Landlord and tenant – Business tenancy – Electronic communications site – Claimant applying unopposed for renewal of tenancy for mobile telephone mast site – Issues arising concerning rent at which site reasonably expected to be let in open market and method of valuation – Issues determined accordingly
The claimant was an “operator” under the electronic communications code in paragraph 2 of schedule 3A to the Communications Act 2003 (the Code) which replaced the old Code in schedule 2 to the Telecommunications Act 1984. It was the tenant of a small area of hardstanding adjoining the car park of a two-storey office building known as Signal Point, on the Bredbury Trading Estate near Stockport in Greater Manchester. The land once formed part of the car park but was now fenced off and the site of a mobile telephone mast with associated telecommunications equipment cabinets. Access was along a short stretch of tarmacked private road shared with users of the car park. Both the site and Signal Point were owned by the defendant.
The claimant had been granted a lease of the site in 2008. It was an agreement in writing to keep electronic communications apparatus installed on the site and so the old Code applied until its repeal in December 2017.
The lease was a subsisting agreement under schedule 2 to the Digital Economy Act 2017. As the claimant occupied the site for the purpose of its business, it fell to be renewed under part 2 of the Landlord and Tenant Act 1954 and not pursuant to part 5 of the Code.
In August 2017, the claimant issued unopposed proceedings in the county court for a new tenancy of the site under section 24 of the 1954 Act. Questions arose as to the length of the term of the new lease and how rents of electronic communications site tenancies under the 1954 Act fell to be valued on renewal.
As the case involved important issues, the Upper Tribunal (Lands Chamber) agreed to hear the matter, assisted by an assessor-valuer.
Held: The issues were determined accordingly.
(1) The duration of the new tenancy was required by section 33 of the 1954 Act to be such as the court determined to be reasonable in all the circumstances. Each case depended on its own facts. The length of the current tenancy and its continuation by the 1954 Act were relevant considerations, as was the nature of the tenant’s business. The primary purpose of the legislation was to protect the tenant. The court would seek to balance the degree of protection to which the tenant was entitled in the interests of its business and the need to ensure that the decision was neither unfair on nor oppressive to the landlord.
On the evidence, giving weight to the needs of the claimant’s business, and to the rights which parliament intended operators to enjoy under the Code, the term of the new tenancy would be ten years, with a break clause exercisable on six months’ notice expiring on the fifth or subsequent anniversary of the term. The operator’s wish for flexibility had to be balanced against the landlord’s understandable desire for a respite from uncertainty and expense. That balance was satisfied by a minimum commitment of five years, with the operator being entitled to greater flexibility at fixed intervals after that period expired.
(2) Section 34 required the court to determine the rent at which the holding might reasonably be expected to be let in the open market by a willing lessor on the terms of the tenancy. That exercise involved imagining a negotiation between a hypothetical landlord and a hypothetical tenant, who were willing to enter into a tenancy of the site on the terms which had now been settled. The subject of the hypothetical negotiation was the site, which was assumed to be in the condition it would be in if the actual tenant had removed fixtures installed by it and complied with its obligations. The hypothetical tenant was a Code operator. Both negotiating parties were assumed to be prudent and knowledgeable, and it was likely that both would be professionally advised. Both parties would therefore be aware of how the Code operated.
(3) Section 34 referred only to a willing lessor, but it was well-established that the hypothetical letting had to be assumed to be between two willing parties, and a willing tenant was necessarily implied by the requirement to assume a letting in the open market. The negotiation was assumed to be fair and friendly, conducted in the light of all the advantages and disadvantages which would affect the property and any tenant of it. Neither party was anxious to do a deal, nor under particular pressure to do so, and the hypothetical tenant would not pay more than was necessary, nor would the hypothetical landlord expect to receive more. The willing lessor would be willing to let on the agreed terms so would not require any form of inducement to persuade it to do so at the rent which reflected the open market. Accordingly, they did not need to be coaxed into the hypothetical transaction by any form of inducement. That might have the effect of rendering transaction which occurred in the market unreliable as comparables, although comparables infected by inducements need not be disregarded altogether if the value attributable to the inducement could be identified and an allowance made for it: FR Evans (Leeds) Ltd v English Electric Co Ltd (1978) 1 EGLR 93, Dennis & Robinson Ltd v Kiossos Establishment [1987] 1 EGLR 133, BP Petroleum Developments Ltd v Ryder [1987] 2 EGLR 233, Northern Electric plc v Addison [1997] 2 EGLR 111 and Marklands Ltd v Virgin Retail [2004] 2 EGLR 43 considered.
(4) In order to be faithful to the section 34 valuation hypothesis, it was necessary to envisage what would be likely to happen if the site, in its assumed undeveloped condition, was offered by the landlord to the open market for use as a mast site on the agreed terms. The site would be assumed to have been exposed to the market for a reasonable period, allowing all those with an interest in acquiring a lease for ten years of a new mast site in that location to express an interest and make an offer to the hypothetical landlord.
It was to be expected that, in an open market with more than one potential tenant, the hypothetical willing landlord would refer to sums paid under the old Code as a measure of the value of sites to operators and would be able to negotiate a comparable return. On the basis of market evidence of transactions based upon old Code valuations (without a no network assumption), it was likely that the hypothetical willing parties would agree a figure of £5,750 including a 5% adjustment for the absence of a rent review clause. That was the sum payable for the new tenancy under section 34 based on the value of the site to the operator rather than the owner. The court was satisfied that in the open market there would be demand for the site, as demonstrated by the presence of four operators on the current installation, and that that demand would push up the rent to levels reflecting the value of the site to the successful bidder.
The same might not be true for sites which satisfied the needs of only one operator and which would not be of interest to competitors. In such cases the fact that negotiations would be conducted against the background of the Code’s no network assumption might cause the parties to agree a rent reflecting only the value of the site to the owner and the other considerations identified in the suggested valuation framework.
Stephen Jourdan QC and Oliver Radley-Gardner (instructed by Osborne Clarke) appeared for the claimant; Kester Lees and Fern Schofield (instructed by Praxis Law) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read a transcript of Vodafone Ltd v Hanover Capital Ltd