The Electronic Communications Code: the future appears bright for telecoms operators - a review of recent court decisions
Deciphering the Code
We still refer to it as the "new" Electronic Communications Code but it has now been in force for well over a year. The New Code governs the relationship between property owners and those who run communications networks ("operators") through masts, cables, antennae and equipment cabins which need to be accommodated somewhere. We are now starting to see operators testing the waters and the implications for property owners are starting to become clear.
Under the "old" Code, landowners could earn some not inconsiderable sums from allowing the installation of telecoms equipment. However, balanced against this, was the cost of removal of the equipment if the land was needed for another purpose. Property owners, under the New Code, have been concerned, and, now it appears rightly so, about operators proposing new rents at extremely low levels, using the new “no scheme” valuation criteria. Operators appear to be willing to pursue these rents, as well as their Code rights, much more assertively than they did under the old Code. This partly reflects the jurisdiction given to the Upper Tribunal (UT) for many New Code matters and its obligation to determine certain New Code applications within 6 months.
It is clear from the UT's early decisions in applying the New Code that it recognises the importance of increased national connectivity and, to achieve this goal, it does appear willing to favour the operators.
We thought it would be useful to review some recent decisions.
Valuation under the New Code: EE Ltd & Hutchison 3G UK Ltd v Islington Borough Council
In a landmark decision under the New Code, the UT has ruled in EE and Hutchison 3G's favour, concerning the form a Code Agreement can take and the calculation of consideration and compensation payable under a Tribunal imposed Code Agreement. Network operators (not landowners) will take particular comfort from this decision, as the UT has endorsed the fact that significantly lower sums are now payable in respect of consideration under a Code Agreement under the New Code.
"No scheme" valuation
The way in which rights are valued has been changed under the New Code from the market value approach, to a new "no scheme" approach: one that requires it to be assumed that the rights to be granted do not relate to the provision or use of an electronic communications network, and that the landowner providing the site does not have a monopoly of suitable sites. Concerns have been expressed because of the assumptions and the fact that the consideration payable under the New Code may "be quite modest". Contrast the position under the old code where parties were free to agree the amount to be paid for the rights conferred.
Never a truer word spoken?
EE Ltd & Hutchison 3G UK Ltd v Islington Borough Council concerned a typical rooftop site for which the landowner wanted an annual rent of £13,250, and for which the operators were prepared to offer a nominal rent of £1 as consideration under paragraph 24 of the New Code*.
The judge ruled that the paragraph 24 valuation of the consideration that should be payable for the grant of the Code right was an ordinary market valuation. The principal assumption to be made in carrying out the valuation, namely, that "the right that the transaction relates to does not relate to the provision or use of an electronic communications network" (this is what the UT called the "no-network" assumption) had the effect of excluding from the assessment of consideration any value attributable to the intention of the operator to use the site as part of its network.
A bitter pill to swallow
Balancing all the specific circumstances of the case, the UT decided that the consideration which willing parties would agree for the terms to be imposed would be £1,000. The judge remarked that "the presence in the market of operators who might want to use the site to provide a network must therefore be ignored, and the price which such operators would in practice offer for the site must not be taken into account in assessing consideration."
*The sting in the tail is before the New Code came along, the parties were close to signing a new agreement for £21,000 per annum but the agreement was never completed, probably because the valuation provisions of the New Code were thought to be more favourable.
It does look like it's a case of agricultural value only for corners of fields, and rooftop value only for rooftops. It is not good news for landowners.
Interim Code rights: EE Ltd & Hutchison 3G UK Ltd v London Borough of Islington
This earlier case, which involved the same parties, (just different issues to be considered), concerned whether the UT could grant the operator interim Code rights (pursuant to paragraph 26 of the New Code) to install telecoms apparatus on the roof of a block of flats (Threadgold House) owned by the London Borough of Islington. Under the New Code, an operator can apply to the court for interim rights which can be granted for a fixed period of time and are not subject to extension.
Prior to the said request, the operator had its telecoms apparatus on the roof of a nearby property (Leroy House). The landowner of Leroy House announced that it had sought planning permission for redevelopment works. The operator subsequently identified Threadgold House as an ‘appropriate’ alternative site for relocation and consequently applied to the court to seek interim Code rights.
The UT granted the operator the interim rights, citing that the ‘public benefit of communications coverage…outweighs the small amount of prejudice’ experienced by the landowner and confirmed that the test under paragraph 21 of the New Code had been satisfied (the "public benefit" test).
Standard of proof
The UT also alluded to the fact that an operator can attain interim Code rights if they have a ‘good arguable case’ meaning one side only has to submit that they have a better argument on the material available.
The UT threw in a consolation prize for the landowner by ordering that if the landowner of Leroy House failed to obtain planning permission and redevelopment was aborted, the operator would lose their right to install the apparatus at Threadgold House. For the London Borough of Islington, its open willingness in prior negotiations to accept the principle of having communications apparatus on its land – with the only dispute being the question of the relevant rent - encouraged the UT to approve the operators’ application for interim Code rights, on the basis that it only remained for suitable financial terms to be determined.
Access for site survey: Cornerstone Telecommunications Infrastructure Ltd v University of London
Another case, another positive outcome for operators, this time on the issue of access, after the UT found that a right of access for surveying purposes is a 'Code right' under the New Code. In this case, the operator (Cornerstone) desired access to premises owned by the landowner (U of L) in order to undertake a survey to determine the suitability for placing their telecoms apparatus on the site. The UT held that preparatory surveys and a right of access to carry them out do fall within the ordinary meaning of the words "right to install" and can be granted as part of the menu of New Code rights.
It is clear that in reaching this conclusion, the UT was influenced also by the public policy decision behind the New Code, namely to enable the fast and cost-effective roll-out of new electronic communications services. It was noted that it would be contrary to this policy if landowners could simply refuse access to operators and/or hold them to ransom by seeking to negotiate enhanced financial payments for the grant of the access.
Operators are likely to continue to agree access for surveys on a consensual basis. When deciding whether to resist access, landowners need to bear in mind the ability of the UT to impose an agreement on the landowner affording the operator an interim code right to access the site to survey and carry out exploratory investigations to establish site suitability for telecoms purposes. Landowners will need to prove the same grounds as they would to object to a permanent right.
It does appear from recent court decisions that the future is indeed bright for operators. The objective of the New Code: the cost effective rollout of digital communications infrastructure throughout the UK, appears to be of paramount importance.
The redevelopment ground may be the only failsafe for landowners under the New Code: the court cannot impose Code rights on a landowner if the landowner has the intention of redeveloping all or part of the land (or the neighbouring land) and could not reasonably do so with a Code right in place. As was the case in EE, the operator made the decision to explore an alternative site (Threadgold House), in light of the fact that their current landlord was due to redevelop. Redevelopment may, therefore, be a way of defeating Code rights but only if the desire to do so is genuine and substantiated and of course landowners must be prepared to adhere to the lengthier removal procedures under the New Code.