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Electronic Communications Code: Upper Tribunal determines valuation for a lease renewal of rural telecommunications site and provides further guidance on equipment rights, upgrading and sharing

22 December 2020
In the decision of On Tower UK Limited v J H & F W Green Limited [2020] UKUT 0348 (LC), the Upper Tribunal considered the appropriate terms of a lease renewal pursuant to Part 5 of the Electronic Communications Code (“the Code”) with particular reference to equipment, upgrade and sharing rights and  what consideration and compensation should be payable in respect of a rural telecommunications site.

Background 

The claimant, On Tower UK Limited (formerly Arqiva), a wholesale infrastructure provider capable of acquiring code rights, had a telecommunications mast and other equipment situated on a small woodland site on the Dale Park Estate pursuant to a lease granted in 1999. The lease, which was contracted out of the Landlord and Tenant Act 1954, expired in March 2019. The claimant sought a new lease under Part 5 of the Code. 

The respondent site provider did not object to the grant of a new lease but to a number of its terms. The terms in dispute, which therefore fell to be determined by the Tribunal, were; 

  • What equipment can the claimant install?
  • Should there be any limit on the claimant’s right to upgrade its equipment?
  • Should there be any limit on the claimant’s right to share the site?
  • What should be the consideration payable by the claimant to the respondent?

The claimant sought terms that granted the right to install and keep any electronic communications equipment on site, in addition to the right to upgrade equipment and share the site without qualification. The claimant's position was that its business depended upon the sharing of its equipment so it could not be limited in its ability to do so. Furthermore, the business of sharing requires the addition of equipment and all operators need to be able to upgrade because of the fast-moving development of telecommunications technology and the claimant needed to be able to provide that ability to upgrade accordingly.

In contrast, the respondent sought to limit the equipment on site to what was currently installed, with the right to upgrade and share limited to the two conditions set out in paragraph 17(2) and (3) of the Code. The first condition is that any changes as a result of the upgrading or sharing have no adverse impact, or no more than a minimal adverse impact, on its appearance. The second condition is that the upgrading or sharing imposes no additional burden on the site provider. The respondent had concerns about the addition of equipment to the site and about upgrading, which could include a taller mast and noisier equipment. 

Judgment

Taking each of the disputed terms in turn and items 1 and 2 together, the Upper Tribunal decided as follows; 

What equipment can the claimant install? Should there be any limit on the claimant's right to upgrade?

The Tribunal found that the public benefit in the claimant obtaining a right to install unlimited equipment, and the right to upgrade it without restriction outweighed the limited prejudice that the respondent was able to show.  

The prejudice complained of included background noise from the equipment at certain times, damage to timber edging on the respondent's drive, and regular access from tenants using the mast. Some of these issues were first raised in this reference and the Tribunal did not consider them reasons to restrict the rights sought by the claimant. Moreover, any prejudice could be compensated by money. All of the respondent's anticipated difficulties could be addressed by communication with the claimant and, if they could not be resolved, would be capable of being compensated, pursuant to paragraph 25 of the Code, either at the hearing or at a later date under the imposed agreement.  

By contrast, the difficulties that a limit on equipment or on upgrading would cause the claimant were extensive, including the current constraints introduced by the Court of Appeal's decision in Compton Beauchamp, the effect of which means an operator cannot revert to the Tribunal for additional rights once the agreement is imposed. It should however be noted that Compton Beauchamp is the subject of an appeal to the Supreme Court. 

Further, there was ample protection afforded by the agreement itself, the size of the site (which would operate as a physical restriction to certain upgrading) and also planning regulations. 
Accordingly, the Tribunal allowed the claimant unrestricted equipment and upgrading rights.

Should there be any limit on the claimant’s right to share the site?

As with upgrading, the Tribunal made it clear that paragraph 17 operates as a "floor", not a ceiling; these are the minimum rights that an operator is to have. The Tribunal disagreed with the view of the Lands Tribunal for Scotland in Cornerstone Telecommunications Infrastructure Limited v Fothringham LTS-ECC-2020-07 who said that it would require “pretty compelling evidence” to go beyond what is provided in paragraph 17. Rather, the Tribunal's view was that the imposition of paragraph 17 conditions was a useful starting point and "there was no reason to suppose that anything else needed special justification or would be hard to establish". Further, the Tribunal highlighted that there was nothing in the Law Commission's report or government policy which suggested rights beyond that starting point would be unnecessary or unusual.

In deciding whether to allow the claimant the right to share without limitation, the Tribunal had in mind a balancing act between the claimant’s requirements and the respondent's concerns. Accordingly, the Tribunal adopted a two-stage process;

  1. First, the Tribunal should consider the term the operator seeks and the reason why it needs the term in question in order to pursue its business, and in light of the public interest in a choice of high quality telecommunications services. 
    The Tribunal found the answer to be very clear: without the ability to share, the claimant would be out of business and could not fulfil its statutory purpose. Moreover, as a neutral host it needed an unrestricted right to share; there was no case for restricting that right to any particular network operator or to a specified number of operators.
  2. Second, the Tribunal would consider the concerns or objections raised by the respondent and whether, in order to minimise loss or damage, the term should not be imposed, or should be imposed to a limited or qualified extent. 

