EE Limited (1) and Hutchison 3G UK Limited (2) v Richard Morriss & others [2022] EW Misc 1 (CC)
In January 2022, EE Limited and Hutchison 3G UK Limited ("the Operators") sought to renew their tenancy of an electronic communications site on Pippingford Park Estate, near Tunbridge Wells ("the Estate"). As their existing tenancy was governed by the 1954 Act, their claim for a renewal had to be made through the mechanism available under the 1954 Act, even though any new tenancy would be granted pursuant to the Code (see the Court of Appeal's ruling in (Cornerstone Telecommunications Infrastructure Limited v Ashloch Limited [2021] EWCA Civ 90).
As the Operators' claim for a new tenancy was unopposed by Pippingford Estate Company Limited ("the Site Provider"), the Court was only asked to consider the issues in dispute between the parties concerning the terms of any new tenancy, and the rent payable by the Operators. Such was the importance and complexity of the rental valuation point in dispute, the hearing took place before Martin Rodger QC, Deputy President of the Upper Tribunal (Lands Chamber), sitting as a judge in the County Court.
Background
The Operators, adopting the structured approach to valuation established by the County Court in Vodafone Limited v Hanover Capital Limited [2020] EW Misc 18 (CC) ('Hanover'), offered a rent of £1,200 per annum. The Site Provider relied upon market evidence and sought a rent of £12,000 per annum. Upon the parties’ inability to agree terms, the Operators applied to the Court seeking imposition of a new tenancy.
Judgment
Should a 1954 Act valuation exercise in the case of an electronic communications site take into account the 'no network valuation' principles established by paragraph 24 of the Code?
While the Court acknowledged the importance of settling the contractual terms in dispute before being able to determine the rent payable in exchange for the new tenancy, this issue represents the most important to be decided at the hearing. The Court seems to have adopted a balancing act in dealing with the respective parties' approach to valuation:
- The Court determined that the Hanover approach to valuation should be adopted only if "reliable transactional evidence is missing”. The Court reflected that much of the available transactional evidence represented a poor comparator for a new letting because in a renewal situation, there already exists a relationship of landlord and tenant stemming from the existence of apparatus on the site.
- The Court further acknowledged the added complexity stemming from the parties' relocation from one statutory mechanism to another, which rendered telecommunications lease renewals "poor comparables for Section 34 valuations".
- The Court determined that the valuation should not include any uplift to account for the Operators’ ability to generate an income from site sharing with third party telecom operators.
Martin Rodger QC set the rent at £3,500 per annum, broken down as follows:
1. the Operators' offer of £1,200 per annum was adopted as a starting point;
2. this was uplifted to reflect an annualised equivalent of a capital payment, presented as being a standard offering by operators (on average totalling £15k), and updated to reflect a 5% yield;
3. this calculation resulted in a sum of £3,143, which the Court compared to the market evidence presented at the hearing (ranging from £1,750 to £2,500 per annum), rounded to £3,000 to reflect 'significantly greater than average management time, inconvenience and potential for interference…' at this particular site; and
4. £500 was added as a contribution towards the Site Provider's professional costs.
Are 'incentive' payments relevant to a rental valuation exercise under the 1954 Act?
The Court was presented with evidence that the Operators offered an 'incentive' payment to the Site Provider in addition to rent, upon completion of the Code agreement. It was relayed to the Court that such a payment, may be annualised as part of the initial rental offering thereby removing any element of 'incentive' for a site provider.
While the Court relied primarily on the particular circumstances of the matter before it, and the evidence produced by the parties, Martin Rodger QC observed that where such an 'incentive' payment is included, the core rent in the market tends to be lower. As such, the Court found that 'incentive' payments should be taken into account when undertaking a rental valuation exercise under the 1954 Act.
Contractual Terms
Access
While the parties agreed that the Operators should enjoy unrestricted access, certain elements of the access protocols around notice periods and costs were left for the Court to determine. It was resolved that the Operators must provide 5 days' notice (rather than the Site Provider's preference for 7 days), but at no additional cost to the Operators. Mindful of the Estate's use by the Ministry of Defence, the Court afforded the Site Provider a right to reject the Operators' proposed date of access however ordered a requirement for it to provide an alternative date for the Operators, falling within 7 days of the original date requested.
Break Clause
The Operators requested a rolling unconditional break exercisable on not less than 3 months' notice following the fifth anniversary of the term commencement date, whereas the Site Provider was only willing to agree a limited right for the Operators to break after year 5 subject to vacant possession being provided to the Site Provider. The Court adopted the approach taken in 'Hanover' and imposed an unconditional break right on not less than 3 months' notice expiring on the fifth or subsequent anniversaries of the term commencement date.
Contractual Compensation
The Site Provider proposed the incorporation of a provision enabling it to apply to the Upper Tribunal for compensation, in a manner akin to paragraphs 25 and 84 of the Code. The Court refused the request, on the grounds that there wasn't any evidence that the market had generally adopted such clause(s) in consensual arrangements and, in line with established 1954 Act practice and case law, no such remedy was available in the existing agreement.
Equipment Rights
Taking into account the Operators' need to upgrade its apparatus from time to time, the Court ordered unrestricted equipment rights in favour of the Operators, save that they must secure the Site Provider's qualified consent if they wished to increase the height of the mast. This was owing to the specific nature of the Estate as a location for military training exercises, involving low flying helicopters.
Indemnity
Again, in line with established 1954 Act practices and case law, the Court rejected the Operators' desire to modernise the wording of the indemnity, and incorporate a liability cap, ordering that the existing form of indemnity apply to the new agreement.
Summary
The key points to take away from this case are:
- The 'Hanover' structured approach to a 1954 Act valuation should be relied upon only when there is insufficient comparable market evidence for electronic communications sites.
- Comparable market evidence should not be adjusted to reflect the ability of operators to generate income by sharing the use of their apparatus, due to the applicability of the 'no network assumption'.
- When considering disputed terms in a matter concerning the renewal of a 1954 Act tenancy, giving rise to a new agreement pursuant to the Code, the Court will continue to challenge the party seeking to depart from the existing terms to justify any proposed modification not provided for by the Code.
