It looks like a recession is unavoidable. The United States Federal Reserve is printing money at unprecedented rates hoping to prevent the economy from going into a downward spiral. While the economic turbulence caused by the pandemic has subsided, Wall Street experts predict that we will face a challenging financial scenario. We must battle out two demons simultaneously: inflation and recession.
What does this mean for your cell tower lease? Will it impact the value you receive from your lease agreement? Let’s explore the answers to these questions in this article.
Before we look at the impact of recession and inflation on your cell phone tower lease, let’s zoom back a bit and understand what’s happening with our economy right now:
- The USD (US Dollar) has lost nearly 10% of its value over the last twelve months.
- Goldman Sachs has warned that the USD might lose its status as the world’s reserve currency. The Chinese Yuan might overtake USD and take the position as the currency in which the world trades.
How Does the Economic Situation Impact Your Cell Phone Tower Lease Income?
The situation is quite challenging. The money you receive in rent from your cell tower lease is likely to decrease in value until the US economy gets back on its foot. Experts predict that a rebound could take a few years.
Is There Any Way Out? How Do I Protect My Cell Tower Lease Buyout Against Inflation?
The primary way to protect yourself against inflation is to increase the rent of your cell tower lease. This situation is where a rent escalator comes into the picture. The rent escalator is a condition in a cell site lease agreement that specifies that the rent will increase by a specific percentage after a particular period. Generally, rental escalations occur annually or every five years, per the contract’s terms.
Note that cell companies often trick cell tower site owners into agreeing to a five-year rental escalator. Having it spaced out so far is the wrong move, as the property owner loses the benefits of an annual rent escalator. You should include a yearly rent escalator as part of your cell phone tower lease agreement. It’s a good idea to increase the rent by 3% annually, based on the average inflation rate in the US over the last few decades.
With that said, a 3% annual increase in rent might not be sufficient to keep up with the current inflation rates. So, you can include a clause that states rents would be increased by 3% annually or the increase in CPI (Consumer Price Index), whichever is higher. With this increase, you’re still protected if inflation is higher.
Do Not Fall into the Trap of a Long-Term Cell Tower Lease Agreement Without Rental Escalators
Some cell phone companies trick property owners by signing a long-term lease agreement with no rental escalator clauses. Then, the property owners are stuck with a rental agreement that doesn’t work in their favor. If you need help negotiating your cell phone tower lease agreement, connect with a wireless telecommunications negotiator like Tower Genius. They can help you deal effectively with the big, corporate cell tower companies to redraw a fair cell tower lease agreement that works to your benefit.