22 June 2017
The beauty of a concurrent lease: receive an upfront capital amount, rather than a yearly rental from the telecommunications carrier occupying your land
Do you have a telecommunications carrier occupying your land and paying you a yearly rental?
Would you prefer to be paid an upfront capital amount?
A concurrent lease is a way to unlock the rental from your current telecommunications carrier so that you receive an immediate, upfront capital payment.
Let’s take a look at how concurrent leases work in order to understand how this strategy may be possible under the terms of your existing lease.
Investment firms come to the rescue
Companies such as investment firms may be willing to pay you an upfront amount in exchange for the right to receive the yearly rental you would otherwise receive from the carrier.
The benefit of an investment firm or other company stepping in is that it will give you an immediate capital contribution and remove the risk that a carrier may decide to leave your site prior to the lease running its full term.
It is also worth noting that it is quite likely that you can enter into a concurrent lease under the terms of your existing lease with the telecommunications provider.
What is a concurrent lease?
A concurrent lease is a lease of your reversionary interest (in this case, your interest as landlord in the lease with the carrier and your interest when that lease comes to an end).
A concurrent lease is a lease that begins before a previous lease ends. Essentially, it places the lessee of the concurrent lease in the shoes of the lessor of the first lease (ie they step into the shoes of the landlord).
Your rights as landlord under the first lease will pass to the lessee of the concurrent lease for the term of the concurrent lease.
For example, during the term of the concurrent lease, the right to rental under the carrier lease passes to the lessee of the concurrent lease. Where the carrier lease ends earlier than anticipated (and before the expiry of the concurrent lease), the lessee of the concurrent lease is entitled to take possession of the land for the remainder of the concurrent lease term.
An example of how a concurrent lease might work in practice
You have leased part of your land to a telecommunications carrier for 10 years at a commencing rental of $10,000 per year with an increase of 3% per year. The carrier has two 5 year options that enable it to renew the lease for a further 10 years if it so wishes.
An investment firm may be willing to pay you $80,000 for the right to receive the $10,000 yearly rental for the 10-year term.
The benefit to you is that you receive the $80,000 upfront, rather than having to wait to receive the yearly rental throughout the term. You also remove the risk that the carrier will depart and thus causing the rental payments to stop.
The advantages of entering into a concurrent lease
As mentioned in the example above, you may be attracted to the idea of entering into a concurrent lease because it means you will receive an upfront capital payment, even if it means you will receive a reduced amount of total rent, because it negates the risks associated with telecommunications carriers departing from the site unexpectedly.
Why investment firms are willing to enter into concurrent leases
If an investment firm is interested in entering into a concurrent lease, it will probably undertake a site feasibility study to determine whether the investment is viable from its perspective.
When a concurrent lease is in place and a telecommunications carrier departs from a site earlier than anticipated, the investment company may be able to sublease the space, at a premium, to a different carrier for the remainder of the term of the concurrent lease if the terms of the lease so allow.
The upside for the investment firm is that this kind of situation has the potential to create a larger profit for them.
Would you like to find out more?
At Bartier Perry, we have extensive experience in dealing with communication leases and providing advice on telecommunications carriers’ rights and powers. If you’re thinking of entering into a concurrent lease, we suggest that you also obtain accounting and tax advice regarding your specific circumstances. If you have any questions on the legal aspects of these types of leases, please contact us.
Author: Bruno Confalone