Grant Writing

A client city with several existing leases was looking at a lease proposed by a carrier they had not dealt with before and asked Kreines & Kreines, Inc. to review the lease for them.

We found many problems that will be discussed in future issues of PlanWireless. This is a preview.

Obtaining City Permits

Some cities believe a lease with the City is all that is needed to approve a personal wireless service facility. This is not only untrue, it could result in a loss of City control over the site. We begin this section with a fact: many carriers do not seek required zoning and or building permits.

The reader can see why the following clause from the proposed lease gives Kreines & Kreines, Inc. heartburn:

Landlord agrees to cooperate with Tenant in obtaining, at Tenant's expense, all licenses and permits or authorizations required for Tenant's use of the Premises …

This is a standard lease clause. The problem with it is that it places the onus on the City to detect and enforce non-compliance. That means: failure to apply, secure and update permits is not a breach of the lease on the part of the carrier. Rather, it becomes a possible breach of the lease by the City for not granting permits (even when they are discretionary) each and every time they are requested.

Lease Area

Wireless leases commonly refer to the area occupied by the carrier as a “lease area,” or “leased space.” In contrast, the proposed lease uses the term “premises” which is described as a:

… portion of the Property sufficient for placement of the Antenna Facilities (as defined below), together with all necessary space and easements for access and utilities …

This definition of “premises” is so broad as to be defined to include driveways (needed for truck access) and utilities from the nearest public right-of-way or easement.

“Premises” is a term borrowed from residential and commercial real estate. It ordinarily defines an area surrounded by walls and any outdoor space that is private. When public or private land is used to run linear paths, they are ordinarily defined and circumscribed as “easements.”

Kreines & Kreines, Inc. believes that an easement is an easement and that the lease area is the leased space, and the two are separate and distinct.

Rent

The lease rate of $1,950 per month is low. Kreines & Kreines, Inc. has, in the past, conducted a National Lease Rate Survey. The mode (most frequent) monthly lease rate reported was $2,000 per month, and that was in 2006. The mean and median lease rates from that survey (considering current rents increased by escalator clauses) are probably over $2,000 in 2009.

Generators

Tenant shall have the right to install utilities, at Tenant's expense, and to improve the present utilities on the Property (including, but not limited to, the installation of emergency power generators).

The carrier does not ordinarily install generators at its sites, but the FCC is in the process of mandating that all cell sites have eight hours of back-up power in the event of emergencies (e.g., earthquakes). Generators must be tested weekly for ½ hour. Residences as well as the public park may be impacted by noise in excess of the noise guidelines of the State of California as a result of this testing.

Generators also require the storage of fuel (usually diesel) within or outside the generator unit. An open and approachable reservoir of fuel is an invitation to vandals that could be hazardous in an area frequented by children.

Radio Frequency Radiation

That prior to the Planning Commission meeting, the carrier shall provide written verification that the proposed facility’s radio-frequency radiation and electromagnetic field emissions will fall within the adopted FCC standards for safe human exposure to such forms of non-ionizing electromagnetic radiation when operating at full strength and capacity.

These conditions are fine for a regulatory action, since zoning is restricted by the federal Telecommunications Act to complying with the FCC Guidelines regarding radio frequency radiation (RFR).

For proprietary agreements (such as a lease), however, two federal Appeals Courts, in differing circuits, have found that FCC restrictions on wireless regulation on RFR do not apply.

Hazardous Hydrocarbons, Fumes and Conditions

The lease is efficient in planning for “emergency power generators” but silent on the impacts from such generators, including:

· Noise – exceeding the California noise guidelines is considered a health hazard.

Diesel or propane generators are not the only alternatives for back-up power at a cell site. Another alternative would be back-up power provided by batteries. Even if back-up power is not provided by batteries, all cell sites use batteries for other purposes.

There is a federal law known as the Emergency Planning and Community Right-to-Know Act (EPCRA) that requires users of 500 pounds or more of acid in batteries (cell sites often use more than that weight in batteries) to register those batteries with the local fire department. Many cell site batteries are not registered.

Another possible hazard is the possibility that the antennas on the top of an 80-foot ball-field light standard (as described in Condition 28 in the Draft Conditions of Approval) can loosen and fall during high winds. The two most common objects to fall are antennas and ice (in cold climates). Not only are antennas subject to debris fall, but large birds’ nests built on antennas can dislodge and fall upon persons or property below.

To find out how to deal with these types of problems in a lease, contact Kreines & Kreines, Inc. for a review of your lease.

