In a world where connectivity is king, leasing space on cell towers has become a lucrative opportunity.
If you’re a tower operator leasing space to telecom companies, understanding the ins and outs of cell tower leases will help you manage these effectively.
From managing lease revenue to navigating accounting challenges, these agreements are about more than just signing on the dotted line. Having purpose-built tools for lessors and lessees as part of your asset management system streamlines the process and helps you stay compliant, all while maximizing revenue potential.
This post will explore how cell tower leases work, benefits for tower operators, and how to manage cell tower lease accounting with software.
What is a cell tower lease?
A cell tower lease is a legal agreement between a tower operator (lessor) and a telecommunications company (lessee). This agreement allows the company to install and maintain telecom equipment on the tower.
Cell tower leases are critical for supporting the growing demand for reliable wireless communication as they provide the physical infrastructure needed to improve network coverage.
A cell tower lease agreement outlines details such as:
- The location of the leased area
- The lease term (often long-term, ranging from 10 to 30 years)
- Payment terms, including rent escalations over time
- Rights for lease renewals or modifications
However, navigating these agreements can be intricate, involving specific terms, zoning regulations, and potential impacts on property value. Tower operators also have lease agreements with the property owner to keep a tower on their property, adding another layer of complexity.
How much do cell tower leases pay?
Cell tower leases can pay anywhere from $1,500 to $3,500 per month ($18,000 and $42,000 per year), depending on factors like location, property size, and market demand. Urban and high-traffic areas command higher rates due to their strategic importance for network expansion. Rural leases may offer lower payments but often come with less competitive pressure.
Key factors influencing cell tower lease payments include:
- Location: Properties near densely populated or high-traffic areas are in higher demand, driving up lease rates.
- Competition: If multiple properties in the vicinity are viable, telecom companies may negotiate for lower rates.
- Lease duration: Longer-term leases often include regular rent escalations, so payments increase over time.
- Tower type: Ground leases, rooftop leases, or colocation agreements can impact payment structures.
Benefits of cell tower leasing for tower operators
Let’s take a look at the key benefits of cell tower leasing agreements for tower operators.
1. Cost efficiency
Leasing eliminates the need for land acquisition, reducing upfront capital requirements. This cost-effective approach allows operators to allocate resources toward tower construction and equipment installation rather than purchasing real estate.
2. Scalability and network growth
Leasing enables operators to scale quickly. By securing multiple leases across strategic locations, tower operators can expand their footprint and serve a broader range of customers.
3. Faster deployment
With no need to navigate the complexities of property ownership, tower operators can focus on rapid deployment. This accelerated timeline helps operators stay competitive in an industry where speed is critical.
4. Long-term agreements
Leases often include long-term agreements with automatic renewal options that span decades. This provides operators with stability and predictable income from telecom companies.
5. Shared responsibilities
In a leasing arrangement, property owners often handle site preparation or ongoing maintenance of shared spaces, reducing the operational burden for tower operators. This allows operators to focus on maintaining and upgrading their towers.
6. Strategic partnerships
Leasing fosters mutually beneficial relationships with property owners. These partnerships can lead to smoother negotiations, potential access to other properties, and a cooperative approach to managing the site.
How cell tower leasing works
Here’s what the cell tower leasing process typically looks like for tower operators.
1. Site identification and proposal
Tower operators scout locations based on coverage needs. They look for areas that fill network gaps, typically prioritizing properties with clear lines of sight or minimal zoning restrictions. Once they identify a site, they approach the property owner with a proposal.
2. Negotiation and agreement
Property owners and tower operators negotiate terms such as lease duration, payment amounts, rent escalations, and rights for lease renewals.
With a lease agreement in place, the tower operator becomes the lessee of the property owner, meaning they make ongoing lease payments to build and maintain a tower on their property.
3. Zoning and permitting
Tower operators handle local zoning approvals and construction permits. This step ensures the proposed cell tower complies with local regulations, including height restrictions and environmental considerations.
4. Construction and installation
Next, the tower operator builds the tower or installs the equipment on the site. Once they lease the space to telecom providers, additional construction and installation may be required.
5. Leasing space to telecom companies
The tower operator then leases space on their cell tower to one or various telecom companies. In this lease agreement, the tower operator is the lessor to the telecom company, meaning they receive payment for the use of space on the cell tower.
Types of cell tower leases
Cell tower leases come in several forms, each addressing different needs for the tower operator and the telecom company.
