A Message From the Web Wars How To Get Your Wiring Agreement Done
April 1, 2000
It isn’t quite a war, but the relationship between building owners and
managers and the many telecommunications companies seeking access to buildings
remains dynamic and sometimes charged. The purpose of this article is to move
beyond the struggles of power, ego and control to an examination of the
essential operational matters that will ultimately control how owners and
providers work together. Make no mistake. In the final analysis everybody knows
that there is too much at stake and too much to be gained not to develop areas
of achievable compromise. The issues of control will yield to the issues of
shared revenue, and the business of doing business will move forward and find
common ground on which to better serve system users and make money. So once a
decision is made to hammer out an agreement to wire a building, shopping center,
apartment project or any other structure, how can you get it done? Here are some
key points and ideas.
Get Smart
The Federal Communications Commission (FCC) and most states, either through
legislation or regulation, have developed and are in the process of continuing
to develop systems and procedures to guide and manage how telecommunications
services and facilities are provided. Some states, such as Texas and
Connecticut, provide some form of mandatory access in multitenant buildings.
Other jurisdictions, like the District of Columbia, have delegated to the Public
Service Commission the authority to promulgate regulations. There are also
regulatory requirements governing ancillary issues such as inside wiring,
antenna placement and satellite dishes. Regardless of the applicable authority,
owners, managers and providers must become informed about what the current state
of the law requires, permits and limits. In addition, given the rapid pace of
change, the knowledge base must be reviewed and maintained as
"current" at all times. The recent rulemaking by the FCC relating to
mandatory access to privately owned commercial buildings is just one example of
possible future change that should be watched. Whether you are an owner or a
provider, finding a way to get smart and stay smart is a primary task.
Term of Agreement
Every telecommunications provider needs the chance to recover the expense of
their due diligence, system installation and commencement of operations. Every
owner needs the ability to limit the term, and, if they can, use the term of the
agreement as another tool to better insure performance by the provider. It is
fairly common to see an initial term of ten years, followed by a series of
renewal periods. ten years is a long time for an owner, and provides plenty of
opportunities for the provider to falter, and, in the process, negatively impact
the relationship between the owner and its tenants. Performance criteria and
events of default will be covered in greater detail later, but initially they
should be raised in relation to the term of the agreement. Something as simple
as linking the term to performance can be a significant help. (Drafting Tip: Try
something like "The Term of this Agreement shall continue for a period ten
(10) years, subject to performance of the terms and conditions set forth herein,
unless this Agreement is terminated earlier or extended...").
The extension options can also be structured to provide flexibility to the
provider and comfort for the owner. An automatic renewal or series of renewals,
unless a party takes affirmative action to stop it, provides simplicity and
consistency. These provisions require no approvals and frequently have no
performance criteria associated with their exercise. But another option is to
convert the automatic renewal into an option to renew, subject to not only
events of default under the agreement, but also maintaining a threshold level of
penetration. A provider that is unable to get and retain customers might be
worth taking a second look at before extending their agreement. (Drafting Tip:
Try something like "The Term of this Agreement may be renewed for
successive ___ year terms thereafter so long as the Provider is not in default
hereunder and has a penetration as of the date of the exercise of the renewal
option of not less than ___%.")
"Penetration" is a concept that might require some additional
consideration depending on the nature of the structure. For an apartment
building, it is generally pretty simple to define the percentage of the total
rental units available that subscribe to the services of the provider as of a
certain date. For shopping centers or commercial buildings, the same formula
could be used, or the formula could be varied to include rentable square
footage.
Define the Services
With a wealth of telecommunications providers to choose from, and the
potential for nonexclusive agreements that serve the property and the tenants,
it is important for an owner or manager to know who is providing what. The
universe of cable, communications, Internet, entertainment and related services
is still in the expansion phase, and even those with vision may have trouble
figuring out what will happen next. The answer, more clearly defined
"services" in the agreement, and, particularly for the owner or
manager, better operational record keeping. There will be times when a general
description like "communications, Internet, cable, entertainment and other
services" will work just fine for describing the "Services." But
be mindful of the mix of exclusive and nonexclusive agreements and the
possibility that a provider might be delivering to the property less than its
full array of services, and limit the definition accordingly. (Drafting Tip: Try
something like "The term ‘Services’ shall mean ______________, but
shall expressly exclude making available to tenants ____________________, unless
expressly approved by the Owner.").
Operational accuracy in record keeping is more often than not a question of
allocation of resources rather than a lack of skill. There are plenty of basic
software programs to manage data of this sort. For owners and managers, the
revenue stream from telecommunications agreements may not be perceived to
justify the time and energy to pay sufficient attention to telecommunications
and roof top licensing matters. The care and attention to a telecommunications
system cannot measure up to the care and attention to an anchor tenant or a
multifloor office tenant. It is simply too hard to justify the cost.
