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Experienced Businessmen Prefer Contracts to Handshakes

Here are some of the arguments against bartering service for a lease, something that many wireless ISPs have tried in the past and decided to never do again.

[May 22, 2007]

On the ISP-Wireless list in May, PN wrote:

I'm going to revisit this subject again. We just met with our attorney regarding writing a lease agreement for us to get a small piece of property for a tower in exchange for internet service. He doesn't like the idea. He feels it is a big liability, and suggests we buy land for this purpose. While I agree that may be the best case scenario, it doesn't always work for our circumstances. Does anyone have some experiences with this type of arrangement they could share as well as some example agreements that we could present? What are the pros and cons?

[RS suggested] "I think your attorney may just like to see money exchange hands. Money is normal, money is worth something, lawyers hate handshakes and trade for services. If this is the case, exchange money on paper.

How 'bout you make up a lease for the land for XX amount of years. You pay Y amount per year (where Y is the cost of your service for 1 year) for the land. The "subscriber" pays Y per year for your service.

You can even write the subscriber a receipt for the service he has bought from you. Your Subscriber can write you a receipt for the rent you have paid.

I do this with for service leases and it works great. The bean counters love it."

[TI warned] "The problem will be survivorship of the agreement in case the landowner sells his property.

Also, there's the liability and cost of removal in case the new owners don't want the tower on their land.

I think the commercial tower guys and the guys who do billboards should have standard boilerplate for this type of situation.

Many of them do long term leases on land for their towers and signs. Problem is that they mostly pay money for the lease, not trade services."

[RY concluded] "Good thought, RS. This way, if the customer violates the terms of service, it does not put the land lease in jeopardy.

The biggest problem with a "simple" swap of service for space is the situation of what happens when something goes wrong...and it always does. The customer may have one understanding of the service and we may have another. For example, what happens if the customer gets a virus and begins sending broadcast traffic across the network? You shut him off, right? Well, if he is not collecting his service he may feel it appropriate to pull the plug on your tower equipment. It is probably his electricity anyway!!!

It takes no imagination to come up with a long list of different assumptions that each bring to the table. A clear deal needs to be in writing. A better deal is for cash and then sell him the service at a discount subject to your regular TOS. Yours is a great compromise between PN's lawyer and what really usually goes on out there.

BTW, the lawyer would get more writing the lease than closing on the real estate transaction. Where the lawyer really makes a lot of money is if you enter into a handshake deal and it goes south for some reason. It once cost me nearly $10,000 because I had a handshake deal for our bandwidth. The ISP I had bought it from sold out to a not so nice guy who wanted to cut me off without notice. No more handshake deals for me."

[JR agreed] "Land owners can burn you with trade agreements even when you do fulfill them."

. . . and the discussion continued. . .

—End