
ROFR terms tend to attach to all properties where the cell tower is located, including the building, homes, land, and parcel where the cell tower is built. Suppose you received an offer to purchase your building (or the wireless lease alone) where a wireless tenant has antennas placed on the roof (or cell tower on your land). You must present that offer to the tenant and give them the opportunity to decide if they want to match the offer. Here are the problems this will cause for you as the landlord:
If you received an offer on your property, you cannot just accept that offer because you have to present such offer to your wireless tenant, and they have twenty to sixty days to decide if they want to match the offer. Most real estate offers place a short duration on how long the seller (you) has to accept an offer, usually measured in days. A delay of twenty to sixty days would certainly cause many buyers to skip your property because the delay would be too long for them to wait.
No Competition for Lease Buyout Offers
Buyers tend not to offer their best price for a property if they know that it will be matched by a third party. Many buyers may not even bid on the property because they don’t want their pricing model to be known to your wireless tenant since you will be presenting their offer to the wireless tenant for price matching. In many cases, buyers have no incentives to make an offer at all because of the standing ROFR term. At the very least, a ROFR discourages the volume of buyers from making their best offers on your property, having the real effect that you will receive below-market value offers on your property.
Tenants Not Required To Match
Tenants (AT&T, Verizon, T-Mobile, Sprint) will use technicalities in the ROFR language to avoid matching your offer. Suppose you received an offer of $250,000 for your wireless lease, with the condition that you increase the cell tower leased area by another fifty square feet. Your ROFR tenant would argue that since you are leasing a larger area that must mean that the existing smaller area deserves less value. Thus, wireless tenants will prorate the square footage and pay you less than your current offer. If you do not accept, you may have a legal matter on your hands because your wireless tenant’s attorney may argue that as a matter of interpretation they are correct and are willing to go to court to settle the matter. Wireless carriers and tower companies have purchased many cell leases from unsuspecting landlords at below market value using this tactic. This is just one of many ways that a ROFR clause is harmful to wireless landlords.
For these reasons, we advise our clients to avoid the ROFR term completely because it will only be a disadvantage for the landlord when they decide to sell their property, and one-sided interpretations by wireless carriers can result in either lawsuits or landlords selling the property for less than market value. Additionally, the ROFR term only serves to limit the landlord’s property rights.
If you are negotiating a lease or thinking of extending your lease for a longer period, be sure you have professional experience and expertise on your side. Let CellWaves’ expertise guide you through this crucial period in your cell site lease. Contact us anytime.