The Upper Tribunal (Lands Chamber) has on several occasions this year considered the terms of renewal leases of electronic telecoms apparatus under the Electronic Communications Code contained in Schedule 3A to the Communications Act 2003. One illuminating decision where the tribunal endorsed the structured approach to determining the rent payable was that of EE Ltd and another v Stephenson and another [2022] UKUT 180 (LC); [2022] PLSCS 114, which concerned a new lease of an existing telecommunications mast site.
Background
The claimants were both operators under the Code. They jointly own an estate of leased telecoms sites. The site, owned by the first respondent, comprised a fenced compound of 18.2 sq m in an arable field, which hosted a 17m monopole and ground level cabinets near Truro, Cornwall. It was let in 2011 for a term of 13 years expiring in May 2019 and had been continued by paragraph 30 of the Code. An intermediate lease to the second respondent was granted in 2019 for 50 years. It was agreed the second respondent was the appropriate party to grant any new lease under the Code.
Many of the new lease terms were agreed: a term of 10 years, at a rent to be determined by the tribunal, subject to review according to the retail price index after five years and a tenant’s break clause exercisable after five years.
Key points
- Where sought, wide rights to upgrade and share will be granted to achieve the objectives of the Code
- Where a lease is no longer held by a Code operator, owners are entitled to a market rent
- The “no-network” assumption of the Code requires the artificial structured approach to the determination of rent
The law
Under paragraph 34(11) of the Code, the new lease is to contain such terms as the tribunal thinks appropriate under paragraph 23, subject to certain minimum requirements. In particular, the terms imposed must ensure the least possible loss and damage is caused by the exercise of the code rights “to those who occupy the land or own interests in it” under paragraph 23(5).
The rent payable under paragraph 24 is the market value of the second respondent’s agreement to confer code rights. It is the amount that a willing buyer would pay a willing seller for the agreement in a transaction at arm’s length on various assumptions, including that it does not relate to the provision or use of an electronic communications network (the “no-network” assumption). Paragraph 25 empowers the tribunal to order the operator to pay compensation to the site provider for any loss or damage that has been or will be sustained as a result of the exercise of the code rights.
Rent review
The tribunal agreed in principle that, given the highly restrictive terms on which the rent is to be determined, if the lease is no longer in the hands of a code operator the rent should be reviewed to the current open market value. The Code’s policy of promoting improvements in telecoms for the public benefit did not require that the site provider should be kept out of its fair share.
Upgrading and sharing
The tribunal permitted the claimants’ unrestricted rights to install, renew and upgrade the electronic communications equipment. To concede to the second respondent’s requirements that any upgrades should comply with the conditions in paragraph 17 of the Code – no adverse impact, or only minimal impact on appearance and impose no additional burden on the landlord – would obstruct the achievement of the objectives of the Code. The potential impact of upgrading on the visual appearance of the equipment had to be assessed in view of the relative remoteness of the site. The rights guaranteed by paragraph 17 are the minimum upgrading terms rather than a ceiling (On Tower UK Ltd v Green [2022] EGLR 3).
The tribunal took the same view in relation to attempts by the second respondent to limit the right to share the tenant’s equipment and not the site. To impose paragraph 17 restrictions would reduce the attraction of the site to other operators and be inconsistent with the objectives of the Code. To allay the landlord’s concerns, the lease would contain an explicit statement that the landlord did not agree to be bound by any code rights acquired by sharers.
Rent
The tribunal recommended that, in preparing evidence, parties avoid an analysis of comparable code transactions, since use of the land for code purposes is specifically excluded as a consideration under paragraph 24. Additionally, the rents often represent only part of the financial terms agreed between the parties, with capital payments concealed from view by confidentiality agreements.
The structured approach set out in Cornerstone Telecommunications Infrastructure Ltd v London and Quadrant Housing Trust [2020] UKUT 282; [2020] PLSCS 187 is to be preferred, even though it is an artificial approach and reflects a negotiation which never occurs in reality. This requires:
- An assessment of the alternative use value of the site for the most valuable non-operator use;
- inclusion of an allowance for any additional benefit conferred on the tenant, eg a manned security gate; and
- adjustment to reflect any greater adverse effect on the willing lessor than the alternative use value.
On Tower valued a rural mast site at £750 pa and the tribunal saw no reason to depart from that figure. The rent reflected the market value of the land and so there was no justification for a compensation claim. A claim in respect of neighbouring land could, if warranted, be pursued in future.
Louise Clark is a property law consultant and mediator