Ground lease
A ground lease involves leasing a portion of land to install a cell tower. These agreements are common for properties with significant open space, like industrial lots, farmland, or parking areas.
The tower operator leases the portion of land from the property owner (as a lessee), builds and maintains the tower, and leases out space on the tower to various telecom companies (as a lessor).
Rooftop lease
In a rooftop lease, tower operators install cell tower equipment on the roof of a building. These leases are popular in urban areas, where ground space is scarce but network demand is high. Rooftop leases are common on office buildings, warehouses, and mixed-use properties.
Lease expansions
Lease expansions occur when a telecom company wants to add equipment to an existing cell tower site, either to increase capacity or upgrade technology. This could mean adding antennas, cabling, or other equipment.
Expansions can lead to higher rent payments since the lessee is making additional use of your cell tower. It’s a win-win for lessors looking to maximize their earning potential.
Tower collocation lease
A tower collocation lease allows multiple telecom providers to use the same tower. If you’re already leasing space to one company, others may approach you to share the tower infrastructure, reducing costs for them and increasing income for you.
Collocation agreements manage to bring in additional lessees without requiring new construction.
Tenant improvement lease
In some cases, telecom providers might negotiate a tenant improvement lease so they can make structural changes or upgrades to the leased area to suit their operational needs. Examples include fortifying a rooftop or adding weatherproof enclosures.
These enhancements can increase the value of your cell tower at no cost to you, while also potentially justifying higher lease payments over time.
How to manage cell tower lease accounting
Managing the accounting for cell tower leases can be complex, particularly for businesses overseeing multiple agreements. Between tracking revenue, handling lease modifications, and staying compliant with lease accounting standards, even the most organized teams can struggle to keep up.
Now, most tower operators use modern solutions like NetLease and NetLessor to simplify the process, turning what used to be a manual headache into an automated workflow.
The challenges of cell tower lease accounting
The biggest challenges for cell tower lessors include:
- Compliance with accounting standards: Recent changes to lease accounting standards, like Accounting Standards Codification (ASC) 842 and International Financial Reporting Standards (IFRS) 16, require businesses to report leases on their balance sheets. This adds layers of complexity to financial reporting.
- Tracking rent escalations: Cell tower leases often include built-in rent escalations, either annually or at specified intervals. Manually tracking these increases can lead to errors in revenue recognition.
- Handling lease modifications: Whether adding equipment, expanding leased space, or renewing agreements, modifications can disrupt accounting workflows and create discrepancies in your records.
- Invoicing and payments: Generating invoices and tracking payments for multiple leases requires precision. Errors in billing or payment collection can erode trust and profitability.
How NetLessor simplifies lease accounting
NetLessor is designed to address these pain points, offering an intuitive, automated lease accounting solution tailored to lessors.
Here's how it works:
- Streamlined record-keeping: NetLessor starts by creating a centralized record for each lease, capturing key metadata like start and end dates, rent escalations, and payment schedules. This keeps all your lease details organized and accessible in one place.
- Automated amortization schedules: Forget manual calculations — NetLessor automatically generates amortization schedules, applying terms like annual uplifts or rent adjustments. This helps you stay compliant with accounting standards and accurately track revenue.
- Effortless lease modifications: When a lease changes, NetLessor integrates updates throughout your accounting workflow so modifications are reflected in real time without disrupting financial records.
- Accurate invoicing and reporting: NetLessor generates detailed invoices based on lease terms and schedules, reducing the risk of billing errors. It also provides customizable reporting features, giving businesses clear insights into lease revenue performance.
- Day-2 lease management: Beyond the initial setup, NetLessor supports the ongoing management of leases, including renewals, terminations, and disclosures. This means you can stay proactive rather than reactive — and who wouldn’t want that?
- Lessee accounting: NetLessor works seamlessly with NetLease to help you navigate the lessee side of the equation (leasing the space from property owners).
Streamline cell tower lease accounting with Netgain
Managing cell tower leases doesn’t have to give you a headache. With the right tools, you can turn underutilized spaces into a reliable extra revenue stream without the stress of staying compliant with accounting standards.
Netgain’s cell tower accounting solutions streamline the entire process, from onboarding leases to managing modifications and payments. Solutions like NetAsset, NetLease, and NetLessor help you simplify your asset management, cash flow, closing, and leasing, all from one platform.
Ready to add lease management to your accounting arsenal? Reach out to our team to request a personalized demo today.
