The Upper Tribunal (Lands Chamber) has identified a new problem with the Electronic Communications Code, this time where a subsequent intermediate interest in the land has been granted. This has important implications for the ability to terminate and modify an agreement at the end of its term.
A factual scenario
L, an occupier of land, grants 10 years’ worth of code rights to O, an electronic communications operator. A little after that grant, L decides to grant a 999-year headlease to a third-party investor or developer, X, for a premium.
Fast-forward a little under 10 years, and the agreement’s contractual term has come to an end. What are the parties’ statutory rights against one another under the Code? What if X wants to redevelop or requires a new agreement? What if O wants a new agreement? Who are the relevant parties to any claim? This issue, which surfaced in the recent decision of the Upper Tribunal (Lands Chamber) in Vodafone Ltd v Gencomp (No 7) Ltd and another [2022] UKUT 613 (LC); [2022] PLSCS 141, unearths a lacuna in the Code.
Termination and modification of Code agreements
Part 5 of the Code sets out the rights to terminate or modify a code agreement at the end of its contractual term. As for termination, a “site provider” is entitled to serve a termination notice on an operator which includes the matters prescribed in paragraph 31. It must state, and the giver of the notice must satisfy, one of the four statutory termination grounds as set out in paragraph 31(4).
Alternatively, both the operator and a site provider may seek the modification (renewal) of an existing agreement, or its wholesale replacement, by serving notice under paragraph 33. Importantly, as has been placed in the spotlight in Gencomp, those rights of termination and modification are rights confined to the persons who are a “party to the agreement” (paragraphs 31(1) and 33(1)).
So, when is a party not a party?
The answer lies in paragraph 10 of the Code. A person is party to a code agreement, whether conferring or agreeing to be bound by code rights, if they are an original party to it. Their successor(s), who in effect steps into the shoes of the original party, is also bound, and is also to be treated as if they were a party: paragraphs 10(3) and (6) of the Code.
In contrast, a person who is granted a subsequent interest which is derived from the original grantor’s interest is bound by the agreement but, critically, is not treated as a “party” to a code agreement. According to the UT, this has important ramifications for the rights of termination and modification in Part 5.
A lacuna in the Code
In the posited scenario, it might be thought that O, seeking renewal of a code agreement, should bring its renewal claim against X, as its now immediate landlord to whom it is likely to be paying rent and the next proximate owner of an interest in land sufficient to grant the rights sought. Under the Landlord and Tenant Act 1954, which is transitionally running in parallel with the Code until the last of the 1954 agreements is extinct, that would be the right approach, as the person in the chain of title who is to be a party to a renewal application will be whoever is the “competent landlord” (Gencomp). The effect is that a renewal will take place under the 1954 Act with X as landlord, with the resulting agreement taking effect from thereon as a code agreement between O and X. Similarly, it will be X who will be able to oppose renewal in the usual way.
The Code does not follow the 1954 Act approach: there is no equivalent statutory creature called the “competent occupier”. Those who acquire subsequent and derivative interests from an occupier are bound by prior code agreements, without the need for registration, but as they have never participated in that agreement and are not successors to the interest of the occupier, they are not, within the meaning of the Code, a “party to the agreement”.
From that, one draws the following conclusions:
1. The operator, O, has no right to renew against the 999-year leaseholder, X, under paragraph 33 – and the reverse is also true. X is not “a party” to the code agreement and can neither receive nor give a notice seeking modification of an agreement: see Gencomp.
2. Similarly, X will be unable to serve a notice to terminate under paragraph 31, as again it is not a party to the subject agreement with O. This difficulty is acknowledged in Gencomp and will be alarming to those who acquired their interest with plans for redevelopment.
3. Following that reasoning, it would seem that any notice by L is likely to encounter any number of insurmountable obstacles. First, it will be difficult to make out a termination ground, including that which is most likely to be invoked in practice, redevelopment under paragraph 34(1)(c). Given that there is an intermediate lease in place, vested in X, it is difficult to see how L can objectively intend to redevelop (unless there is a relationship between L and X that allows X’s intentions to be attributed to L, as can happen under the 1954 Act). Secondly, assuming a termination ground was not made out (or never invoked), as L could not grant (nor purport to grant) code rights (as it is not the occupier of the land), the tribunal’s powers to impose the same under paragraph 34 would similarly be of no use.
4. By the same token, an upwards notice by O on L seems not to work. First, there is no provision under the Code deferring the priority of X’s 999-year lease to the renewal agreement. L can only therefore grant rights subject to the 999-year lease, which would mean that L cannot grant any immediate use rights over the land demised by that lease. Secondly, and in any event, for so long as X was in occupation, L could not confer code rights, and nor could the tribunal intervene.
Whether by design or accident, the upshot of this is that the termination and modification provisions of Part 5 of the Code appear not to work as between the parties where there is an intermediate interest in place.
Another workaround?
While the ability to terminate a code agreement in these circumstances seems doubtful, there is an apparent solution to an operator’s ability to seek a new agreement. The solution comes, as it were, straight out of Compton (that is, Cornerstone Telecommunications Infrastructure Ltd v Compton Beauchamp Estates Ltd and conjoined appeals [2022] UKSC 18; [2022] EGLR 28).
The UT in Gencomp reminds us that the Supreme Court decided that a code operator seeking code rights is not to be treated as the “occupier” for the purposes of Part 2 of the Code (voluntary agreements), and hence is not the “relevant person” for the purposes of Part 4 either (dealing with imposed agreements). Therefore, in the case of a subsequent intervening intermediate interest, the correct approach for an operator is to serve a paragraph 20 notice (which requires a comparatively shorter 28-day notice) on those in the position of X for the “imposed conferral” of rights, with a binding agreement in relation to those rights potentially sought from or imposed on L (though see paragraph 94 of Gencomp).
Presumably in such a case the rights that O seeks will be considered to be “new rights”, because (given that it is not available) it can hardly be claimed to be an impermissible circumvention of Part 5 of the Code. O would, however, need to satisfy paragraph 21 of the Code, rather than being able to rely on its presumptive satisfaction under Part 5. That, in turn, opens the door for X to point to any redevelopment intentions of its own (paragraph 21(5)), but only at that juncture.
The consequences of this decision will doubtless require further working out.
Oliver Radley-Gardner QC is a barrister at Falcon Chambers and Pierre Smith is an associate in the property dispute resolution team at Pinsent Masons
