Author
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Emma Dooley

Associate

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Author
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Emma Dooley

Associate

Read More

8 October 2020

Red alert - Autumn 2020 – 4 of 6 Insights

Landlords finally cracking the Electronic Communications Code?

Vodafone Limited v Hanover Capital Limited [2020] EW Misc 13 (CC)

Summary

A key judgment has been handed down by the County Court concerning the renewal of a tenancy under the new Electronic Communications Code (the Code) which also had protection under the Landlord and Tenant Act 1954 (the Act).

The facts

Vodafone Limited was granted a lease of a communications site in 2008 for a term of five years, expiring in 2013. Vodafone remained in occupation after the contractual term ended but in December 2016, its landlord served a section 25 notice under the Act to terminate the tenancy. Renewal terms were not agreed so in August 2017, Vodafone issued renewal proceedings in the County Court.

The Vodafone lease was both a 1954 Act protected lease and a subsisting agreement under the Code, with the renewal to be governed by the Code's transitional provisions concerning agreements already in place when the Code came into force on 28 December 2017.

The parties had agreed the terms of the new lease, save for the length of term, rent and details of a tenant break right.

Vodafone wanted a three year lease with a rolling six month break, as there was a risk that the rents granted pursuant to a renewal under the Act would be higher than could be achieved under the Code on a further renewal. Conversely, the landlord wanted a 10-year term, with a tenant break option after five years.

Term and Break Option

In the absence of agreement, the duration of a new tenancy will be such length of time as the Court considers to be reasonable in all the circumstances.

In this case, the Court granted a 10 year term with a break clause excisable on the fifth or subsequent anniversary of the term, in order to strike the appropriate balance between the operator’s commercial needs and the landlord’s interest. The Court also referenced that a term length of five years minimum was common practice in the industry.

Rent

Under the terms of the Act, the rent payable under a new tenancy will be that which might reasonably be expected to be obtained in the open market on the terms of the given tenancy. Nevertheless, the Court was required to consider how to operate the hypothetical transaction in light of the provisions of the Code.

Vodafone contended that the valuation should be determined solely on transactions which were carried out based on an awareness of the Code and the "no network" assumption at paragraph 24 of the Code, which invariably reduces the rent payable.

The Landlord argued that the valuation should consider transactions which took into account the value to the operator, and so were not negotiated on the basis of the ‘no network’ assumption.

The Court considered that a strict Code approach would have produced a value of £2,250 per annum in this case, however, the hypothetical negotiation should also consider the possibility of competitive bidding (here by EE and H3G).

The Court considered market evidence of transactions based upon old Code valuations (without a ‘no network’ assumption) and accordingly, a rent of £5,750 was determined.

This may seem like a win for landowners, however, the conclusion that the site would be of interest to multiple operators was a key factor in the Court's decision. The Court noted “the same might not be true for sites which satisfy the needs of only one operator and which would not be of interest to competitors. In such cases the Code’s no-network assumption may cause the parties to agree a rent reflecting only the value of the site to the owner and the other consideration which [Vodafone] identified”.

Our comments

This case offers useful guidance on the Court's approach on renewal of an electronic communications lease under the Act, however, it should be noted that the case flows from the Tribunal’s decision in Ashloch, which is understood to be headed to the Court of Appeal in January 2021.

While the decision may provide some clarity, case law in relation to the Code is coming thick and fast, with many more judgments expected to confer further guidance on the Court's approach.

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