It was not all that long ago that building owners were overwhelmed by telecommunications service providers' (TSPs) seeking access to their buildings' tenants and telecommunications spaces. What a difference a year can make! Companies once flooded with cash are now cash-poor or broke. The past year has seen a large number of bankruptcy filings by telecommunications providers nationwide, and the trend seems to be growing (visit www.millervaneaton.com for a complete list of TSPs in bankruptcy).

General Concerns in Bankruptcy
While ensuring that tenants have access to the services they need to be successful will always be the primary concern to owners, TSP bankruptcies do present operational challenges to building owners such as:
· Loss of anticipated current and future rents;
· Need to clear title of mechanic lines filed against the building; and
· Vigilance regarding the bankrupt's efforts to assign the access license agreement to a third party without the building owner's consent.

Many of these challenges might have been avoided had the owner negotiated a security interest to guarantee payment in the event of default and defined bankruptcy as such an event. If not, like other unsecured creditors, the owner can expect to be paid mere pennies on the dollar or even nothing at all, particularly when the debtor goes through liquidation (Chapter 7) as opposed to reorganization (Chapter 11). Also, these practical concerns may not arise if the TSP, despite being in bankruptcy, is financially sound and can continue to perform under the access agreement. On a going-forward basis, building owners can materially improve their position in the event of a TSP bankruptcy by having their access agreements reflect an understanding of the telecommunications business and the Bankruptcy Code (www.millervaneaton.com/REsources or www.realaccess.org for a model access agreement).

Abandonment

There is a fourth and equally troubling risk-abandonment of the facilities in the building. If the bankrupt TSP leaves the business and another provider does not seek to take over the facilities, the building owner may be stuck with abandoned telecommunications facilities. Abandoned TSP facilities may afford building owners an excellent opportunity to put the facilities to their own use. If you find yourself in this predicament, what are your options?

First, make sure that the equipment has been abandoned. The authority that permits a debtor to abandon property is found in section 554 of the Bankruptcy Code. Section 554 permits a debtor to abandon property that is burdensome or of inconsequential value to the bankrupt's estate. The basis for such an assertion might be that the cost of removing each piece of equipment was greater than the salvage value the company could get from selling the equipment in the open market, i.e., the equipment had a negative salvage value.

Abandoned property is not free for the taking. While the equipment is no longer subject to the bankruptcy proceedings, legal title reverts to the debtor as if no bankruptcy case had ever arisen. To be clear, the bankruptcy court order approving abandonment of property does not and cannot legally transfer the property to a third party. Title to such property is determined as though the bankruptcy petition had never been filed. Therefore, a building owner may need to take specific steps under state law to legally take possession and title to the abandoned property. Basically, it comes down to the terms of the telecommunications license agreement and, if transfer of title in the event of bankruptcy, abandonment of the access or cessation of service is not covered therein, then to other principles of state law. A typical access provision might read as follows:

In the event of the abandonment of telecommunications service facilities, the building owner may order the TSP to promptly remove the facilities from the building and restore the building to their prior condition or may declare the ownership of such facilities to have been abandoned and forfeited to the building.

Even if you employ such a clause, an issue may arise if superior liens exist against the facilities. For example, a bank has loaned the operator the money to build the system and has filed a lien against the equipment to secure the loan, the equipment remains susceptible to foreclosure unless the building owner can work out an arrangement with the superior lien holder.

As a practical matter, the building owner's seizure of the facilities will usually be uncontested. A lender with a lien is unlikely to want to take possession of the equipment unless it has a potential operator interested in buying the facilities. If such an operator existed, the debtor would not have abandoned the facilities in the bankruptcy and would have sold them through the bankruptcy proceeding instead. Indeed, if removal of the abandoned facilities was bonded, the bonding company may encourage the building owner to assume title to the facilities to avoid paying the cost of removal.

Conclusion

Ensuring that tenants have access to the telecommunications services they need to conduct their business should always be the paramount concern of building owners and managers followed by the need to timely file claims with the bankruptcy court prior to a court-prescribed bar date. Further, proper planning and legal crafting of access license agreements may assist owners and managers from the challenges of TSP bankruptcies. These challenges include: unpaid fees, preserving future promised benefits, transfer of rights to another TSP, the need to clear title of mechanic liens and avoiding abandoned equipment in closets, floor ducts, and risers.

About the Author

Gerard Lavery Lederer, Esq., CAE joined the Law Firm of Miller & Van Eaton in July of 2001. MVE is the nation's leading telecommunications law firm for the promotion and protection of the rights of public and private property owners before communications regulators, legislators and in contract negotiations. The author may be reached with questions or comments via email at glederer@millervaneaton.com