Alison Hardy explores the landowner’s view and Carlos Pierce explores the operator’s view of the key issues that will arise from the introduction of the new Electronic Communications Code
The new Electronic Communications Code (new Code) introduced by the Digital Economy Act 2017 became law on 28 December 2017 and substantially changed the landscape for mobile and fixed-line telecoms.
The new Code governs the terms on which telecoms operators can access and occupy land including the payments that operators make to landowners for such use. Now landowners will receive a consideration payment calculated on the value of the land on a “no scheme basis” (ie excluding the use that the operator will make of that land) and compensation for any loss or damage that the landowner will incur as a result of the operator exercising its rights over that land. This is a common principle used for agreements made with utility companies but it is a big change in the telecoms sector.
Six months on, is it working and what are the key differences with the 1984 Electronic Communications Code (old Code)? Let’s start by looking at the answers from the landowner’s point of view.
The landowner’s view
Who enters into the agreement?
Ever since 1984, the Telecoms Code has provided that Code rights are conferred by the occupier for the time being of the land. The old Code provided that a freehold or leasehold owner with priority over the occupier (rather than one whose interest is derived from the occupier) would rarely be bound unless he conferred the right or agreed to be bound by it and gave that party the right to require the equipment to be removed.
Rent is now consideration calculated in a no-scheme world
The old telecoms market allowed operators and property owners to negotiate a fair rent for sites between themselves, making telecoms an attractive income source for property owners.
Many city centre rooftop installations attracted rents in the region of £15,000 to £25,000 pa with supply and demand driving the price of sites.
The new Code makes a fundamental change to this. For agreements entered into since 28 December 2017, the rent will be significantly lower – the new test for calculating consideration imposes a “no-scheme” valuation on both parties. Payments for telecoms sites are now in two parts – consideration and compensation and there are some heated discussions going on between operators and landowners about how these two components are calculated.
In effect, telecoms sites are to be treated more like any other utility and the price for “Code rights” will be calculated using the principles of the new Code. Landowner agents are looking to rentalise “Code plus” rights, ie anything over and above the specified rights granted to operators by the new Code (such as the right to fence greenfield sites and a relaxation of the new Code right to install additional equipment). They are also arguing that each of the individual Code rights are to be negotiated and paid for individually, rather than for the operator to automatically get all of the rights to:
■ install apparatus;
■ keep that apparatus installed;
■ inspect, maintain, adjust, alter, repair, upgrade or operate it;
■ carry out works on land relating to that installation, maintenance, adjustment, alteration, repair, upgrading or operation of the apparatus;
■ enter land to inspect, maintain, adjust, alter, repair, upgrade or operate it;
■ connect to a power supply;
■ interfere with or obstruct access to land; or
■ lop or cut back trees or vegetation.
The operators are putting forward consideration figures that would decimate rental values and income streams for property owners. It is already leading to many institutional landowners deciding that it just isn’t worth the hassle of allowing telecoms kit to be installed considering the restrictions and delays to potential development if they later want the kit removed or relocated.
Operators can now assign without consent
Many old telecoms leases restrict assignment and sharing of occupation in fairly standard form. Some old leases allow operators to share with other operators, in return for an increased rent (usually around 15%) – this is known as “payaway”. Since the formation of joint ventures – Mobile Broadband Network Limited (MBNL) and CTIL (the joint venture company set up by Vodafone and Telefonica to own and operate all of their network assets) – many leases allow CTIL to share for free with Telefonica and Vodafone, or for EE and Three to share sites managed by MBNL with each othe. This allows property owners to know who is in occupation of their property.
Under the new Code, operators have a statutory right to freely assign and share the use of their apparatus (but not share occupation of the site) with other third party operators without the property owner’s consent. Note however that in the case of sharing, this is subject to two tests:
■ that there is no adverse impact, or no more than a minimal adverse impact on its appearance; and
■ that the sharing imposes no additional burden on the other party to the agreement.
This seems quite impractical. If an operator wants to add extra equipment in order to facilitate the share, then a landowner can probably stop this (once they know about it) by showing that there is an adverse impact, or additional burden. Past experience indicates that operators will install equipment and wait to see if the landowner notices. Landowners would be well advised to keep an updated record of what is on site to enable them to challenge any additional equipment that later appears.
This “install first, challenge later” approach is intended to assist the speedy roll-out of this important digital infrastructure, but has the result of putting the onus on landowners to monitor equipment.
