Friday, May 20, 2011

Sprint Nextel to Possibly Lease Space on its Network- Impact on the Landowner

According to a number of recent news reports, Sprint Nextel is in talks to lease space on its wireless network to LightSquared and Clearwire Corporation. While on the surface it may seem irrelevant to a landlord/owner of a building or property who has Sprint Nextel as a tenant, it may actually impact the landowner’s cell tower lease as well as raise possible questions or concerns.

Every Sprint Nextel lease across the country has a provision governing Sprint Nextel’s right to assign the lease and/or sublease its premises. Depending on the specific language in the lease (and how well you negotiated the language prior to lease execution), the landowner may have the right to restrict Sprint Nextel’s right to sublease its premises. In addition, the landowner may be entitled to additional compensation in the event of a sublease. The foregoing raises the following question: If Sprint Nextel subleases space on its network to a third party such as LightSquared or Clearwire, does it trigger the sublease provision of the lease and possibly require landowner consent or require Sprint Nextel to pay additional compensation to the landowner?

To answer the question, one needs to first clarify whether LightSquared or Clearwire will actually be housing its equipment within the Sprint Nextel premises or simply leasing space on the Sprint Nextel network without actually placing its equipment on the leased premises. If LightSquared or Clearwire is housing its equipment on the premises, then I believe the answer is relatively straightforward. The sublease provision of the lease is clearly triggered and if the lease in question requires landlord consent to sublease or requires the payment of additional compensation, Sprint Nextel must comply with such a provision. Sprint Nextel, on other hand, will argue otherwise. For example, it may claim that a “Contract Affiliate” relationship exists between Sprint Nextel and either LightSquared or Clearwire, which is defined in the standard Sprint Nextel lease as “any entity that is authorized to sell telecommunications products or services under the “Sprint” or “Sprint PCS” or “Nextel” brand name or any successor brand name(s) or other brand name(s) used or licensed by Tenant’s parent corporation.” In addition and specifically with respect to Clearwire, Sprint Nextel may argue that because it owns part of Clearwire, the use of a portion of its leased premises by Clearwire is not actually a sublease because the companies are one and the same for purposes of the lease. To counter these arguments, I recommend that the landowner inquire as to whether a separate lease exists between Sprint Nextel and LightSquared or Clearwire (ask either company to provide a copy of such agreement) and if there is any consideration given by LightSquared or Clearwire to Sprint for use of the leased premises. These are factors that would support the notion that a sublease exists between the parties.

If Sprint Nextel is merely leasing space on its network and not actually subleasing a part of its premises, the answer is even less clear. Sprint Nextel will undoubtedly rely on a strict interpretation of the lease and argue that the subleasing provision of the lease only applies to situations where it is actually subleasing its premises to a third party and therefore, the leasing of its network (not the premises) does not require landowner consent nor the payment of additional monies.

As an attorney who represents cell site lease owners, I would argue that the lease is unclear or ambiguous on this particular issue and therefore, one must look at the intent of the parties when the lease was originally negotiated. By specifically imposing a restriction on Sprint Nextel’s right to sublease or requiring additional compensation for such a right, the parties’ intent was that the rights granted to Sprint Nextel under the lease were personal in nature and therefore, no other third party should be able to utilize the rights exclusively granted to Sprint Nextel. Moreover, the Sprint Nextel network, by definition, is simply an aggregate of thousands of landowner leases which contain equipment that continuously emit radio frequency signals. In other words, the network and the cell site leases (of which the landowner’s property is one) are synonymous. Accordingly, the leasing of space on the Sprint Nextel network to LightSquared or Clearwire is effectively the same as subleasing part of its leasehold premises to LightSquared or Clearwire. The fact that technology has evolved to the point where a third party signal can be transmitted across the Sprint Nextel network without actually occupying physical space on the leased property should not unfairly harm leaseholders and unjustly enrich Sprint Nextel. Based on the foregoing, I believe that one can make an argument that the sublease clause under the Sprint Nextel lease would be triggered in the event Sprint Nextel leased space on its network to LightSquared or Clearwire and therefore, landowner consent may be required and possibly the payment of additional compensation. I suspect that this will become a controversial issue in the weeks and months ahead if Sprint Nextel moves forward with such a plan.

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