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Apartment owners' rights and cable television.

Cable television has become a standard part of the homes and daily lives of most Americans. Yet despite its prevalence, many apartment complexes across the country are not yet wired for cable. These potential markets have not gone unnoticed by both the local "franchise" cable companies and the so-called "satellite" cable companies.

Franchise cable companies are businesses which have been granted the right by governments (usually exclusive in a particular geographic area) to provide specified cable service to customers over cable lines laid underground or along utility poles. Satellite cable companies provide service from antenna dishes placed on the grounds of apartments and other properties to receive selected programming directly from space satellites.

Franchise cable operators assert that under state, local, and perhaps federal law, they have the right to force apartment owners and managers to permit the cable companies to wire their buildings to provide service to tenants.

Such cable companies attempt to require owners and managers to sign one-page agreements granting easements in perpetuity in order to obtain cable service. These easements generally would permit the cable operator to come on site, whenever it chooses, and install wiring and equipment at locations and in a manner determined by the cable operator and not the owner.

In New York City, certain creative satellite cable companies are threatening owners and asserting a legal right to wire apartment buildings, even though such companies have not been granted a franchise by the city government.

Owners' options

Owners and managers of apartments have rights, too. In the competitive apartment market, the ability to provide tenants with reliable cable service, including the locally desirable sports and other premium channels, is a significant marketing tool.

In addition, building aesthetics are an important aspect of attracting and retaining tenants. The owner must be able to control the location and appearance of cable equipment and wiring in hallways, in apartment units, on the exterior and roofs of buildings and on the grounds of the property.

Certain apartment owners in Virginia and the Midwest have reportedly decided to ignore the cable operators altogether and to provide cable service directly to tenants. In such cases the owners are able to collect the cable television revenues themselves.

Contract negotiations

Anyone who has negotiated contracts for owners and managers with cable companies around the country knows that many satellite companies, and more rarely a franchise company, are willing to share cable revenues with an owner, in return for permitting the cable company's entry into a complex.

Attempting to obtain a share of the potential revenues from cable television service to tenants is not, however, necessarily the goal of owners in selecting and negotiating contracts with cable television companies for an apartment property. Owners may be more concerned with obtaining assurances of proper installation and maintenance of cable television service. Indeed, it is likely that the owner or property manager is going to be the only party in a position to look out for the interests of tenants in receiving good service.

Many cable television companies, both local operations and subsidiaries of the large national companies, are willing to negotiate the terms of contracts. There is always the initial period of saber rattling and delay during which the owner is advised that he or she must sign the "standard contract." In the case of negotiations with franchise companies, this may be followed by the mandatory threat to sue the owner under the local cable franchise statute to force entry.

It is obviously much more cost effective for the cable operator to enter into a balanced and fair agreement with the owner than to commence legal proceedings to force entry. Such actions may take months or years to conclude and, even if successful, leave an angry and uncooperative owner rather than one interested in providing first-quality cable service for residents.

In the last few years, we have worked on in excess of 25 cable television contracts for apartment complexes around the United States, and in most instances the cable company agreed to negotiate a contract which protected the rights and interests of both the cable company and the owner. It is often a slow process because the bureaucracies of both large and small cable companies are not set up to negotiate contracts with owners.

In only one instance in the Northeast did a cable company refuse to negotiate and instead file a legal action to force the owner to permit wiring of its building for cable service.

Points of negotiation

In negotiating a cable contract there are many legal and business issues which must be addressed beyond requiring the owner's or manager's approval of the location and aesthetics of the cable wiring and equipment.

One of these issues is whether the cable companies should be granted a "license" rather than an "easement." The cable companies must have the right to enter on the property and perform necessary services during the length of the contract. This right can be given to the cable company with the "contract right" of a "license," rather than the "property right" of an "easement."

The cable company is providing service--it has no need to become an owner of an interest in the owner's land and buildings. Property rights cloud titles, and lender approval may be required to grant a cable company an easement. In addition, easements create valuation issues in the event of the sale of the property as well as legal complications in the event of bankruptcy.

Further, the contract should clearly specify the channels to be provided and the service and performance standards which the cable operator will meet.

In the case of contracts with satellite companies, only the contract governs performance standards. In the case of franchise companies, owners and tenants may be very disappointed if they rely on the local government cable television office to force their operator to live up to the service standards set forth in the franchise agreement and statute.

A further consideration is the length of the agreement. Contracts for the term of a cable company's franchise, as renewed, should not be accepted, as the term could extend to 30 years or more.

The cable operator needs a long enough term to recoup its capital costs in wiring the buildings. However, with the likelihood of new technologies (fiber optics and satellite) and new cable providers (the telephone companies) entering the marketplace in the next decade, there is no advantage to owners, managers, or residents in being locked into current cable providers or old technology.

In addition, it is crucial that the contract explicitly set forth deficiencies by the cable company, which would constitute a breach of the agreement. It is unreasonable to hold a cable company liable for isolated outages as a result of storm damage or power failure. Nevertheless, one must guard against standard "force majeure" provisions which could negate the cable company's obligations to provide continuing service.

In some instances it may be appropriate to specify in detail the number, extent, and length of outages that will be acceptable within a period of time.

Cure provisions must be carefully crafted to enable the cable company to make repairs, but not to enable it to be continually in noncompliance without the fear of any meaningful consequences. If a cable company does not provide satisfactory service, the contract should provide clear and objective criteria to permit termination of the agreement.

Other non-service-related breaches should also be considered. For example, insolvency, bankruptcy, or a transfer in the ownership of a cable system may cause a reduction in service.

Consideration also should be given to bulk-billing arrangements for basic cable service provided to residents as part of the fringe benefits of living in a particular apartment complex. It may be possible to negotiate free cable service for certain employee-occupied units or common areas in an apartment complex as part of an overall financial arrangement with a cable operator.

In addition, some cable companies will provide cameras at entrances to a complex to aid in building security. The cameras allow a resident to see a potential visitor on his television through the cable system, before he or she buzzes to permit the visitor to enter the building.

Finally, the indemnification language should be crafted to protect the owner from both damages to property and personal injury during the construction phase as well as during ongoing operations, servicing, and repairs.

The type of agreement that can be negotiated will depend on the circumstances of each geographic location, the particular apartment complex, and the potential cable companies and services available. Owners and managers should not agree to execute "boilerplate" cable company contracts. The crucial point is to not sign away valuable property rights and marketing advantages just to obtain cable television service.

Christopher B. Hanback is a partner in Jackson & Campbell, P.C., a Washington, D.C. law firm. He represents property management companies nationwide and is a member of the firm's Property and Asset Management Practice Group.
COPYRIGHT 1993 National Association of Realtors
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Title Annotation:Legal Issues
Author:Hanback, Christopher B.
Publication:Journal of Property Management
Date:May 1, 1993
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