The City Wants the Money but the Carrier Doesn’t Want a Lease

These days, cities and counties need to be creative. Along comes a new carrier, Clearwire, to say “we want to put our equipment on a Nextel site that is leased from the city.” The city calls Kreines & Kreines, Inc. and says “Can we put Clearwire on the Nextel site?” Answer, “Yes, you can. All you need is a lease.”

Clearwire says they don’t want a lease. They claim they are the same company as Nextel. Nextel already has a lease on the city’s property, and Clearwire just wants to place a few things on the Nextel lease area.

Kreines & Kreines, Inc.’s standard answer to such questions is that the city should not allow any company to add their equipment to city property without a lease. If it’s a new tenant, get a new lease. If it is the existing tenant, amend the lease.

The city wants to get additional revenue from rent. Kreines & Kreines, Inc. gets creative and suggests that the city prepare an amendment to the Nextel lease that will allow Clearwire as a secondary lessee.

What is a secondary lessee, and why should a city or county care about letting a second company on the city’s property without a new lease?

The answer: because this is a way for the city or county to make money from situations where they have lost money in the past.

Piggy-Backing: Sprint Nextel is Just Doing What Every Other Carrier Does

Nextel has its own technology, called iDEN. Sprint is a personal wireless service using CDMA technology but, even though its technology is incompatible with iDEN, Sprint bought Nextel in 2005. The resulting merger is called Sprint Nextel. The two companies remain separate entities, like Lexus and Toyota, even though they are owned by the same corporation.

Many Nextel sites have installed Sprint equipment in addition to Nextel’s equipment. In some cases, this installation may have been without notice to, permission from, or consultation with, the landlord. This could result in two tenants enjoying the privileges of a single tenant. Kreines & Kreines, Inc. does not know if Sprint’s equipment has been installed at this site.

In 2008, Sprint Nextel forged a joint venture with Clearwire. The purpose was to have Clearwire send and receive WiMAX (802.16e, which is faster than WiFi) signals to allow Sprint PCS, which uses CDMA technology, to advance to 4G (Fourth Generation). In order for this to happen, Clearwire must install its equipment at Sprint PCS sites. Nextel’s iDEN is not part of this plan, although someday Nextel may migrate to CDMA. Since 2008, Sprint Nextel has been introducing Clearwire into Sprint PCS sites, also possibly without notice to, permission from, or consultation with, the landlord. “Piggy-backing,” or the practice of introducing one carrier’s frequencies and equipment into another carrier’s site, without a rent increase for the landlord, is widespread:

· AT&T bought Cingular and piggy-backed AT&T into Cingular sites as well as piggy-backing Cingular into AT&T sites.

· Verizon is piggy-backing its new 700 MHz equipment into its old 800 MHz and 1900 MHz sites.

The only parties who lose out in piggy-backing are the landlords, who usually don’t receive a rent increase.

Kreines & Kreines, Inc. warns its clients about the loss of rent income due to piggy-backing. Clearwire, from the very beginning, did not try to piggy-back at this city site. One way to legitimize piggy-backing is to claim that one company is the same as another, which Clearwire claimed to the city because of its relationship (a joint venture) with Sprint Nextel. Nextel has no direct relationship with Clearwire. They both are related to Sprint Nextel, and their companies operate with separate Boards and corporate management.

Kreines & Kreines, Inc. Recommends a Secondary Lessee as a Way to Generate Revenue

When a second carrier comes to a city or county and says, “We don’t want to sneak around. We want to put our equipment on your property, but we don’t want to go through the process of negotiating a new lease,” the city or county should find a way to accommodate that carrier.

The existing city lease is with Nextel. By introducing Clearwire into the same lease as the city has with Nextel, the city will create a primary lessee (Nextel) and a secondary lessee (Clearwire).

Kreines & Kreines, Inc. generally advises its clients not to put two or more carriers on one lease because such a situation can create problems for the landlord. Problems can result if one (particularly the primary lessee) moves from the site, goes out of business, or is purchased by another company, etc. If Nextel is to become the primary lessee, then what are Clearwire’s rights and responsibilities?

Kreines & Kreines, Inc. believes the above problems are somewhat resolved by the facts that:

· Nextel is a personal wireless service licensed by the Federal Communications Commission (FCC) to occupy certain frequencies in the 800 MHz range.

· Clearwire is a Broadband Radio Service (BRS) carrier licensed by the FCC to occupy certain frequencies in the 2100 MHz and 2300 MHz ranges.