The freedom to contract and to bring agreements to an end
The old Code enabled parties to contract out of most, but not all, provisions. The new Code prevents contracting out and therefore limits the ability of sophisticated parties to negotiate a deal that will work for them. The result is that sophisticated landowners will often refuse to allow operators to install their equipment and the government’s target of rolling out telecoms infrastructure may be defeated, rather than supported, by this new legislation.
The new Code includes a definition of land, or rather what isn’t land, for the first time. The definition states that land does not include electronic communications apparatus. This is a bizarre method of ensuring that Code operators do not seek to enforce Code rights against other Code operators so that if operators install their antennae on a mast installed by another operator, then the agreement between them is not regulated by the new Code. The parties are free to contract between them without reference to the new Code.
The old Code empowered the courts to allow operators to remain in occupation without the property owner’s consent and to impose an agreement where terms can’t be reached by negotiation. Under the old Code, it was very hard to remove an operator when their lease came to an end and there was a real chicken-and-egg situation with leases afforded Landlord and Tenant Act 1954 and Code protection. A landowner’s old Code notice would be of no effect until such time as they brought the operator’s 1954 Act rights to an end.
One benefit of the new Code for landowners is that new Code agreements are automatically excluded from the security of tenure afforded by the 1954 Act. Further, the new Code states that a tribunal cannot order a new agreement to be granted where it thinks that the landowner intends to redevelop all or part of the land or any neighbouring land.
At first flush this looks good for landowners. However, it is a different test than under ground (f) of the 1954 Act (which leads to uncertainty) and the minimum period of notice that a landowner must give is 18 months, rather than the six months provided for in the 1954 Act. This will make potential development even slower and will, I believe, lead to termination notices being served just in case the landowner does want to redevelop 18 months later.
The new Code has a two-stage process to terminate and remove equipment. After serving the 18-month termination notice, landowners will then have to go through the removal process set out in Part 6. Operators will actually get more than 18 months to remove their equipment. This will mean that where telecoms equipment is installed, the site is blighted for redevelopment purposes. Unless operators change their behaviour and remove kit quickly on receiving notice, they can expect resistance from landowners when looking to roll out new infrastructure.
Lift and shift
Most old Code agreements included a lift-and-shift provision. This was particularly useful on rooftops, allowing landowners to move the apparatus when resurfacing the roof, or carrying out repairs. The downside for landowners was that (unless they agreed otherwise), the old Code required them to pay the operator’s cost of moving the equipment and reinstalling it.
I expect that this pattern of including lift-and-shift provisions will be continued for operational reasons under the new Code agreements. Indeed, it may become more prevalent than before, as there is no repeat of the statutory right to carry out alterations (the old paragraph 20). The parties will need to agree who bears the cost of relocation and also agree the mechanism for notification and agreement as to the alternative location.
Open 24/7
Most old Code leases control access so that if an operator wants to access the rooftop, they must do so during the hours that reception is staffed and comply with the landowner’s site access regulations. This is important for health and safety. Moreover in the past, many operators breached lease terms by using maintenance visits to change and upgrade equipment in breach of the lease, in the belief that landowners either wouldn’t look, or wouldn’t be able to tell the difference.
Under the new Code, operators, their assignees and third-party Code operator sharers have carte blanche rights to access the property owner’s land day or night and to upgrade and alter equipment, subject to the tests about adverse impact and burden.
This 24/7 access is likely to cost operators more than limited access – landowners may require operators to pay additional security/staffing costs as compensation under the new Code.
.The final word…
Landowners are still scarred by the past poor behaviour of operators. If operators want to be seen as a utility, they need to behave like other utility providers. For example, they need to facilitate development rather than standing in the way, recognising that their infrastructure is often more invasive than water or electricity. As a result, they still have to make it worthwhile for landowners to allow the installation.
Alison Hardy is a partner at Ashurst
The operator’s view
Who enters into the agreement?
This is replicated in the new Code. Landowners not bound by a Code agreement can jump straight to the removal process, avoiding the need to give 18 months’ notice to terminate.
Rent is now consideration calculated in a no-scheme world
The use of our mobile phones and the internet is a national resource and it seems logical to put the nation’s connectivity on a par with other utilities.
Imagine if utility companies deployed other infrastructure on the same basis as telecoms did before the new Code? What would the country look like if we acquired roads or railways one field at a time? Yes, a few lucky individuals may be substantially better off, but the nation as a whole would be poorer. This is because it is what people do with water, electricity, gas, transport or connectivity that adds value, not the provision of the utility itself.
