Deciphering the Code: landowner's attempt to side-step Code rights rejected
Published on 9th Aug 2019
Even before the new Electronic Communications Code (the Code) came into force, landowners were considering ways in which its provisions could be avoided. However, a recent decision of the Upper Tribunal provides a stark warning to landowners seeking to do just that.
Although the Tribunal confirmed that case law decided under the Landlord and Tenant Act 1954 is not binding authority in the context of the Code, it nevertheless adopted legal principles from three cases decided under the 1954 Act and applied them directly to the Code – in particular the recent Supreme Court decision of S Franses v The Cavendish Hotel – with significant consequences for landowners. In doing so, the Tribunal has provided some further clarification on how the Code is to be interpreted.
What does the Code say?
The key elements of the Code for the purposes of this case are as follows:
- An Operator can, in the absence of agreement from a landowner, apply to the Tribunal to impose a Code Agreement which grants Code Rights to the Operator over land, provided the Operator satisfies the necessary requirements (paragraph 20 of the Code).
- However, the Tribunal cannot grant an order imposing a Code Agreement where it thinks that the landowner "intends to redevelop all or part of the land to which the Code Right would relate, or any neighbouring land, and could not reasonably do so if the order were made" (paragraph 21(5))."
- Electronic communications apparatus ("Apparatus") is expressly excluded from the definition of "land" under the Code, so Operators cannot ask the Tribunal to impose a Code Agreement over Apparatus.
- The consideration payable for Code Rights under a Code Agreement is valued on what is known as a "no scheme" basis and essentially results in the consideration payable to landowners being considerably lower than market rents had been before the Code came into force.
What was this dispute about?
In EE Limited and Hutchison 3G UK Limited v The Trustees of the Meyrick 1968 Combined Trust of Meyrick Estate Management, two Operators, EE and 3, had Apparatus installed on four masts on a rural estate on the south coast of England, pursuant to four separate leases. When the leases expired (prior to the Code coming into force), negotiations commenced in respect of new leases of those masts. Negotiations broke down in late 2017 and the Code came into force on 28 December 2017.
In March 2018, the Operators served notice under paragraph 20 of the Code, stating the Code Rights that they wanted. In the absence of agreement from the landowner, the Operators commenced proceedings in May 2018 seeking to have the Code Agreement imposed by order of the Tribunal. In response to the proceedings, the landowner invoked paragraph 21(5) of the Code and resisted the Operators' application on the basis that they planned to redevelop the relevant site.
The landowner's plans (which were revised during the course of the proceedings) involved the removal of the Operators masts and replacing them with taller mast structures and some ancillary equipment to provide improved broadband services to the area. The effect would have been to construct the landowner's own Apparatus – in respect of which the Tribunal could not have granted an order imposing a Code Agreement. The landowners' evidence as to the commercial viability of the scheme and its purported benefits were heavily scrutinised by the Tribunal.
What did the Tribunal decide?
The Tribunal decided that in order to rely on paragraph 21(5) of the Code, the landowner needed to satisfy a two-stage test (adopting case law decided under the 1954 Act). Accordingly, in order to resist the Operators' application, the landowner was required to demonstrate that they had:
- a reasonable prospect of carrying out the redevelopment; and
- a firm, settled and unconditional intention to put the redevelopment scheme into effect.
The landowner satisfied the first limb of the test, primarily because it had sufficient funds and had received planning permission, albeit there was a suggestion that this could not lawfully be implemented.
Critically though, the Tribunal held that the landowners did not have a firm, settled and unconditional intention to put the redevelopment scheme into effect. It concluded that the entire scheme had been contrived in order to prevent Operators from acquiring Code Rights under the Code. The landowners hoped that by defeating an application for the imposition of a Code Agreement, they could demand whatever consideration they chose and impose whatever terms they wished in order to allow Operators to use their newly constructed masts. Had there been no application for Code Rights, the landowner would not have undertaken such a costly and counter-productive scheme of works.
In reaching its conclusion, the Tribunal was particularly persuaded by:
- the timing of the redevelopment plans (which had only been drawn up once negotiations between the parties had collapsed);
- last-minute changes to the redevelopment scheme which seemed designed purely to try to satisfy the test under paragraph 21(5) of the Code;
- the evidence about the lack of utility of the redevelopment scheme;
- the financial viability of the scheme; and
- the conduct of the landowners generally – the judgment makes for very interesting reading in this regard.
The Tribunal's decision clearly mirrors that of the Supreme Court in S Franses v Cavendish Hotel, decided under the 1954 Act, in which the landlord was determined not to have held the requisite intention in circumstances where the works would not have been undertaken had the tenant not applied for a new tenancy.
What are the implications of this decision?
The decision is a blow to landowners and their agents who, since the first draft of the Code was published, have been trying to establish ways of circumventing its application (in particular its "no-scheme" valuation methodology that results in reduced payments to landowners).
In order to defeat an Operator's application for Code Rights in these circumstances, a landowner will need to be able to demonstrate that its scheme of redevelopment is commercially viable and has a demonstrable utility beyond defeating an application for Code Rights.
Landowners seeking to oppose an application by an Operator for Code Rights under the Code, on the ground that they intend to redevelop the relevant land, will be subject to the same scrutiny as landlord seeking to oppose the grant of a renewal lease on the grounds of redevelopment under the 1954 Act.
Operators will be relieved that this method of side-stepping the Code will not be an easy option for landowners. If a landowner does oppose an application for the imposition of a Code Agreement, an Operator should seek to scrutinize the following information relating to the propose scheme:
- the objective utility of the scheme and purpose for its implementation;
- any issues relating to planning permission or its implementation;
- the extent to which alternative options have been considered;
- the timing for the redevelopment;
- the business plan – is the scheme commercially viable?
- corporate governance – does the landowner have the ability to carry out the scheme and has it passed the necessary resolutions? and
- whether the scheme been changed and if so, the (objective) reasons for this.
For legal practitioners
The Tribunal has confirmed what many commentators had previously suggested: that principles from relevant 1954 Act case law will be adopted by the Tribunal when interpreting the Code. We can also safely assume that the same two-stage test will apply to a landowner seeking to terminate a Code Agreement under the redevelopment ground provided for in paragraph 31(4)(c) of the Code.
It is interesting that, as with the S Franses case, the result gives effect to the purpose of the legislation – that Operators should not be prevented from rolling out telecoms infrastructure by unscrupulous landowners. However, we must wait and see whether the Tribunal is ever required to consider a matter where the intentions of the landowner are less obvious than they were in this matter.