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First judgment out on value under Electronic Communications Code

The Upper Tribunal (Lands Chamber) has issued a long-awaited decision on the meaning and effect of the consideration and compensation provisions in the 2017 Electronic Communications Code ('new Code').22 Feb 2019

The 'market value' approach enshrined in the new Code means that operators EE Ltd and Hutchison 3G Ltd will be required to pay Islington Borough Council ('Islington') far less for use of a rootop site than would have been expected under the previous version of the Electronic Communications Code ('old Code'). The operators will pay the council £2,551.77 annually, and will be required to compensate the council for legal and surveying costs and any loss or damage caused by the installation of their equipment on the property.

The tribunal was also required to consider whether a 'code agreement' imposed by it could take the form of a lease, or estate in land, rather than a licence. It concluded that the tribunal did in fact have the jurisdiction to do so, as there was nothing in the new Code that prevented this.

Property disputes expert James Lilley of Pinsent Masons, the law firm behind Out-Law.com, said that although not unexpected, the decision would be a disappointment for landowners.

"Just over a year after the commencement of the new Code, the tribunal has dealt a blow to landowners in deciding that tribunal-imposed Code agreements can be leases of land as well as licences; and that the sums which landowners should expect to be paid for accommodating an operator on their land are significantly lower than the rental levels previously achieved under the old Code," he said.

"While operators will no doubt celebrate the tribunal's endorsement of their interpretation of the new Code in these key areas, there are still a number of unanswered questions which may give rise to future debate between landowners and operators," he said.

The Electronic Communications Code governs the relationships between landowners and operators of electronic communications services licensed by Ofcom. It gives operators certain rights to install, inspect and maintain electronic communications apparatus including masts, cables and other equipment on public and private land, even where the operator cannot agree the necessary rights with the landowner.

A new Code, intended to support the government's vision for the UK's digital future, came into force on 28 December 2017. Among other measures, the new Code restricts the ability of landowners to charge premium prices for the use of their land by basing the consideration paid on the underlying value of the land. At the time, the government said that it expected the new Code to deliver significant cost reductions to the telecoms sector while ensuring that landowners receive fair payment for the use of their land.

The operators in this case had sought rights under the Code to install and operate telecoms equipment on the roof of a ten-storey block of flats in Islington. Their equipment is currently located on an adjacent building, which is expected to be redeveloped later this year. The operators were unable to come to an agreement with Islington, and applied to the tribunal to have Code rights imposed. In October, the tribunal granted the operators interim rights, subject to a condition that no intrusive works were carried out at the new site until planning permission had been granted for the redevelopment works at the old site.

The parties have yet to agree the terms of the agreement to be imposed upon them, and the amount of the consideration and compensation payable to Islington under the new Code. It was these issues on which the tribunal was required to rule in the latest judgment.

The basic measure of consideration payable by an operator to a landowner under the new Code is stated as "the market value of the relevant person's agreement to confer or be bound by the code right". It goes on to explain that this is "the amount that, at the date the market value is assessed, a willing buyer would pay a willing seller for an agreement (on the terms imposed under paragraph 20 [of the Code] in an arm's length transaction in which both parties act prudently and with full knowledge".

In his judgment (36-page / 515KB PDF), deputy Lands Chamber president Martin Rodger QC said that the calculation should incorporate a 'no-network' assumption, meaning that it should not take into account the value attributable to the very high public demand for telecoms services. He said that this was similar to the 'no-scheme' assumption familiar from land valuation in relation to compulsory purchase orders.

The £2,551.77 per annum figure was that originally proposed by the operators. It was intended to reflect the nominal rental value of the rooftop site, while also acting as a cushion for any compensation the tribunal might consider it appropriate to award. Islington instead sought £13,250 per annum, based on the figure it would have charged under the old Code subject to inflation.

The judge found that it may be correct to conclude a nominal market value in circumstances where "the characteristics of the premises mean that, in reality, nobody would pay anything for them". That said, he did not think that was the case here. He noted that the presence of the operators' apparatus would restrict what Islington may do with the building, and obliged it to keep the parts of the building over which the tenant was to be granted rights in good repair. In these circumstances, he arrived at a figure of £1,000, which he increased to £2,551.77 based on the operators' calculations.

The judge did not consider it necessary to order an additional amount for compensation provided that the operators covered any loss or damage caused by the installation of their apparatus. He invited the parties to apply to quantify these costs if they were unable to reach agreement. Islington retains the right to bring future claims for compensation where merited.

Property disputes expert Pierre Smith of Pinsent Masons said that the decision, on "key issues of interpretation" under the new Code, would "no doubt help to overcome the impasse that has stymied the making of mutual agreements in the market" since its enactment.

"The tribunal has given clear acknowledgement to the government policy decision that site providers should not secure a share of the economic value created by the very high public demand for operators' services," he said. "However, it does not go as far as confirming that all agreements will attract a nominal value, and it remains the case that each site must be considered in light of its characteristics and potential uses."

"The tribunal's confirmation that its own order is the operative instrument giving effect to the agreement may add an extra incentive for parties to reach a mutual agreement in future. In addition, its confirmation that an imposed code agreement can take the form of a lease has addressed a question that practitioners have been grappling with from day one," he said.

The decision also leaves some interesting questions on consideration and compensation undecided which were not addressed, or at issue in the case, according to property disputes expert Alicia Foo of Pinsent Masons.

"There remains the question of what evidence is required to satisfy the qualifying conditions for the imposition of a permanent agreement for Code rights - the so-called 'imposition test' - including the question of what 'public benefit' needs to be shown by the operators/infrastructure providers," she said.

Other questions which remain to be addressed are how the second valuation assumption of the non-application of those provisions of the Code dealing with assignment, upgrading and sharing, works; and how the third valuation assumption (i.e. that the right in all other respects corresponds to the Code right being imposed) will work in each individual factual scenario.

On 'compensation', Alicia Foo said: "The tribunal was unwilling to definitively limit what types of loss or damage could be incurred for which landowners could claim compensation, leaving the door ajar for inventive claims in the future. If, in principle, it could be shown that use of the landowner's site for electronic communications might lead to diminution in value of the land, a claim for compensation could potentially be admissible.".