Lease Audits: The Why and the How
Tom got about halfway through ordering tower equipment before he remembered he needed to contact the landlord for his broadcast station.
His landlord happened to be a pretty small firm, and he was on great terms with his local contact, Jerry, though it had been a while since they’d had a reason to touch base. Still, he figured he would just call Jerry a little later and let him know what was going on with equipment swaps for the REPACK project.
In the midst of all the complicated REPACK activities, calling Jerry kind of slipped Tom’s mind for a few weeks. In the meantime, he had ordered the new antenna and a few lengths of line that needed to be replaced and was looking into what kind of transmitter he could get reimbursed. By the time Tom called Jerry, he’d already submitted several hefty invoices for reimbursement to the FCC.
So he was somewhat thrown for a loop when he did call Jerry, thinking that a verbal acknowledgment would be satisfactory as it had been before for general maintenance purposes, when Jerry told him that in this case, given that the scope of work included an equipment swap and that the lease was set to expire anyway within a few years, they would need to complete a lease audit.
Like Tom, the majority of broadcast station owners we’ve come across are tenants on their towers.
They lease out space on the tower and on the ground where their equipment is installed from a landlord. That could be a mom-and-pop type firm, a regional management group, or in some cases a titan-of-the-industry national tower management group.
Just like with any other type of lease agreement, the interaction between a lessee and a landlord is a business relationship. The lease spells out what the tenant can and can’t do on-site, what kind of equipment can be installed on the tower and in the shelter or compound, and ultimately contains verbiage to spell out both parties’ liabilities and responsibilities.
In some cases, station owners can, indeed, just call their landlord and verbally inform them as to what’s going with equipment updates. But even if a verbal exchange will suffice to satisfy the landlord-tenant agreement, it is still crucial to thoroughly document any changes made to equipment installed on-site.
Generally, documentation serves to protect station owners in the event of an on-site incident or future dispute of any kind. For REPACK stations, a lease agreement could very well fall under the umbrella of documents that the FCC could audit between now and 2033.
In most cases, a formal lease audit is required when adding or swapping out equipment on the tower or on the ground.
The purpose of the lease audit is to review existing terms, evaluate what kinds of changes to the lease will be required to accommodate new equipment, and find out how to get licensed to install new equipment where needed.
It’s quite an undertaking. There are a few different avenues to process a lease audit.
Some stations will hand off their lease to their attorney firm to process the audit on their behalf. Because the lease audit contains a great deal of legalese, and because so many station owners have an attorney or firm processing other types of REPACK-specific documents, station owners might have their attorney process the lease audit just like anything else.
However, we have seen some attorneys miss details within the language of the lease agreement — not all attorneys are specialized in the way of processing tower lease agreements specifically, and some important items may slip through the cracks.
So another option is to have a specialized group handle the lease audit, frequently referred to as a site acquisition firm. Site acquisition specialists know the leasing process inside and out, and can negotiate on behalf of station owners to yield the best possible result.
Alternatively, a few of the titan groups, the national tower management firms, offer their own lease audit service in which station owners can have the firm itself review the lease and negotiate terms for the new lease agreement.
But that option, while very convenient, opens up some vulnerability for the station owner. Because the lease agreement is itself a business arrangement, relying on the landlord to determine what is fair and reasonable does not necessarily mean that the station owner will have his best interests kept in mind.
In the event a large firm offers its own in-house lease audit, station owners can have a third party perform its own lease audit, too.
This is the best option for station owners who do have a large landlord firm with an in-house audit team. This way, the third-party auditor’s review will reflect the interests of the station owner fairly and impartially and can serve as a basis of comparison to the result of the landlord’s internal audit.
While this looks like an overlap situation that the FCC would deny as in so many other instances, in this case, the additional third-party lease audit is considered standard business practice, and both audits are reimbursable expenses.
Ultimately the result of the lease audit will serve as a guideline to the station owner as to the next steps, if needed, and will protect the owner in the event of a future audit by proving that the equipment that is newly installed was authorized by the landlord.
In Tom’s case, he somewhat lucked out in that the equipment he had already ordered fell within his lease terms — and that his lease was still active.
Tom didn’t think to call Jerry until he was already several phases into the project. But ideally, the lease audit should be one of the very first milestones in the lifecycle of a construction project.
The lease audit should take place even before the initial site walk visit. Not only does the audit determine any leasing action as far as renegotiating terms or renewing licenses or updating the authorized equipment exhibit — but a lease audit also confirms that the lease is still active at all.
We have seen a handful of cases in which the lease audit had been neglected throughout the life of the project and even until after installation — and then the station owner discovered that the lease was no longer active. So that means they weren’t authorized to swap out or add equipment, didn’t have any prior knowledge as to whether the equipment installed was on the authorized list — but they weren’t even legally allowed to touch the tower at all while there was no active lease in place.
The lease audit also serves as a COP deliverable to protect the station in the event of an incident or an audit from an external entity like the FCC or local jurisdiction. The language within the lease agreement determines each parties’ liabilities in the event of a structural failure, an installation vendor safety incident, natural disasters, and so many other contingencies. For station owners, it is absolutely crucial to have these terms firmly established as protection in the event of unfortunate circumstances.
For REPACK stations, this is also a REPACK-specific COP deliverable. Even if you don’t have a full, standard broadcast station COP and opt for the REPACK-only COP, the FCC can audit your lease agreement to ensure legal and safety compliance throughout the life of your REPACK project.
The lease audit is a crucial first step in any tower construction project where the station owner does not also own the tower.
For REPACK station owners, the lease audit is fully reimbursable. It’s generally invoiced and reimbursed as a single, flat fee, or as two fees in cases where the landlord firm conducts its internal audit and a third party also performs the audit.
However, it is worth noting that if the lease audit leads to an increase in rent for the tower owner, that rent increase is not reimbursable.
If you have any questions about the lease audit process and how to navigate that process, feel free to reach out to us.