The legal ins and outs of telecommunications leases.

(The following is Part 3 of a 3 part series on telecommunications lease issues.)

True or false: All real estate leases are created equal.

If you guessed true, you might want to think again. Although most real estate leases are cut from the same cloth, telecommunication leases are another matter altogether.

Telecommunication leases - which dictate the terms for leasing space to accommodate rooftop antennas, antenna towers, inside building wiring and communication closet leases - demand a different perspective than that applied to the run-of-the-mill real estate lease. This equipment, unheard of a decade ago, is vital to today's technology services including cellular, wireless and paging services, and data transmission. Although a landlord might be anxious to mine this windfall of financial potential - telecommunication leases often utilize previously unused and unprofitable space - it is wise to proceed with caution. There are some key legal issues that must be considered before a long-term commitment is made.

Lease vs. License Agreement: With the exception of large antenna tower leases, most landlords prefer to call the agreement permitting the installation of a rooftop antenna, communications closet or the wiring of a smart building, a license agreement rather than a lease. Generally, a license agreement vests less rights in the licensee than a lease vests in the tenant, making it faster and easier for the building owner to terminate the agreement and remove the occupant from the property. While such a general legal difference exists, the fact is, telecommunications license agreements fail many, if not all, of the tests that differentiate leases from license agreements. Therefore, the building owner should be aware that, while utilizing the term licensing agreement may offer psychological comfort, legally, it will be treated much like a lease.

Scope of Installation: The document should clearly detail the scope of the equipment to be installed. This very specific reference should include an itemization of all equipment and/or a plan showing not only the space leased, but also the specific equipment to be installed and its location. Such a definitive listing can avoid any disputes and maximize the remaining space available to the property owner for other telecommunications leases or other uses. The lease should also spell out the proposed physical improvements to be made by the tenant.

Permits and Approvals: The Telecommunications Act of 1996 preempted local regulations, particularly zoning regulations, which prohibit telecommunications antennas subject to exceptions where reasonable health or safety regulations are involved. Nonetheless, in many cases, special zoning variances, building permits, FCC licenses or other governmental approvals are required for the installation and operation of a telecommunications antenna. The tenant will want to have its obligations, particularly the obligation to pay rent under the lease or licensee agreement, conditional and effective only upon the tenant obtaining the necessary approvals. While a reasonable period of time must be allowed for this process, the property owner must protect himself/herself by setting a definite deadline by which: 1) the tenant can exercise its right to terminate; or 2) the tenant must begin to pay rent - approvals or no approvals. While setting a deadline might not result in rent actually being paid on time, at the very least, the existence of the date can institute a dialogue between the landlord and the tenant about the status of the approval process and the project in general.

Assignment and Subletting: Unlike a traditional real estate lease, it is appropriate to restrict the assignment and subletting rights under a telecommunication lease, particularly one that does not involve a large antenna tower. It is usually advisable to require the owner's approval for any transfer of the lease, except in the case of the transfer of the tenant's FCC license to operate its PCS, cellular or other communications system.

Representations: Because of the detailed technical requirements associated with telecommunications leases, an extensive investigation of the state of the physical property, its suitability and the availability of utility services will be necessary on the part of the tenant. The owner is customarily not involved in this procedure, and should require the tenant to acknowledge that the investigations were carried out solely by the tenant to its full satisfaction.

Alterations: In a typical real estate lease, alterations are greatly restricted. These same alterations are vital to a telecommunications lease, especially as they relate to electrical power. A property owner should expect to allow a tenant to make necessary alterations without regard to the usual distinction between structural and non-structural alterations. In addition, it is fairly standard for the tenant to have the right to install (and pay for) additional utility lines, provided they do not in any way hamper service to existing tenants.

Access: In most cases, access to the roof, mechanical floors and some areas of the basement is restricted. Obviously, the tenant needs around-the-clock access to its equipment, but the owner should require appropriate advance notice except in the event of an emergency. The owner may want his/her representative to accompany the tenant, to assure that no other equipment is adversely impacted by any actions taken.

Relocation Rights: With respect to rooftop antennas, it is critically important for the properly owner to have the right to relocate the antenna, wires, cabling or other equipment. It is impossible to plan in advance for every' potential use for a property, so flexibility is important. These provisions are generally critical points of negotiation. Issues like paying for the cost of relocation, how much notice should be given, when the relocation will occur and how the relocation will affect existing service must be worked out in advance.

Subordination and Other Financing Provisions: Telecommunications tenants often insist on using their very simple standard form of lease that may not have provisions standard to a real estate lease - provisions that may effect that lease's financability. In particular, the tenant's form is likely to omit any subordination provision, leaving the lease superior to all future mortgages and ground leases. If a subordination provision is added, as it should be, the tenant may request non-disturbance protection, something that will be difficult for the owner to obtain. Similarly, an attornment provision should be added, providing that the tenant will attorn to any new owner of the property after a foreclosure, and that the tenant will provide estoppel certificates and minor lease amendments where necessary to satisfy a lender.

Hazardous Materials and Environmental Concerns: In addition to the standard environment and hazardous material provisions, a telecommunications lease should also contain a provision allowing the landlord to terminate the lease if it can be reasonably shown that the equipment poses a health hazard. This is wise in the face of ongoing controversy over the impact of electrical and magnetic radiation fields upon the human body.

In the light of these issues, it is clear that not only are all leases not created equal, telecommunication leases demand extra attention before signing on the dotted line.