I have a client who owns a piece of land. I know, right? True story.
My client has leased some of his land to a telecommunications company which has, in turn, installed a telecommunications tower or “cell tower”. My client has also granted some easements (for example, access) to the telco. The telco pays my client a modest rental under the terms of a lease which is arranged much as you might expect and is altogether uninteresting.
Except for the interesting bit.
The lease expressly prohibits the landlord from entering into something called a mobile site subdivision agreement. Moreover, the lease grants to the telco the right to take some fairly punitive actions against the landlord in the event that the landlord breaches said prohibition.
So what exactly is a mobile site subdivision agreement? Under the terms of my client’s lease, it is an arrangement:
- whereby a third party is granted a beneficial or legal ownership interest/right in all or part of the leased land; and/or
- whereby a relationship is created (or purported to be created) between the telco and a third party that is in the nature of, or substantially similar to, a landlord/tenant relationship; and/or
- which effectively constitutes the granting (by the landlord) of a power of attorney in respect of the leased land to a third party; and/or
- which effectively creates a concurrent lease – that is, a third party leases the reversionary interest (and takes on the obligations) of the landlord in relation to the existing lease; and/or
- which otherwise grants a third party to receive the rental that is payable by the telco.
Perhaps the simplest way of understanding mobile site subdivision agreements (by whatever name), is to think of the third party as being in a similar role to that of a property manager. The third party collects the rent and manages the lease.
But here’s the kicker. Landlords pay property managers to collect the rent and manage the lease. Under the terms of a mobile site subdivision agreement, the third party pays the landlord for the privilege of collecting the rent and managing the cell-tower lease.
It took me a while to get my head around the economics of this arrangement. What’s in it for the third party? Where’s the payoff?
When the rental is only a few thousand dollars per annum, why would a third party come along and want to pay my client more than 10 times the annual rental, upfront?
And why would the telco be so concerned about this possibility that the lease would contain a provision that expressly prohibits this?
Building portfolios
Well, as it turns out, these third parties (yes, there’s more than one) are overseas investment groups that are focused on building up portfolios of cell-tower leases. As it happens, Wall Street-level investment isn’t really a world that I know, so I’m going to draw upon my lived experience of a world that I do know.
In 1982 (as I’m sure you will be well aware), guitar manufacturer Ibanez released a bunch of guitar effects pedals that quickly became known as the “9-series”. The most famous is the TS-9 Tubescreamer, used by Stevie Ray Vaughan and thousands of Stevie Ray Vaughanabes the world over.
Now if you have an original early ‘80s TS-9, it’s going to be worth a wee bit. And if you’ve also got the AD9 Analog Delay, the BC-9 Bi Mode Chorus or any of the other sonic gems that make up the 9-series, well then together they’re going to be worth a bit more.
But if you have the whole set…
From a purely financial point of view, these mobile site subdivision agreements present landlords with a potentially lucrative opportunity. After all, $150k today has the potential to be much more useful than $10k per annum for 30 years.
But on the other hand, cell towers – even where they are privately owned – are part of New Zealand’s critical infrastructure. Do we want overseas hedge funds to have a free hand in the quiet acquisition and accumulation of such infrastructure?
Food for thought.
Jeremy Callander is a solicitor at Lucas and Lucas Ltd in Dunedin.
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