CELL:CM CLIENT NEWSLETTER – SPRING 2022
A warm welcome from Cell:cm to all of our clients either current or former.
With the telecoms market in such a period of turbulence and uncertainty it has never been more important for a landlord who hosts a telecoms installation to be kept informed about the market.
Therefore, we have put together this newsletter to provide information to telecoms landlords on:
New legislative reforms currently going through government
Synopsis on two recent Lands Tribunal decisions which related to telecoms site rental valuations
There is also a section at the end of the Newsletter which talks about some alternative options available to landlords regarding their telecoms leases and sites
THE UK GOVERNMENT’S PROPOSED REFORMS TO THE ELECTRONIC COMMUNICATIONS CODE 2017
The Product Security and Telecommunications Infrastructure Bill has now passed the Committee Stage in the House of Commons and is now at Report stage before it moves on to the third reading. It will then go to the House of Lords for similar readings before final stage and Royal Assent. Part 2 of the Bill deals with proposed amendments to the Electronic Communications Code following a period of stakeholder consultation during 2021.
The main changes are headlined as follows:
In paragraph 3, new wording to be inserted that will recognise where another operator has Code rights to share the first operator’s apparatus, to enter the land in connection with said sharing and to carry out works in connection with the sharing of the first operator’s apparatus. The intention is to make sharing easier and faster than at present and gives another operator a Code right to conduct surveys and where necessary make modifications to existing sites to make them capable of sharing or to extend any existing sharing of apparatus.
In paragraph 4 new wording will be added to make the definition of the ‘statutory purposes’ clearer and in recognition of operators providing networks, those providing the network infrastructure system and those operators with Code rights to share on other operators networks. Changes to paragraph 9 will simply clarify that the first operator enabling the sharing is extending its own Code rights to the second operator sharing.
Paragraph 17 will be overhauled to make sharing and upgrading of sites simpler and faster subject to three conditions being met
1. That here is no adverse impact on the land
2. That no burden is imposed on the person with an interest in the land
3. Requirement for the host operator to attach a notice providing at least 21 days notice of any proposed sharing and upgrading such notice to be attached in a secure and durable manner to a conspicuous object on the land.
Any notice referred to in (3) above will have to meet five strict criteria
a. Must be positioned where reasonably legible
b. Must state the operator’s intention to share or upgrade
c. Must state the date on which the upgrade or sharing is to take place
d. Must state the name of the other operator intending to share
e. Must state the name and address of the first operator so that they can be contacted
Amendments will be made to paragraph 20 of the Code which will make it mandatory for operators wishing to exercise their rights in this part of the Code to make site providers aware of available alternative dispute resolution (ADR) if no agreement can be reached and to explain the consequences of failure to engage in ADR. Furthermore, operators will have to consider the use of ADR before they can apply to the Court and will have to serve a notice on any relevant parties stating its intention to engage in ADR.
Paragraph 32 deals with situations where a site provider has served a notice to terminate a Code agreement under the provisions of paragraph 31 and the operator does not want the Code agreement to end and serves a counter notice on the site provider. This paragraph 32 will contain the same wording with references to ADR as outlined above in relation to paragraph 20. The same references to ADR will also be incorporated into the wording of paragraph 33 so that notices served by either party to terminate or modify a Code agreement before they can apply to the Court for an Order under this paragraph.
Finally, paragraph 35 will be modified to allow either party to apply to the Court for an interim agreement pending the Courts determination of an earlier application to terminate or modify an existing agreement. The Court will have the authority to fix the payment or modify the terms on an interim basis but must have regard to:
a. The terms of the existing agreement
b. The operators technical and business needs
c. The site providers use of the land to which the agreement relates
d. Any duties imposed on a site provider
e. The amount payable by the operator to the site provider
Changes to paragraph 96 of the Code will allow the Tribunal to take account of any unreasonable refusal by a party to engage in ADR when awarding costs.
In conclusion the proposed reforms to the Code are designed to make sharing and upgrading of sites simpler, faster and more transparent to site providers whilst at the same time respecting the impact that such sharing or upgrading is likely to have on site providers and their activities on their remaining land. The introduction of mandatory requirements to use ADR where agreement
cannot be reached is intended to reduce the need for Court proceedings and Tribunal hearings and will deal with more trivial matters which can be resolved more quickly and less expensively by ADR. Either party has the right to request ADR at any time and it must be explored before any applications can be made to the Court other than in exceptional circumstances where a site provider is absentee or cannot be identified after exhausting all normal processes.
These Code reforms should address gaps in the Code identified by operators, site providers and network infrastructure providers and is an attempt to balance the needs of these parties in a fair and reasonable manner. It also opens the door for ADR which is timely as the RICS intends to launch a new ADR service aimed specifically at the Telecoms market which should be far less expensive than the litigation we have seen since the new Code was introduced in Dec 2017. It also serves as a cautionary note for parties who fail to engage either in first tier negotiations or in the ADR process itself as this will be taken into consideration by the Courts when deciding who should pay the costs of any litigation.
ELECTRONIC COMMUNICATIONS CODE 2017 – CASE UPDATES
Since the Digital Economy Act became Law in December 2017 there have been a number of cases which have been heard in the Lands Tribunals in England and Scotland where there were genuine disputes between the Operator and the Landlord regarding the interpretation and application of the new Electronic Communications Code.
In addition, a number of claims have also been issued to the County Courts, where the Operator had the protection of the security of tenure provisions of the Landlord and Tenant Act 1954 (only applicable in England and Wales) These claims are applications to the Courts for the grant of a new tenancy where the Operators have argued that the new tenancy should reflect the benefits of the Code rather than the terms of the previous tenancy which was the case before the new legislation came in.
