Get towercos and MNOs together to talk about their towers and one topic will always unite them: landlords and ground leases. Our roundtable at the TowerXchange Meetup Africa 2019 discussed the benefits of getting ground leases right and how cultivating long-term, positive relationships with landlords can prevent headaches. The most important ingredients are time and education. Aligning landlord expectations with towerco realities and MNO demands can produce win-win-win situations, but ignorance, rushing and greed on behalf of any party can scupper a potentially profitable multi-decade relationship. The roundtable was led by Simon Nyadzani, Site Acquisition Supervisor - Network Deployment and Chief Technology Officer - Property Management at MTN Group.
Education, education, education
Every interaction between a towerco and a landlord is an opportunity for education. Education is what will prevent expectations diverging from reality and relationships breaking down. Towercos and MNOs spend all day thinking about telecom towers but almost always landlords think about their towers only when prompted, and that means responsibility for education lies with the towerco or MNO; you cannot expect landlords to find accurate and useful advice alone. Luckily that responsibility is also a major opportunity to make life easier for both parties, and something roundtable participants embraced.
From first contact when initially exploring sites to lease, to during site visits and when signing head leases, it is important to explain the long-term benefits of leasing land to the telecom industry. There can be a number of misconceptions around radiation and disruption from contractors which can usually be dealt with relatively simply, but if your landlord doesn’t understand the need for a stable long-term lease and access rights, then you are storing up trouble for the future. For example, if your landlord is concerned you are not in it for the long-haul, you can demonstrate the relative rarity of site decommissioning. Education and repeating simple messages is what our roundtable participants thought was most important.
Sadly of course, landlord-towerco relationships do not always go smoothly. Often negative experiences and counterproductive encounters are caused by misconceptions, misunderstandings and confusion. Taking a long-term view and engaging regularly and clearly will help you to explain in which areas you can and cannot negotiate and why. For example, an uneducated landlord might hear about 5G and expect an increase in lease rates, but a landlord who understands the business will know that 5G will have essentially no impact on his property. A landlord might see an additional tenancy as an opportunity to try and renegotiate a lease, or might see it as securing the deal he has for the long-term.
Taking your time
Education is a core element of lease negotiations. Time is another.
Education is a core element of lease negotiations. Time is another
Rushing a lease negotiation has a number of downsides. You will have less time to educate your counterparty, you will have less time to discuss the details of the contract and identify likely areas of future trouble, and you will probably lack outside options. Your future landlord is also likely to realise you are in a rush and hold out for higher lease payments, or a shorter term expecting to renegotiate a higher lease later. Time also means you can talk to a number of different potential landlords and find the best option for you.
For towercos, it is best to find sites and start negotiating leases well ahead of a mobile network operator asking for sites (or demanding a site urgently). The extra lead time means you can get your head lease right first time, without a head lease signed and a landlord who understands what is in that lease, you will make your life a lot harder.
Lease rates and terms
While it can be tempting to push down leases as low as you can in negotiations, towercos and MNOs present at the TowerXchange Meetup Africa advised against it. Landlords are counterparties you will need to work with for a decade, or longer, and ensuring they feel fairly treated is the only foundation to ensuring you are fairly treated too.
If you push down leases too far in negotiations, landlords will respond by requesting shorter leases which will prove more disruptive and expensive in the long-run. Of course, sometimes landlords will want short leases regardless of the rate negotiated, and in those circumstances it is usually best to walk away. Similarly, a landlord who seeks to be overly involved in management of the site can be a sign of future trouble.
Real estate values are up globally, and land has performed better than equity in MNOs. That can cause a mismatch at the other end with MNOs not incorporating rental inflation into their expectations.
Friction is sometimes inevitable. Usually this will be covered in your lease agreement, but whenever possible it was recommended to avoid referring explicitly to the lease
Relationship versus contract
As well as a financial relationship, the towerco-landlord relationship is operational. Gaining access to sites can be easy or it can be made difficult, and a source of long-term happiness or long-term stress. Some sites are easy to access, while one towerco suggested ensuring that whenever possible a separate access gate should be added, enabling access without passing through the landlord’s own right of way, thereby reducing friction.
But friction is at times inevitable. Usually this will have been anticipated and will be covered in your lease agreement, but whenever possible it was recommended to avoid referring explicitly to the lease. You want cooperation between towerco and landlord in the spirit of the lease, not always to the letter. Although a towerco should have all the access rights it needs, it is usually easier in the short-term and long-term to gain access without referring to a contract. A contractual relationship gives you a steady foundation, but you also need to build a non-legal relationship so you can discuss things naturally and efficiently.
The personal relationship also gives you better visibility than a contractual one. Your people will know which landlords are helpful, who will turn-up with a tray of tea and cookies, who might try to deny access, and who might be awkward or rude. Being forewarned is forearmed. Likewise a landlord who knows you well can keep an eye on your site for you.
Depending on the market you might even want to go above and beyond. In Atlas Tower’s early years they sent holiday cards to their landlords. Although the consensus at our roundtable was that a holiday card might just remind a landlord that it was time for a lease renegotiation!
You cannot always rely on landlords and leases being straightforward, but that difficulty can be turned into an advantage. MNOs are digital companies, not real estate firms, so the expertise and focus which towercos can bring to lease management is an opportunity to add value for MNOs. While it is one of the least glamorous elements of the towerco business, lease management is also one of the most critical, our roundtable concluded.
