Tribunal provides welcome guidance for operators and landowners on renewal terms under the Electronic Communications Code

The Electronic Communications Code came into force in 2017 and regulates the legal relationships between landowners and telecommunications network operators and infrastructure providers. The code provides operators with various rights to use land for the purposes of their networks or the provision of infrastructure. One of the key objectives of the code is to provide the public with access to a choice of high quality electronic communications services.

Since the introduction of the code, landowners and operators have often grappled with reaching terms for new agreements which that suit both parties (particularly valuation). This has caused an unusually high volume of cases reaching litigation.

In this case, the Upper Tribunal considered the terms of the renewal agreement and provided clarity on its approach to valuation under the code, as well as how the code is to be interpreted towards landowners seeking to justify the inclusion of restrictions on operators' upgrading and sharing rights.

This case adds to the body of case law that provides further clarity on the key terms which are regularly disputed in code agreements.

What was this dispute about?

In EE Limited and Hutchison 3G UK Limited v (1) David Paul Stephenson and (2) AP Wireless II (UK) Ltd, the operators, EE and H3G, brought a claim under paragraph 34 of the code to renew an existing agreement of a greenfield telecommunications site at Pendown Farm, Cornwall.

The claim was made against the freehold landowner (who did not participate in proceedings) and AP Wireless, the leasehold owner of the site who would grant the new agreement as the site provider. The parties agreed to the renewal in principle, but could not agree to a number of terms of the new agreement. 

What did the tribunal decide?

The Upper Tribunal provided further guidance in its decision on the terms of the new agreement that remained in dispute.

Valuation of annual site payment

The tribunal ruled in favour of the operators, awarding a site payment of £750 per annum. In reaching this conclusion, the tribunal considered several points and held:

• It will continue to take a high-level approach to valuation in line with the valuation table provided in the recent Affinity Water case. The tribunal reiterated its previous comments that £750 per annum is appropriate for a standard rural greenfield site.
• As a result of the code's no network valuation assumption, comparable evidence of telecoms transactions should not be used for the purpose of determining consideration under paragraph 24 of the code and will be disregarded. 
• Comparable evidence of alternative use of the land may still be relevant (that is, if an agricultural field could instead be used for car parking). The valuation should reflect what a third party would pay for that alternative use, if one exists.
• The valuation framework provided in the Hanover case remains appropriate to use. Using the Hanover approach, a value is attributed to each of the factors which would influence the hypothetical parties negotiating a rent for a new letting under the code.

Compensation

The site provider sought an annual compensation payment to reflect lost opportunity to use the land to erect its own telecoms mast.

The tribunal refused to award compensation on the basis that a landowner cannot claim to have suffered a loss in being unable to exploit the site for another use, as that alternative use (if any) would be accounted for in the annual consideration awarded. 

The tribunal did accept that the site provider can claim compensation in the future if it can demonstrate diminution in value. 

Upgrading 

The site provider sought to restrict the operators' upgrading provision to paragraph 17 of the code, so that any upgrade would cause "no adverse impact, or no more than minimal adverse impact, on the appearance of the equipment; and should impose no additional burden on the landlord".

The tribunal found in favour of the operators and granted unrestricted upgrading rights on the basis that:

• the introduction of a significant qualification on upgrading would obstruct the achievement of the objectives of the code;
• it would likely lead to disputes between the parties as to whether a proposed upgrade was within the scope of the restrictions; and
• in this case, there was no realistic risk of the site provider suffering loss/damage as a result of upgrading.

Site sharing

The site provider again sought a paragraph 17 restriction and the tribunal took the same view as with upgrading. The tribunal held that the operators should be able to freely share the site (not just the equipment), provided that the sharer does not obtain code rights (although the tribunal did query whether this would be possible).

Rent reviews 

The parties had agreed to the use of retail price indexed rent reviews every five years. The tribunal granted the site provider an additional open market value rent review in the event that the operators both cease to be code operators, or assign the agreement to a non-code operator.

Indemnity 

The operators sought to restrict the indemnity provision so that they would only be responsible for indemnifying the site provider in relation to claims resulting from their negligent acts or omissions.

The tribunal favoured the site provider's broader wording and was clear that an indemnity should favour the site provider on the basis that they receive little economic benefit, so should not share the risks associated with the exercise of code rights.

Redevelopment break 

The tribunal granted a redevelopment break in the site provider's favour, despite there being no obvious intention of future redevelopment. It held that it would be unfair for a landowner to be prevented from making an alternative use of its land by the imposition of long-term code rights that cannot be terminated.

The inclusion of a redevelopment break clause may introduce uncertainty in the investment decisions made by an operator if there is not sufficient reason to refuse it. In any event, an operator would be entitled to challenge a redevelopment break under paragraph 32 of the code.

Vacant possession 

The tribunal held that the operators should provide vacant possession on termination of the agreement,  including the removal of any equipment owned by third parties.

Emergency generator 

The site provider sought to impose noise restrictions and a requirement for the operators to obtain consent to the location of the generator. The tribunal did not allow these restrictions for two reasons, that:

• an emergency generator is clearly going to make noise; and 
• the inclusion of a consent provision would allow the site provider to unnecessarily delay the deployment of a generator in urgent circumstances.

Osborne Clarke comment 

Operators are likely to be successful in refusing any restrictions on their upgrading and sharing rights. It appears that there will only be limited circumstances where landowners can justify the inclusion of restrictions. On the other hand, landowners will have more scope to include redevelopment breaks in their agreements, although this will not preclude operators from successfully resisting the exercise of such a break where there is no redevelopment intention.

In terms of valuation, this decision provides further clarity on the tribunal's approach under the code. It is clear that there is little scope to depart from the guideline valuations provided in Affinity Water. In particular, comparable evidence of telecoms transactions are irrelevant and parties should not spend the time and expense of preparing this evidence (unless it relates to an alternative use).

The same valuation guidance does not yet apply in relation to lease renewals under the Landlord and Tenant Act 1954, which still look at open market value. However, the Product Security and Telecommunications Infrastructure Bill (which is approaching its Third Reading in the House of Lords) proposes reforms to the 1954 Act valuation method to bring it in line with the code.

This case offers some much needed clarity around the key terms of code agreements, which will help towards achieving the code's goal of regulating the relationship between landowners and operators to attempt to minimise disputes. At the moment there certainly seems to be a long way to go in achieving that goal, but this judgment takes a step in the right direction.