These two companies are complimentary, not competitive or duplicative. Therefore, Kreines & Kreines, Inc. believes that Clearwire can be a secondary lessee with Nextel becoming the primary lessee.

However, Kreines & Kreines, Inc. cautions the city that Clearwire has a joint venture with Sprint Nextel, the owner of Nextel.

Nextel’s lease does not permit Sprint to install its facilities under Nextel’s name, nor does Clearwire have the right to provide Sprint’s personal wireless services at a Nextel site. These distinctions are esoteric, but they are essential in precluding the introduction of competitive and/or duplicative personal wireless services under a single lease.

Money? Oh Yes, There Will Be Additional Rent, But How Much?

Kreines & Kreines, Inc. devised two ways to increase the rent, on the same lease, to provide for a secondary lessee:

· What does the carrier normally pay to transmit and receive signals from someone’s property?[1]

With an amendment to a lease, the rent goes up. One tenant (e.g., the primary lessee) can pay the increased rent or both tenants (the primary tenant and the secondary tenant) can send their own checks to the city. If either tenant defaults, the amended lease is breached, and both tenants are evicted.

Why is This a Good Deal?

Clearwire is a new guy in town. They do not want to go looking for a new site and they do not want to negotiate for a new site and they do not want to negotiate a new lease on a site that is already leased. In this case, they may have to agree to an amended lease between the city and Nextel.

The city wants Clearwire’s rent checks. The city doesn’t care if the check is “bundled” with Nextel’s check or not. The city does want, however, the protection of a lease agreement, which is what accepting Clearwire as a secondary lessee will give the city.

Most important, this is a way out of piggy-backing. The city gets the revenue it deserves, and the carriers don’t need to resort to bootlegging.

Secondary tenancy could be the new way of doing business in this complicated wireless world.

[1] Kreines & Kreines, Inc. cautions against using the term “comparables.” Cell sites are all different. They are not commodities. They do not pay comparable rents.

Does Your City or County have an Assignment Clause in its Cell Site Lease?

The answer to this question is, “All cell site leases have assignment clauses.”

When a lease is assigned, it is transferred to another lessor or lessee (in this case, lessee) for some type of consideration. In this case, the lessee or tenant was a carrier who may have needed financial help and assigned the lease to a tower company. Perhaps the tower company gave the carrier a break on the rent in trade for keeping future rents from future co-locatees. All the tower company had to do was go out and find those future co-locatees.

That’s when our City client called and said two new carriers are requesting development approvals to co-locate on a monopole owned by a third carrier on city land. Since the City was leasing the land to the existing carrier, the City expected a call from its tenant.

So when that didn’t happen, the City called the carrier and said, “You need to see us about adding those two carriers to your monopole.”

Kreines & Kreines, Inc. had to tell the City it had no say if the lease has been assigned. Under the terms of some leases, landlords get no approval of, or revenue from, the new tenants. Accordingly, the assignee, a hustling and fast-moving tower company, is now dealing with the two carriers as prospective tenants. The City, the landlord of the ground lease but not the cell site, is left out of those negotiations.

Cities and counties should never forget the difference between a lease and a development approval:

· A lease is a proprietary business document. The local government can enforce some things on its tenant through a lease that it can’t do via land use controls.

· Development approvals are regulatory in nature. They confer a right, but not a proprietary right.

What the two new co-locatees were trying to do is obtain a development approval for each carrier. They would then turn around and start adding to the monopole and the City couldn’t extract one more cent in rent. That’s when Kreines & Kreines, Inc. gets called in and asked, “Where did we go wrong?”

All is not lost, however. Kreines & Kreines, Inc. is now in the process of showing the City how it can still retrieve its lost income.

Case in Point: Cellular Landlord Will Get Three Times Current Rent on New Lease

‘Tis the season when all old leases for cell sites are coming due. Our client in this case knew something was funny when the rooftop representative for a cellular company started to ask for all kinds of “minimal” changes. Then our client looked at the lease:

The client decided to call Kreines & Kreines, Inc. and ask, “Why would we want to ‘extend’ the old lease when we can negotiate a new lease? Those antennas aren’t going anywhere soon.”

Never “Extend” an Expiring Lease

The 1980s were the “go-go” years for cellular: take the money and run. Never did any wireless negotiator dream that:

· Some day, that slam-dunk lease the unknowing landlord signed will come due: 20, 25 or 30 years from the first day of the lease, it will need to be renegotiated. That day is arriving for many landlords.

