Pitfalls for MDU Owners to Avoid When Negotiating a Telecom Contract
Multi Dwelling Unit (MDU) Property Owners have been besieged over the past 30 years by cable and telecom companies offering to provide television and high-speed internet services through contracts that vary from simple Right of Entry (ROE) to complicated Installation & Service Agreements. Today, the complexity of these contracts continues to be great, and property owners should use caution and seek professional advice before signing any new or renewal agreements.
Here are a few pitfalls to consider before adding your signature to a cable or telecom agreement:
Door Fees and Revenue Sharing
On the surface, offers of paying door fees or sharing revenue sound great and can be newfound revenues for your property’s budget. But be careful! Make sure you understand what rights you are forfeiting in exchange for these payments:
- Door fees can be $100 or more per unit for a 7- to 10-year agreement. That’s attractive. Many times, however, they require exclusive use of the wiring (if allowed by state law), grant exclusive marketing of certain services to the cable or telecom provider, or block you from enhancing your property and deploying bulk ManagedWiFi systems.
- Issues can arise when the property is sold. Are the door fees required to be paid to the new owner? Are they prepaid marketing revenues to be amortized over the life of the contract?
- With Revenue Share payments, are exclusive conditions required? Are you committing to promoting the service to your new tenants—hosting events, printing flyers, etc.—at your expense?
- Rights to go Bulk may be restricted if you decide you want to have bulk Internet or bulk video service. These bulk restrictions (Anti-Bulking clauses) may be buried in the agreement or its addendums or placed in a recording instrument, and you might not know it.
- Further, door fees are not really free. The real cost gets added to your service agreement, so you’re just paying it over time.
Your base payment may only be the beginning. Built-in annual escalators are common, so you want to start with the lowest fee possible. Annual escalators can be in the range of 6-8% and with a 6% annual escalator, you will be paying about 40% more in just six years.
Be very aware of hidden fees and open-ended clauses that allow for additional billing. You can get hit with a variety of pass-through fees that you didn’t even know existed, sometimes even franchise fees that are 5% above and beyond the contracted amount.
Most agreements will have some type of recording instrument for the service provider to attach protections to the property deed. These instruments may be an easement, license, or memorandum of agreement indicating the internet vendor’s specific rights:
- In some situations, the instruments may cause problems when you try to sell the property. We also see situations where the rights in the instrument may last longer than the term of the service agreement. As the property owner, you should make sure you retain the ability to remove the instruments when needed.
- Financial lenders may have restrictions in their agreements that prohibit the addition of title instruments without the lender’s prior approval. To that end, you may face additional costs to obtain that approval. Those costs should be covered by the cable or telecom service provider.
Despite efforts by the FCC and states to clarify wiring ownership, cable, and telecom contracts may muddy the waters around ownership and maintenance of inside wiring:
- Are there multiple providers using the same inside wiring? Do the agreements you have signed define the wiring use and repair requirements consistently? What happens if one provider is sloppy or does not cooperate with other providers for joint use? Will your site manager become the gatekeeper for wiring cooperation?
Even though the FCC has clarified its stance on inside wiring, many providers will do everything they can to obfuscate your rights with workarounds or intentionally confusing language.
Make sure it is written into your agreement that you, the building owner, own all wiring and equipment that is installed in the building and that the service provider will service it at their cost for as long as they are providing service to the building.
Renewals and Term of Agreements
With more than 650,000 apartment complexes in the US today, we can assume that each year, 15-30% have cable or telecom agreements that expire or fall into an auto-renewal period:
- MDU property owners should have a complete inventory of their agreements and set reminders in advance of contract renewal periods.
- Telecommunications is changing rapidly, so experts suggest keeping agreement terms shorter, say 5-7 years, to accommodate advances in technology.
- Many property owners reject auto-renewal clauses or cancel them early in the agreement term to make sure their contracts do not fall into an ongoing cycle of auto-renewal.
NOTE: Be very careful if you send a preemptive cancellation that you don’t leave yourself without service at the end of the agreement. You could leave your property without internet service, and it might take weeks or months to restore it. Start early so you don’t have to sign unfavorable terms or be strong-armed into giving up your rights for another extended period of time.
Advantages/Benefits of Managed WiFi Agreements
- Better, safer technology for tenants: Community-wide internet access; More control over security
- Less move-in stress: Internet service is available upon arrival; No need to schedule an appointment, wait for equipment, etc.
- Residents don’t have to worry about buying or supporting their own routers.
- Service performance is better and more reliable, as modems tend to lock up, need to be rebooted, and have other issues that an enterprise network—like ManagedWiFi—does not.
- The RF (Wireless Spectrum) is managed, eliminating the wireless interference that is present in high-density environments, like MDUs.
With a non-managed system, like those provided by cable and telecom companies, every resident has their own router. The routers all broadcast on the same frequencies, causing slow internet speeds.
A ManagedWiFi system, such as the one Dojo Networks® deploys, makes sure this does not happen by using artificial intelligence to keep wireless access points from overlapping. The AI functionality eliminates wireless interference and related customer issues.
- Flexible and more convenient for tenants: Can offer multiple plans for tenants to pick from; Tenants don’t have to pay separately for the service, equipment, etc.
- Property owners can provide the ManagedWiFi service as a competitive amenity or increase the NOI of the property significantly while providing the residents with a great amenity at a price better than they could purchase on their own.
- Using a top-quality provider, like Dojo Networks®, takes your staff out of the support matrix. You are insulated from having to provide support, and you benefit from higher resident satisfaction.
- A high-quality ManagedWiFi network is the foundation of property tech and a valuable asset to the property. Once you have your own network, you can add many other types of technology that will run across it. You will have the option to choose your WiFi service provider and will not be locked into a single option where you have no control.
In closing, seek a qualified telecommunications attorney to make sure you are protected when your cable or telecom provider asks you to sign a new agreement or your renewal period is approaching. Be cautious, and make sure each agreement you sign adds value to your property.
Your attorney will make sure you are not encumbering your property with technical debt and limiting your options for future improvements. Dojo Networks®’ service agreements are very owner-friendly and don’t tie you up through legal maneuvering.