Nevertheless, owners and managers will be challenged to find a middle ground
between paying too little attention to telecommunications matters and paying too
much attention to such matters. Efforts to standardize agreements and procedures
is a good first step. This can be followed by consistency in the in-house
personnel and outside consultants working on telecommunications matters for the
owner. At least owners and managers can find ways to save time and money by
bringing consistency and continuity to the process.
Define the Facilities
The systems that deliver the services to the tenants are always a little less
complex than they first appear, and a little more involved than they first
appear. For example, it is common and logical to focus on the actual antennae
that a provider desires to put on your roof top. But what about the related
entry rights to closets, conduits and risers, and the potential need to run
cables through portions of the building? Similarly, the "facilities"
or "system" will involve a series of coaxial cable, fiber optic cable,
and various combinations of wireline or wireless delivery systems. The provider’s
interest in being general must be balanced with the owner’s interest in being
specific. This is particularly true when closet space and access to existing
conduits and risers are issues. It frequently helps to add an exhibit to depict
those portions of the building that are available to the provider for related
equipment. The owner can provide some flexibility as to cables and wires, but be
more restrictive when closet space is involved. It will avoid problems later if
both parties clearly set forth the components of the system and any limitations
imposed upon the provider that effect installation, maintenance and removal of
the system.
Include Covenants and Monitor Performance
Many providers have developed a standard form to deliver to owners and
managers. Many form agreements proposed by telecommunications providers say
nothing about the provider’s obligation to perform and the ramifications of
inadequate or failed performance. This is a mistake. Particularly if the parties
contemplate a 5 to 10 year agreement with renewal options. Owners care about
their share of the revenue, but they care more about maintaining happy tenants.
Tenant satisfaction requires someone to keep an eye on what is happening
day-to-day, and that there be a mechanism to compel a change in behavior if
things turn out badly.
One example is in the area of interference. Owners simply must have some
mechanism to manage interference, especially when agreements are not exclusive.
(Drafting Tip: Get covenants from the provider on such things as keeping the
facilities in good order, repair and condition, complying with all applicable
laws, orders, rules and regulations, and not interfering with other providers of
services or with any tenant’s use and enjoyment of their leased
premises.").
The next step is to clearly describe what will occur if interference becomes
an issue. (Drafting Tip: Specifically provide that the facilities shall not
interfere with the equipment, facilities, site use and marketability or
operations of Owner, or the equipment, facilities or operations of Owner’s
present licensees or tenants at the premises. If any interference is positively
identified as being caused by the installation, maintenance and operation of the
facilities, the provider shall, upon request, suspend its operations until such
time as the interference has been eliminated, except for intermittent testing
after correcting the interference. If the provider is unable to rectify the
interference, then either party may terminate the agreement.)
The concept of "penetration" has a role to play in the area of
performance as well as with respect to the term of the agreement as discussed
earlier. If a provider cannot maintain some modest level of penetration after a
period of time to stabilize operations, it might indicate that something is
wrong. It is worth considering an owner’s option to terminate, after notice,
and perhaps after the first year or two of the agreement, if the provider fails
to maintain an agreed upon customer base at the property. This will keep the
provider on its toes, and give the owner a reasonable way to insure that its
tenants receive good service. (Drafting Tip: Specifically provide that the owner
shall have the right to terminate the agreement, after the first 24 months of
the term, upon 60-days prior written notice, if the Provider has a penetration
during three of the six months immediately prior to the date of the exercise of
the termination option of less than _____%.).
Ensuring Security
In too many buildings, telecommunications closets and pathways have had no
greater security than the janitor’s storage closets. For both building owners
and service providers, however, this poses an unacceptable risk which must be
addressed. Telecommunications closets are the "nerve centers" of a
building’s telecommunications system and contain equipment that is expensive,
sensitive and easily damaged. If the equipment is damaged, tenants will find
themselves without service. Whoever may be at fault, tenants will more likely
than not blame the building owner, not the service provider.
Building owners and service providers should address these problems in their
license agreements by prohibiting or drastically limiting access to
telecommunications spaces. Access to spaces should be restricted on an "as
needed" basis to only authorized personnel, who must give building owners
advance notice before they enter the premises. A system of procedures should be
established to monitor who accesses the telecommunications spaces, and to ensure
that equipment owned by other telecommunications service providers is protected.
In short, the security system must address not only access, but also the
frequency, type and quality of work performed in a building’s
telecommunications spaces.
Find New Ideas and Get Smart
There are many other components of a good agreement, and many variations of
every component that has already been identified. Owners, managers and providers
will often come full circle and recognize the importance of continuing their
efforts to get smart and find creative solutions so that each side can win both
comfort and profit. That is the real challenge. It is not to have owners and
providers each beef up their own side with contractual requirements that are
intolerable, but rather to seek precision in resolving issues and concentrate on
reaching a good solution that can provide a framework for resolving other issues
as they arise.
Mr. Migdal is a Real Estate Transactions attorney and Hospitality Practice
Attorney in the Washington D.C. office. He can be reached at 202-457-5925 or
nmigdal@hklaw.com