Our team: Armel Elaudais
The Electronic Communications Code introduced in 2017 is notoriously favourable to telecommunication operators giving them wide-reaching rights to install and operate equipment on land (“code rights”) and affording them security of tenure. In two recent cases, the balance was however tipped in landowners’ favour.
Public interest vs prejudice to landowner
Under Paragraph 20 of the Code, the Upper Tribunal (Lands Chamber) can impose an agreement granting a telecoms operator code rights on a landowner’s site. Such rights will only be imposed if the conditions set out at Paragraph 21 of the Code are met:
The Tribunal will also not impose code rights if the site owner intends to redevelop the site, or neighbouring land, and could not do so if such rights were imposed.
In Cornerstone Telecommunications Infrastructure v University of The Arts of London, the landowner successfully defeated the operator’s attempt to obtain code rights.
The university had entered into a sale and lease-back with a developer. Under the terms of this agreement, the university had a rolling break and after 18 months the rent payable would go up from nil to £3 million per annum. Importantly, the break was conditional upon vacant possession free of telecoms apparatus.
There was some history between the parties, who had previously been involved in litigation. The university therefore argued that if code rights were imposed it would be severely prejudiced: it would no longer have control of its ability to exercise the break and there was a risk that litigation would be necessary to get the operator out. It contended that such prejudice could not be quantified by money, in particular the risk to its reputation and its relationship with the developer as well as the 5,000 students using the site.
The Tribunal acknowledged that “the level of prejudice must be very high indeed to outweigh the public benefit, in the light of the public demand for, and dependence upon, the availability of electronic communications”. Nevertheless, having regards to the risk of the university having to pay rent of £3 million per annum and substantial damages to the developer as well as the reputational risk, this was a case were the prejudice to be suffered for the public good was “too much to ask”.
Terms of renewal
Operators who already have code rights have a statutory right to renewal. Where the agreement is a lease protected lease under the Landlord & Tenant Act 1954 and pre-dates the Code, the terms of the renewal will determined under the 1954 Act procedure and not the under Code, even though the new agreement will then be governed by the Code and the 1954 Act not apply to it.
Vodafone v Hanover Capital is the first case in which the Court determined the terms of a lease renewal under the 1954 Act since the Code was introduced.
The mechanism for determining rent under the Code generally produces lower rent than under the old telecoms regime. Under the 1954 Act, rent is determined based on what the site would be expected to be let at in the open market. In the case of telecoms agreements though, negotiations are in the real world led by the operators’ network need. The Court accepted that the operator’s rights under the Code should be taken into account when considering the hypothetical negotiation. But it also held that a competitive bidding process should be assumed, where site sharing showed that the site was of potential interest to other telecoms operators. This resulted in a higher rent of £5,750, compared to the £2,250 which a strict Code approach would have achieved.
The parties also disagreed on the length of the new term. Vodafone wanted flexibility with a three-year term and six months’ rolling break. Whereas the landlord sought a ten-year term subject to a five year break. To strike a balance between the operators needs and the landlord’s desire for certainty, the Court ordered a new ten year term subject to a six months rolling break exerciseable after five years.