Recent cases have been heard on both fronts which demonstrate that there has been a convergence of the Courts and Tribunals thinking in respect of these two separate areas of Law. This article focuses on the two most recent cases which are likely to shape the future landscape of the telecoms market and the likely rent or consideration that Operators may be prepared to pay for existing and new sites.
During 2021 the Mayors and City of London County Court heard a case which related to an application by EE & H3G for a new tenancy under section 26 of the L&T 54 Act (EE and H3G v Morriss, Holroyd Tayler and Pippingford Estate Co Ltd) The Court issued its judgement in January 2022 which addressed a number of matters disputed between the parties.
The case concerned a greenfield mast on a private estate (Pippingford) located in the Ashdown Forest in East Sussex. A small area of land had been let to EE & H3G since 1996 and the lease expired in August 2014 but continued in force holding over under the L&T Act 54. The tenants had installed a 30m mast which was also shared with other operators. Until the date of the Court hearing EE & H3G had been paying an annual rent of £7,757pa plus a percentage of the income they received from other operators sharing the mast. EE & H3G had initially offered the landlords £300pa for the proposed new tenancy.
In addition to the disputed rental a number of other matters were also in dispute including (i) equipment rights (ii) compensation (iii) access (iv) Indemnity (v) non interference (vi) break clause (vii) rent reviews.
This article will not deal with the detail of these disputed matters but will focus on the rent/consideration payment.
EE & H3G’s expert valued the site initially at £950pa but changed this to £1,200pa during the course of the hearing. The landlord’s expert valued the site at £12,000pa citing various factors that enhanced the value of the land including the ability to share with other operators. The Judge was unconvinced by both experts valuations but indicated it was leaning towards EE & H3G’s expert and ultimately awarded a rent for the new tenancy at £3,500pa taking a number of factors into account.
It is worth noting that even though a new tenancy was awarded using the L&T Act 54 it immediately becomes a Code agreement (being granted after Dec 2017) and all aspects of the Code will apply going forward. A key takeaway from this judgement was that the court did not find that evidence of rents agreed before the new Code were reliable and evidence of rents agreed at renewal were not true market rents.
Soon after the Court’s judgement in Pippingford the same judge this time in the Upper Tribunal (Lands Chamber) issued a ruling in respect of a claim by EE & H3G for a new tenancy under paragraph 34 of the Code (EE & H3G v Affinity Water Ltd) In this case EE & H3G had a lease which expired in 2018 after the new Code came in and therefore a new tenancy could be applied for using the new Code.
The case concerned a 1930’s concrete water tower in Southall in London where a number of operators including EE & H3G were using the structure to fix its antennas and all had ground based compounds housing other electronic communications equipment. Terms for a new Code agreement had already been agreed between both parties by the time the case was heard and the only matters that the Tribunal were being asked to rule on was both consideration and compensation.
EE & H3G’s expert valued the site at £1,453pa which he subsequently increased to £2,787pa during the course of the hearing. The landlord’s expert had valued the site at £7,706pa but reduced this to £6,560pa also during the hearing. Both experts went into great detail regarding their workings to arrive at their valuations but the Judge was critical of this approach and suggested a more broad-brush approach would be appropriate.
The Tribunal adopted a 3-stage approach to the valuation similar to that advanced in a previous L&T 54 Act claim (Vodafone v Hanover Capital Ltd) and this resulted in a final valuation of £3,300pa. The Tribunal also awarded Affinity Water compensation made up of £6,000 towards its legal costs (actual costs were £7,449) and a further £1,500 towards professional costs. The final award by the Tribunal was therefore a consideration of £3,300pa and compensation of £7,500.
The Tribunal in this case highlighted the range of rents/consideration awarded in previous cases since the new Code was brought in and narrowed this down to a range of between £600pa and £5,000pa suggesting that the majority of values would likely fall into this range. Comparing the two cases above where the applicable law was very different the final valuations were very
similar and these provide some indication as to where the Courts and Tribunals expect values to level out albeit there will be exceptions where a valuation outside the above range could be justified. However, despite these judgements renewal offers being received by landlords from the operators continue to be well below these levels. With further notices and threat of court action
A final point worthy of note is that the Government’s proposed Code reforms will align the principles for assessing value whether or not it is a Code valuation or an L&T 54 Act valuation. Landlords and site providers of new or existing sites should seek professional advice as soon as they are approached by any operator proposing terms for a new Code agreement.
ALTERNATIVE OPTIONS AVAILABLE TO TELECOMS LANDLORDS
With a likely reduction in rent in the future, several owners have decided to instead sell the rights for the telecommunications site demise on their properties for a set number of years. There are a number of specific telecoms investors that are potentially willing to offer considerable amounts for this, as they will attribute more value to the telecoms rent than the operators and make landlords offers as either a lump sum amount or payments over time. There is also the option of a part capitalisation where the company collects a certain percentage of the rent but is also responsible for the management of the telecommunications site and associated costs.
If you would like to find out what value an investor would put on your telecoms site, please contact us and our lease capitalisation expert can provide further details for you.
Finally, we’ve been working with independent telecoms infrastructure companies to see if there’s an alternative option for landlords, rather than feeling forced to accept a code lease for a new telecoms site on their land or property. This infrastructure partnership would provide landlords with a ‘buffer’ between them and the operators, whilst simultaneously giving landlords more control over what goes on on their property and reducing the amount of time and money they spend on it.
If you would like further information or specific advice on your telecoms lease, please contact your allocated Cell:cm professional surveyor or speak to us on 0800 046 5381.