Landlord and tenant – Telecommunications – Electronic communications site – Rent – Claimants making unopposed application for new tenancy of telecommunications site – Issue arising as to rent payable under new lease – Rent determined accordingly
The claimants were the operators of separate telecommunications networks who cooperated in the acquisition and occupation of mast sites. The occupation of land for the purpose of their networks was governed by the Electronic Communications Code in the Communications Act 2003 (the Code).
The first and second defendants were trustees of a family trust which held the freehold of Pippingford Park Estate in Nutley, East Sussex, a small mixed rural estate near Tunbridge Wells. The first defendant also managed the estate. The third defendant company was the entity through which the commercial activities of the estate were conducted.
Telecommunications sites were commonly occupied under tenancies governed by the Landlord and Tenant Act 1954. Such tenancies had to be renewed under the 1954 Act but any new tenancy would be subject to the Code.
Land situated in a wooded part of the estate which comprised approximately 130 sq m was let by the third defendant as a telecommunications site. Following the expiry of the contractual term on 1 August 2014, the claimants held over under the tenancy continued by the 1954 Act.
The defendants did not oppose the grant of a new 10-year lease, and many of the terms were agreed but a number remained in dispute. The court was required to determine, amongst other things, the rent payable under the new lease.
Held: The rent was determined accordingly.
(1) The burden of persuading the court to depart from the terms originally agreed lay with the party proposing the change: O’May v City of London Real Property Company Ltd [1938] AC 726.
The rent payable under the new tenancy was to be determined under section 34 of the 1954 Act. It would be such as might be determined by the court to be the rent at which, having regard to the terms of the new tenancy, the site might reasonably be expected to be let in the open market by a willing landlord disregarding the matters in section 34(1) and (2).
The statutory basis of assessment of rent under section 34 was very different from a determination under paragraph 24 of the Code, which contained highly favourable valuation assumptions for the benefit of operators, but the principles of valuation under the Code were indirectly relevant to a determination under the 1954 Act.
The Code valuation principles, in particular the “no-network” assumption in paragraph 24, provided the framework for the hypothetical parties’ negotiations in the open market, and the same principles ought therefore to be kept firmly in mind when determining a rent under section 34. In order to give effect to the statutory assumption that the new letting was in the open market, it was necessary to assume that the claimants had vacated the site. The mast, the fence enclosing the site and the other apparatus on it were tenant’s fixtures which the claimants would be obliged by the terms of the current tenancy to remove when that tenancy came to an end. The site should therefore be assumed to have been cleared of the claimants’ apparatus by the date the new tenancy was granted: Vodafone Ltd v Hanover Capital Ltd [2020] EW Misc 18 (CC); [2020] EGLR 35 considered.
(2) There was no reason to ignore the true nature of the tenancy when determining the rent and no requirement to assume that the site would not be used for the purpose of an electronic communications network. In that critical respect an assessment of rent under section 34 was unlike a determination of consideration under paragraph 24 of the Code, which had to be carried out on the “no-network” assumption.
In Hanover Capital, the absence of evidence of rents agreed in the market for new telecommunications sites led the court to consider a structured approach, taking account of the factors which it assumed would be in the minds of willing parties negotiating a rent for a new letting under the Code. Where a rent was to be determined under section 34 of the 1954 Act, a structured approach was only necessary where reliable transactional evidence was missing. In this case, the evidence of new lettings of bare sites was of sufficient quality and quantity to enable clear conclusions to be drawn. In principle, based on the available evidence, a conventional comparative approach was appropriate.
(3) The rent to be determined under section 34 was for the whole site, which took account of all relevant features of the real world, except to the extent that the valuation hypothesis required otherwise, having regard only to those matters which would influence parties negotiating a letting of the whole site. One would ordinarily expect all the consequences of the transaction to be taken into account by the parties. The negotiations were assumed to be friendly and fair but, subject to that qualification, would be conducted in the light of all the bargaining advantages and disadvantages which existed on the valuation date.
It was necessary, when making use of transactional evidence, to consider whether agreed rents included an incentive payment to induce willingness in an otherwise unwilling site provider. In the telecommunications sector, it was almost invariable that agreed rents would have been arrived at “off market” where the operator had selected a site and approached the owner with a proposal to let it. The site owner would usually have had no previous interest in, or intention of, letting the site and had not offered it for letting on the open market. It would therefore be necessary to consider whether any adjustment was required to rents agreed in the real world to take account of the assumption that the hypothetical letting took place in the open market in which the property was offered to all who might be interested in it.
(4) In almost all cases where no capital payment was made the rent agreed was £2,250. Where capital payments were included as part of the deal a lower rent was paid, usually £1,000. The upfront payments which featured in those transactions were usually £15,000, which had to be reflected in the rent. In the present case, a total of £3,500 a year was the annual rent payable under the new tenancy.
Stephanie Tozer QC (instructed by Winckworth Sherwood LLP) appeared for the claimants; Jonathan Wills (instructed by Bryan Cave Leighton Paisner LLP) appeared for the defendants.
Eileen O’Grady, barrister
Click here to read a transcript of EE Ltd and another v Morriss and others