When the Electronic Communications Code was overhauled at the end of 2017, the industry knew to expect significant change: greater rights for operators, lower rents for landowners and a longer delay for developers to remove telecoms equipment. As explained in our Spring 2018 issue, this was all intended to satisfy the government’s desire to improve broadband connectivity across the UK, especially in rural areas. Now the new Code has been in force for 18 months, what effect has it had on the market?
Rents are falling
The change in valuation assumptions was perhaps the most controversial aspect of the new regime. The rents that landowners can charge to operators siting equipment on their land are now calculated from the point of view of the landowner, ignoring the fact that the land is required for a telecoms network (the ‘no network assumption’). In a recent case, this resulted in a yearly rent of around £2,500 for the use of a rooftop, where the landowner had requested around £10,000-13,000 based on comparables. In fact, the court stated that the Code rights themselves were only worth £50, with approximately £1,000 more being due as a contribution to the maintenance costs of the building. The only reason the court determined the rent at £2,500 was because this was the operator’s starting position.
We have yet to see a rural valuation case in court but all indications are that rents there would be similarly lower. Pre-Code comparables will not be relevant. These new valuation criteria aim to put telecoms equipment on the same footing as other utilities such as water and electricity.
Developers are resisting
Landowners planning to develop their properties are resisting the attempts of operators to assess their land for its suitability for telecoms equipment, because it is more difficult to remove. There is an 18 month notice period to end the Code rights followed by a separate (and potentially open ended) process to remove the equipment.
This resistance is not always successful, because operators are responding by being more aggressive in their tactics. A recent case involved Cornerstone applying to court for a temporary Code right to assess a potential site, and the court granted it despite this right not being set out in the Code.
Operators are litigating
Perhaps in response to resistance by developers, operators are more willing to use the full force of the new Code to assert their rights, where previously they would have avoided litigation for fear of bad publicity.
With this bullish approach may come attempts by operators to install upgrades without informing the landowner. Operators are entitled to share or upgrade equipment provided it has either no or a minimal adverse effect on its appearance and does not place any additional burden on the landowner. They need not notify landowners when they install upgrades, but there is a risk that they will stray beyond the restrictions in the Code. The onus will be on landowners to keep records of the equipment on their land to make sure the operators are not installing apparatus that they are not entitled to.
Agreements are harder to negotiate
With operators asserting their rights, and landowners as keen as ever to protect their land and preserve an income stream, negotiating the terms of Code agreements is becoming more difficult.
As rents reduce, some landowners are trying to ‘rentalise’ anything over and above the basic rights within the Code or suggesting that each right is paid for individually. Operators are likely to resist this.
In the case of wayleaves, operators are pressing even harder to use their own standard form of agreement, which usually confers the widest rights possible because it is intended to be used across all their sites. They are much less willing (if they ever were) to give indemnities for losses suffered by the landowner, even where allowed by the Code, and some are resisting any end date for the Code rights they are granted.
Renewals are in stasis
The uncertainty under the Code is causing a separate problem with renewals.
Agreements which were already in place before 28 December 2017 are treated differently under the new Code compared to new agreements. Some aspects of the previous Code still apply to them such as the ability to restrict sharing, upgrading and assignment by the operator.
In particular, leases of land which were granted solely for Code purposes (such as mast sites) and which also have security of tenure under the Landlord and Tenant Act 1954 (1954 Act) appear to be proving difficult. Theoretically these renewals are determined solely under the 1954 Act, outside of the Code, but many seem to be ‘on hold’ at the courts, waiting for the first decisions on Code rents to filter into the market.
For landowners it might be advantageous to hold out for a renewal rather than engage with operators to agree a fresh Code agreement, for two reasons. With rents going down, landowners could benefit from the existing rates for longer than expected. In addition, when granting a 1954 Act renewal the court may to look to the valuation provisions of 1954 Act rather than the ‘no network assumption’ contained in the new Code, potentially resulting in higher rents.
Court cases abound
Many more cases are reaching court than ever did under the old Code, and their decisions often contain rather unusual reasoning. Several appear to be ‘policy decisions’ based on the government’s agenda rather than legal or commercial efficacy.
This highlights the uncertainty around the wording of the Code and the extent of the potential upside for operators. How this situation will settle is anyone’s guess, but the government is not backing down: there are proposals for further rights to be granted to operators to make tenants’ connections and upgrades easier.
If you require further information about anything covered in this briefing, please contact Shona Ray Ferguson, or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, July 2019