Everywhere you go people are walking and talking, driving and talking -- using cell phones to stay in touch. As the popularity of cellular phones and other wireless technologies increases, so does the demand for infrastructure necessary to make it possible. The size of that demand is evident with one of Stewart Title Guaranty Company' client' latest projects: 720 cellular towers in 41 states across the country, valued in excess of $200 million. This high number of sites is a challenging enough transaction, but there are many real estate issues unique to cellular communication towers that add to the challenge -- especially when it comes to title insurance.

The first order of business is determining the nature of the estate in the land selected for the tower. Is it a leasehold or an easement? It is not unusual to have a document that purports to grant an easement, but includes language consistent with a leasehold, like a term and an annual rent, or merely an annual rent and no term. Acquisition of the fee title is less common.

Sometimes a challenge arises from an indefinite description of the land. Quite often in the case of a leasehold estate, the company obtains the right to construct a tower and certain other improvements on a larger parcel of land without ever receiving a description of the exact site of the tower or improvements. This usually involves limiting the scope of the coverage to the actual site by requiring a survey, and further limiting insurance with regard to the right to construct improvements on land other than the actual cell tower site.

Since most tower sites do not front on a public road, there is always the question of a right of access to the site. This entails examining title to land other than the tower site in order to ascertain that legal access has been granted free of encumbrances.

When insuring a leasehold, it is necessary to examine the landlord' title both before and after the grant of the lease. Events affecting the landlord' title after the lease is executed and delivered can impact the leasehold estate. For example, if the landlord files bankruptcy, fails to pay the taxes or a hazardous waste lien is filed, the leasehold will be affected.

It is essential to determine whether the original tenant/owner has authority to transfer the leasehold/easement to the company wishing to purchase or operate a tower. In the case of an easement, the issue of assignability is very important. Easements involved in cell tower sites are "easements in gross" -- they don1t benefit any other site outside the land on which they' built. Easements in gross are generally considered personal to the owner of the easement, and thus are not assignable. Cell towers, however, fall under an exception for commercial easements in gross. The basis for this is that cell towers, while benefiting no land in particular, do benefit a general area by providing communications services. Commercial easements in gross generally can be assigned. Partially assigning the easement or subletting the leasehold can cause additional challenges.

Partially assigning the easement or granting an easement to another party can bring about questions as to the legal effectiveness of such an assignment or grant. It can also raise the issue of "overburdening" the easement. Subletting the leasehold estate is another problem, as other wireless providers may want to use the tower. The insurability of such assignments or subleases requires an examination of both the lease or original easement grant and the law in the jurisdiction where the land is located, as well as the application of sound underwriting practice.

In the case of a leasehold estate, the amount of insurance is always an issue. A company building a cell tower must make sure it has adequate insurance to cover its investment. Recoverable loss under a leasehold policy is very different from a policy insuring the fee title. Generally, the loss coverage includes a multitude of items such as additional rent that must be paid at a new site, the cost of moving and lost rent from subleases. If the tower company merely purchases insurance based on the amount of the rents to be paid on the land, the amount that can be recovered is limited to this lower amount. Improvements likely would not be covered, since their value would not be reflected in the amount of insurance purchased. Although the policy would pay to move the tower, the cost of the move could exaust the coverage. In this case, the company would not have insurance on the tower itself.

Instead, for the tower company to protect its investment in the tower, it is important that it purchase insurance for an amount that would include the improvements when evaluating the loss.

Finally, when a company has an interest in a communication tower site, the uniqueness of the site presents an additional problem in terms of insurance. The argument is that the site is not just any piece of land, but is uniquely suited for the purpose for which it is used -- providing cellular communication service. Should a claim arise against the property, the tower company may not be able to easily find another site that offers the requisite height and other specifications required for a cell tower.

Recently, the most common way of dealing with this issue is to insure the communication tower site as a "going concern." This provision accounts for the uniqueness of the site by treating the tower and its operation as part of the estate, instead of simply as an improvement to the land. In this way, the company will be compensated more appropriately for any claim on title to the property.

Cellular towers are big business now; they' largely the purview of big companies that own hundreds or thousands of sites. But that wasn1t always the case. When wireless communication first took off, lots of smaller companies decided to put up towers to cash in on the business. The deals often were done quickly and with less expertise than needed. From a title insurance perspective, this means that in addition to solving the numerous challenges described above, underwriters often are saddled with correcting mistakes from previous transactions.

Underwriting cellular towers is a time-consuming and labor-intensive process. Transactions typically take 3 to 6 months to close because of the many parties and numerous legal issues involved. But with careful work and much patience, underwriters can pave the way for improved communication for years to come.

Don A. Wade is senior vice president and senior underwriter for Stewart Title Guaranty Company.

©2001 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.