The All-Suites Hotel Analogy

Let’s say you leased your land to a hotel builder in the early 1990s.  The developer had a fantastic idea:  a hotel with 100% suites.  The lease specifies a hotel and requisite parking as well as other improvements.  The lease does not specify the number of rooms; let’s face it, you’re leasing space not rooms.

The result is a lot of building for just a few hotel suites, but it’s a new idea and it’s worth it for the hotel owner.  Frankly, you think it’s an under-use of the land, but the developer pays the rent and that’s fine with you.

By the late 1990s, the hotel owner decides to convert the hotel to conventional rooms.  The number of rental rooms doubles.  Zoning?  It’s a hotel and, for purposes of the local government, a hotel is a hotel. 

Now, you as landowner become concerned.  The tenant has doubled the capability of the site but the rent to you stays the same, except for an annual escalator.  You discuss your concern with your tenant, the hotel owner, who says, “The footprint hasn’t changed.  Our lease deals with the footprint, not what I do to make that footprint more efficient.”

And now, welcome to the first decade of the 21^st Century.  The hotel owner still has the same land lease, but the hotel has been converted to a new concept:  An SRO (single room occupancy) hotel.  The spacious conventional rooms are again cut in half to create overnight cubbyholes.  Capacity has been greatly increased for a second time.

But the landlord only gets a 3% increase in rent per year.

Here’s how the analogy compares to an early cell site:

·            The 20- to 30-year lease began with a simple technology: analog using the 800 MHz band of frequencies.

·            The cell site was a new development, like an all-suites hotel.

·            Soon, the tenant introduced 1900 MHz to the cell site, effectively doubling its capacity.  Does the tenant seek approval, consult with the landlord or even notify the landlord of the “upgrade?”  No.

·            Converting the all-suites hotel to standard rooms would be hard to conceal from the landlord, but his lease is for the hotel, not the number of rooms.  The landlord may be concerned, but the landlord is told that a hotel is a hotel and that is what the carrier proposed as a “use of the premises.”

·            With the advent of 700 MHz technology, the cell site is about to have its bandwidth doubled again.  Has the tenant discussed this with the landlord?  Is at least a notification required?  No.  Most cell site leases appear to allow the carrier to change out the equipment at will with – at the most – a request to change the antennas to new ones that the carrier claims look “exactly like” the old ones.

·            Back to the hotel:  the SRO concept doubles the number of rooms again but there is nothing the landlord can do.  The hotel owner again claims that a hotel is a hotel is a hotel.

Next time – and there will be a next time – Kreines & Kreines, Inc. can help the landlord write a better lease.  But, for now, there are several things the landlord can do.

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Kreines & Kreines, Inc.
58 Paseo Mirasol, Tiburon, CA 94920
Phone: (415) 435-9214
Fax: (415) 435-1522
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