· Instead of having six panel antennas handling hundreds of minutes of use each day, the cell site has grown to nine, then 12, panel antennas handling tens of thousands of minutes of use per day. For this increase in value, all the landlord gets is a cost-of-living increase.

And every five years, the landlord would grit his or her teeth because, on a typical “option to renew,” only the cellular tenant could opt out and leave. The landlord was stuck with an under-rent lease and there was nothing the landlord could do.

Until, of course, the lease expires. That’s when the landlord could get all of his or her missed rent back and start with a brand new lease rate. In this case, Kreines & Kreines, Inc. recommended a hefty increase in rent for the new lease.

What We Do First

When a client calls Kreines & Kreines, Inc. and says, “We’ve got a lease coming up; can you help us?” Our answer is, “Yes, send us a copy of the lease and a three-figure retainer and we will show you the clauses you need to negotiate.” Our purpose is to give the landlord some bargaining chips.

In a few days, we will study the old lease and point out some of the problems that are ripe for negotiation. Kreines & Kreines, Inc. does not need to visit the cell site. Any landlord thinks they could do this, but for a few hundred dollars, they figure it’s worth hiring an expert. Kreines & Kreines, Inc. is the only expert that doesn’t work with or for carriers. Kreines & Kreines, Inc. believes the wireless industry always gets the better part of a lease, so why not balance the playing field?

Our client receives from Kreines & Kreines, Inc. a custom-developed report that highlights the old lease’s issues. Here are some common lease issues:

· If Exhibits A, B and C are missing from the lease, we can help fill in the blanks for the client. What was supposed to be there versus what really is?

· The same cell site, 25 or 30 years later, is different and making a lot more money for the carrier. Sometimes the changes have been approved by the landlord, but there is usually something that the carrier has not disclosed to the landlord.

· Then there’s the matter of local permits. Kreines & Kreines, Inc. has been saying for years that wireless carriers often fail to get permits.

PlanWireless says this about permit problems: Every time Kreines & Kreines, Inc. finds that local permits don’t match the cell site, the landlord has gained immediate leverage in future negotiations. It’s a question of how the landlord uses the information we give him or her. We call that information “bargaining chips.”

A Second Report Requires a Site Visit

After Kreines & Kreines, Inc. prepares a report on a lease review, many landlords want us to conduct a site visit to document problems at the site. Then we find bargaining chips everywhere.

In this particular case, Kreines & Kreines, Inc. found a building full of hidden problems that the carrier would need to fix upon leaving. When we asked the landlord’s contractor, what those hidden costs would be and what it would take to keep the cellular tenant in a new lease, his reply was: “Triple the rent.”

Kreines & Kreines, Inc. doesn’t know if the landlord will get three times the current rent or not, but here’s why we think he will.

What Else Can the Carrier Do?

A cellular tenant can always remove the cell site and find a new landlord. However, consider the following:

· All the good cell sites have been taken. Someone coming along in 2009 cannot expect a very good deal because landlords are smarter. So, the carrier faces a lousier cell site and much higher rents.

· New sites are not just moved to an adjacent rooftop or tower. Many of the cellular tenants are tied to microwave relays to another location miles away. If the far away site is blocked by other buildings, the carrier’s choices are significantly narrowed should the carrier decide to move.

· In a building, unlike a tower, moving a cell site is more than a matter of unbolting cabinets and antennas. There are often cables threaded through horizontal as well as vertical paths. And all bolt holes must be returned to pre-project condition … it’s expensive and time-consuming.

· Don’t forget permitting. If the carrier is going to build a new site, and the city or county is serious about the permitting process, the new permits could take six months to obtain.

Add it all together and a landlord’s old tenant is going to think twice before moving. A cellular (now PCS or 700 MHz) carrier should plan a move at least one year in advance. Bottom line: if you are a landlord with a lease expiring in 2009, your tenant needs a back-up plan with a new site if you plan to negotiate a new lease.

Conclusion

It’s been the carrier’s playing field and decision during the original lease period. This is no longer the case. The wireless industry is facing huge increases in rental costs if the landlords know how to negotiate new leases. Kreines & Kreines, Inc. sees landlords as needing our help and they are our new client base.

The whole idea of owning property is knowing how to lease it. In the old days, a wireless negotiator would walk up and say, “Have I got a deal for you.” Since the modest lease rate was considered “found money,” landlords didn’t haggle much.

Now the cell site is worth many times what it was worth 25 to 30 years ago. All a landlord needs are the bargaining chips to ask for an appropriately upgraded lease rate.

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We Reviewed a Lease for a City; the Lease Was Not Pretty