A new draft Electronic Communications Code has been published. Zoe Wright considers its pros and cons
A new Electronic Communications Code is due to be discussed in parliament shortly, as part of the Digital Economy Bill. The long- awaited reforms are, for the most part, to be welcomed, but to what extent does the new code address all the inadequacies of the existing code? Does it provide a framework which will encourage landowners to welcome telecoms operators? Will it achieve the government’s aim to deliver a choice of high-quality electronic communications services and near universal superfast broadband to rural Britain by 2020?
Renewal of agreements
The new code addresses problems faced by landowners who want to trigger renewal of an expired agreement where the operator has remained on its land. Under the current code, a landowner has to serve a paragraph 21 notice, which, inevitably, is met with a counter-notice from the operator asserting its right to remain. Once the counter-notice is served, an operator will often fail to negotiate a new agreement because its right to occupy remains protected. Even if proceedings are issued, an operator might argue that the wider public interest is best served by allowing its apparatus to remain on the land and thus defeat any claim. In practice, many landowners tend not to push their case because of the need to engage solicitors and issue proceedings. This has meant that many operators have continued to occupy sites under expired agreements.
Paragraph 32 of the new code provides that a landowner (or operator) can serve six months’ notice that an existing code agreement should be terminated and specify a date from which a new agreement on new terms should commence. If at the end of that six-month period the parties have not agreed new terms, either party can apply to the court for an order terminating the existing agreement and ordering new terms. In addition, paragraph 33(7) of the new code makes it clear that the terms of the existing code agreement continue until the new agreement takes effect.
This new mechanism and certainty during any interim period where negotiations are progressing will be welcomed by all.
Site sharing and upgrades
Operators will welcome the provisions of paragraph 15 of the new code. These make void any contractual provision preventing or limiting assignment of the agreement to another operator. Some landowners will be disappointed that operators will have the ability to assign freely and they may be concerned about the covenant strength of any assignee operator. In practice, this provision is unlikely to have a significant adverse impact on landowners who deal with the major mobile phone operators in a consolidated telecoms market, but it may be more significant for those granting rights to smaller operators providing broadband networks. Even here, the new code allows landowners to require an authorised guarantee agreement on assignment and that will help to mitigate the effect of freedom of assignment.
Operators will also welcome the new right to upgrade their electronic communications apparatus and to share use of that apparatus with other operators. They will recognise this as fundamental to the provision of a high-quality telecoms service, enabling them to roll out new technology swiftly without first having to seek permission of landowners. Landowners, however, may not welcome the change. It means that they will not have full control or an up-to-date record of what apparatus is on a site and they will be unable to demand payment for additional apparatus.
“No scheme” valuation
Perhaps the biggest change under the new code is the basis on which the amount of consideration payable by an operator to a landowner is to be determined. For more than 30 years the telecoms market has operated on the basis of assessing the amount of rent or licence fee by reference to well understood open-market-value principles founded in reality.
Paragraph 23 of the new code requires a court to determine the amount of consideration by reference to a hypothetical scenario in which the value is assessed by reference to what a willing landowner would be prepared to accept (without any ransom element), rather than what the operator would be willing to pay and, crucially, on the basis that the value to the operator of securing that site for the benefit of its network and the telecoms use to which the land is to be put are both disregarded. Essentially a “no telecoms code world” has to be assumed.
The impact of this change is best explained by a practical example. An operator wants to lease a corner of a farmer’s field in order to erect a new telecoms mast. Currently, rental value would be decided on an open-market basis by reference to a vast body of market comparables. Under the new code, the rental value for that site will be assessed by reference to what other purposes the farmer or a third party could put that field to. In reality, very little, resulting in low rental value and little income for the landowner.
The reduction in rental values will be heralded by some as a means of reducing infrastructure costs for operators and so encouraging more investment in new sites and technology for the benefit of the public. This fails to acknowledge that, in practice, the vast majority of an operator’s investment costs will already have been incurred on existing sites and so the reduction in rent will be a very small proportion of the total investment cost incurred by the operator. For existing sites, this change in the way that consideration is to be calculated is unlikely to encourage new investment by operators but will have a significant and negative impact on landowners’ income streams.
Contracting out, left out
Many landowners are deterred from offering their land for telecoms sites or broadband because of justified fears that once an operator is on their land it will be almost impossible to remove it. Paragraphs 30 and 31 of the new code seek to remedy this problem. They set out a clear mechanism for terminating a code agreement where a landowner has an intention to redevelop all or part of its land or neighbouring land on which the apparatus is located, and it cannot redevelop with the apparatus remaining. This is good so far as it goes, but the new code could have gone further.
The government has shied away from allowing landowners and operators to contract out of the new code. An ability to contract out was recommended by many practitioners during the Law Commission and government consultations, but operators have successfully argued that allowing this would undermine the protection that the new code is intended to provide.
There is already anecdotal evidence that some large investment landowners are adopting a policy of not permitting code operators anywhere on their property portfolios because of the protection already afforded to them and the significant reduction in income as an expected result of the provisions of the new code. These effects are wholly contrary to the government’s aims of encouraging landowners to welcome telecoms operators onto their land and to facilitate connectivity.
As technology continues to develop, apparatus becomes smaller and the cost of removal or relocation reduces, the failure to allow contracting out is a lost opportunity.
The new code is certainly a vast improvement on the old, but it is a shame that government has not been braver in considering how best to encourage landowners to welcome operators on to their land and so increase the number of sites available across the country.
Code protection versus 1954 Act protection
The bill removes the double layer of protection enjoyed by operators as a result of the interplay between the current code and Part 2 of the Landlord and Tenant Act 1954. This was an unforeseen complication of the code and over the years has made it very difficult and time-consuming for a landowner to secure vacant possession of land, even where an operator’s agreement had expired and the landowner had redevelopment plans.
The new code provides that where the primary purpose of an agreement between a landowner and code operator is not to grant code rights, and the 1954 Act applies, then the termination provisions under the new code will not apply. Conversely, by an amendment to section 23 of the 1954 Act, where the primary purpose of an agreement is to grant code rights, the agreement will automatically be excluded from the 1954 Act.
Zoe Wright is a partner in the property litigation team at Shoosmiths LLP