The new Code recognises this and sets out a fair method for calculating what an operator should pay a landowner on well-established valuation principles that are used in the utility sector. It removes the unreasonable, excessive or ransom sums that were prevalent prior to the new Code coming into force.
There are always going to be two sides to the story, particularly around the interpretation of consideration and compensation. Ultimately, if the parties cannot agree to a consensual deal, including payment terms, either party could apply to the Upper Tribunal (Lands Chamber) (the UT) to decide the terms of the agreement. This should be used only where there is an urgent network requirement for a site or where negotiations have broken down.
Operators can now assign without consent
The ability to share is a feature of the future of technology and the changing face of connectivity. The new Code looks to facilitate faster and easier deployment of technology. Would a landowner really wish to restrict this especially if it places no burden on them?
Further, the new Code implements safeguards for landowners. It ensures that:
■ the main operator will always be accountable to the landowner;
■ it can only assign to another Ofcom regulated operator; and
■ the landowner has one Code agreement with the main operator and therefore one relationship to manage under a single piece of legislation.
The new Code improves the position for landowners and, at the same time, encourages innovation.
Operators will keep an accurate record of the information held on their sites – CTIL, for example, is committed to collaborating and working with landowners on this basis.
Contracting out/termination
The new Code provides a level playing field for all parties – surely it wouldn’t make sense to introduce new legislation that benefits both parties and then allow them to contract out of it? In any event, will landowners wish to frustrate the future of connectivity by refusing to negotiate with operators?
The old Code received criticism from both landowners and operators regarding the uncertainty that happens following expiry of an agreement, especially if that agreement attracted protection under the 1954 Act. The new Code seems to remedy this by:
■ clearly setting out the grounds for termination;
■ ensuring that the 1954 Act will not apply to new Code agreements;
■ setting out clear timeframes; and
■ placing the onus on the operator, rather than the landowner, to issue proceedings.
Surely simplicity for landowners is better than complexity?
A landowner now has certainty in knowing that it can remove an operator if it plans to redevelop its property and, unlike in the 1954 Act, there is no requirement for the landowner to pay statutory compensation to the operator. While it is acknowledged that the landowner has to give the operator 18 months’ prior notice, it is hoped that this seeks a fair balance between the parties. Most landowners redeveloping their property will know about their plans far in advance, and will be talking to their other tenants. This timeframe gives operators time to remove their equipment, find a new site and ensure that the service is maintained.
This also seeks to close the loophole that occurred prior to the new Code which saw some landowners in the past exercising break clauses to extract more rent from operators. Some landowners sought to increase the rent over and above the market rent knowing that the operator would agree to this rather than incur the cost of building a new site and removing the existing one; a practice which drove up the rent for other sites.
Lift and shift
There is no ability in the new Code for a landowner to demand that a Code agreement should contain a lift-and-shift provision. It will be for the parties to discuss whether this is appropriate, and whether this has an effect on the terms of the agreement, including the valuation principles.
The new Code does, however, provide that the UT has a discretion, when determining the terms of a Code agreement, to consider whether or not it should enable a landowner to require the repositioning or temporary removal of equipment, and, if so, in what circumstances.
No mention is made in the new Code as to who would pay for those costs, and while the parties might wish to discuss this on a site basis, the previous Code provided that this should be borne by a landowner. There is no reason to think that it should be any different under the new Code.
Open 24/7
While the new Code does grant unlimited access rights, in practice, consideration will need to be given to the characteristics of the individual site to determine whether any new agreements should contain site-specific access protocols that will govern when and how operators access the site. It will be up to the parties to discuss these and ensure that these are workable.
However, let’s not forget why access is required. When there’s a power cut, customers want it fixed ASAP. Similarly, when our phones lose signal, we want the problem fixed ASAP – no-one would expect an operator to have to wait months to get access to a site to resolve the problem (subject to the tests about adverse impact and burden).
The usage and expectations around connectivity since the old Code was introduced in 1984 have changed beyond recognition. Operators will keep an accurate record of the access requirements for their sites. CTIL is committed to collaborating and working with landowners on this basis.
The final word…
There are always going to be two sides to the story, but in the new Code, the government seeks to balance the interests of landowners with the nation’s need for improved and quicker connectivity and to ensure competitiveness.
Connectivity will change the way we work, rest and play. As our demands for connectivity continue to increase, and the face of that technology changes, the new Code is a step in the right direction for everyone and it’s in everybody’s interest to work together.
Carlos Pierce is Head of Strategic Projects and the Code Programme at CTIL