In the present case, the Tribunal found that, however genuine the respondent’s concerns were, they did not really reflect reality and were not founded on evidence. The Tribunal's view was that the agreement (for example, terms that the claimant would not cause a nuisance or loss and injury to the respondent), and planning law, provided the protection that the respondent needed from the levels of nuisance and disturbance that could realistically be anticipated. 

Accordingly, the Tribunal allowed the claimant an unrestricted right to share the site.

What should be the consideration payable by the claimant to the respondent?

The Code provides both for the payment of consideration for the grant of Code rights and for compensation for loss or damage sustained by the site provider as a result of that grant. In setting the level of consideration, the Tribunal sought to incorporate an allowance for loss or damage that can be predicted, so as to save the respondent from having to make claims at a later date. Paragraph 25 allows a claim for anything that cannot be anticipated and quantified at the current time, where an agreement is imposed by the Tribunal.

Mr Cottage, expert for the claimant, said consideration should be £500 per annum. He adopted a three step approach; first, assessing the existing or alternative use value of the site; second, assessing any benefits that the operator might receive and the impact on the respondent of the rights imposed; thirdly, standing back to consider if the valuation seemed reasonable in the context of the value of surrounding land, Tribunal decisions and other transactional evidence for telecoms sites.

The Tribunal found the evidence of Mr Bodley Scott, expert for the respondent, to be of very little help and repeated findings from the cases Vodafone Limited v Hanover Capital Limited [2020] EW Misc 18 (CC) and Cornerstone Telecommunications Infrastructure Limited v London and Quadrant Housing Trust [2020] UKUT 282 (LC). These cases made it clear that consideration which is the product of negotiations and commitments made before the introduction of the Code cannot be taken as a reliable guide to values on the no-network assumption required by paragraph 24. In the Tribunal's words "they are useless in assessing consideration on the no-network basis". 

The Tribunal, following the Hanover and London & Quadrant cases, adopted a three stage test in considering valuation; 

  1. The first stage is an assessment of the alternative use value of the site. 
    There was no evidence of a viable alternative use of the land at the Dale Park Estate and so a nominal sum of £100 per annum was attributed. 
  2. The second stage is an allowance for any additional benefits conferred on the willing tenant, over and above that alternative use value, by the terms of the agreement. These additional benefits are looked at on the assumption that they do not relate to the provision and use of an electronic communications network. 
    The Tribunal allowed £600 per annum.
  3. The third stage requires an adjustment for any adverse effect on the willing lessor, over and above the alternative use, created by the letting. 

In this case, it was the right of access and the need for regular access to a private rural estate, in close proximity to residential properties, together with the known future replacement of the mast, which had the potential to cause adverse effects on the respondent. The Tribunal considered that for this site, with its particular attributes, the adjustment to be made should be £500 per annum.
The Tribunal's cumulative figure for consideration was therefore £1,200 per annum. The Tribunal was satisfied this figure was appropriate when taking into account the suggested no-network rent of £750 per annum, derived from evidence of numerous renewal agreements entered into by the claimant and the special circumstances of this particular site, being a rural site but with dwellings in close proximity.

In respect of professional fees, the Tribunal allowed £7,957.90 together with VAT by way of transactional legal costs incurred in negotiating the agreed terms of the draft lease, outside of the litigation. The respondent also sought £4,000 in respect of Mr Bodley Scott's fee. The Tribunal confirmed that the respondent was entitled to take valuation advice but not to seek the reimbursement of an expert's fee for preparing their report or other "Tribunal-facing" documents. As the Tribunal had no further information about the way the £4,000 fee was calculated,   the respondent was invited to submit a breakdown within 21 days, following which a separate order would be made.

Comment 

This judgment offers helpful guidance on how the Tribunal will approach disputes regarding terms relating to equipment rights, upgrading and sharing. Unless there is clear evidence of significant prejudice, the Tribunal is unlikely to impose equipment caps or restrict rights to upgrade equipment and share sites. This judgment and the London & Quadrant case demonstrates the Tribunal's willingness to facilitate site-sharing by granting unfettered sharing rights; this will be a key enabler for the delivery of the Government's aims of creating the Shared Rural Network and improving rural connectivity. 

Further, the Tribunal gives clear guidance on how to approach valuation of greenfield sites (including renewals) which, it is hoped, will result in more consensual agreements being reached. It should be noted that the additional sum beyond the no-network rent of £750 per annum, to take into account the close proximity of residential dwellings to the telecommunications site, is unlikely to arise in the majority of rural sites, which are usually located away from residential properties. 

Authors: Jennifer Craze and Alex Wolfenden.

Further Reading

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