Summary: EE Limited and Hutchison 3G Limited v The Mayor and Burgesses of the London Borough of Islington [2019] UKUT 53 (LC)

The question of how to interpret the new Electronic Communications Code (the "Code") has been in hot contention ever since the Code came into force in December 2017.

Specifically, in relation to compensation and consideration, landlord owner have argued for a similar valuation method to the previous code. On the other hand, telecommunications operators have pressed for a new valuation methodology, which dramatically reduces the rents payable under telecommunication leases/licences.

This dispute had led to an industry-wide deadlock, as parties refused to agree the terms of new telecommunication agreements without judicial clarification.The point has now been decided by the Tribunal and operators will be licking their lips, as the decision has confirmed that the financial package payable to land owners will be substantially lower than under the previous code.

The decision will inevitably filter through the industry, but we consider that this point is unlikely to be settled until more senior judicial authority is obtained.

Background

EE Limited and Hutchinson 3G Limited (the "Operators") proposed to erect a new telecommunications mast on top of a building owned by Islington Council (the "Council") pursuant to their powers set out in the Code.

The Council denied the Operators rights in addition to disputing the interpretation of the costs payable by the Operators to the Council under a new code agreement. The Operators applied for interim rights under the Code, which they obtained, before the final hearing on the substance of the new code agreement.

In the interim, the Council failed to comply with the Tribunal's directions, anticipating that at the final hearing the Tribunal would grant a further period to negotiate the terms of the lease after the issues of interpretation were finalised. The Code, however, states that a Tribunal must decide all applications for code rights within six months. The Tribunal, therefore, imposed every term suggested by the Operators in the new lease.

'Consideration' (essentially, 'rent' under the Code)

Under the previous code, the consideration payable by a telecommunications operator was based on the value of the whole site to the operator and not simply the rental value of the land.

The new code sought to alter this position, with parliament predicting a 40% reduction in rents following the legislation. Under the new code, consideration is to be calculated according to the "market value of the relevant person's agreement to confer the code right".

The Operators argued that the rooftop could only be used for telecommunications masts and so the market value was £1. The Council argued that the principles of the willing buyer and willing seller meant that the consideration must be reasonable; else no deal would ever be agreed.

The Council claimed that the consideration for the site should be £13,250 per annum. The Tribunal confirmed that the interpretation of consideration under the new code would not take into account the value of the site to the operator in general but recognised that the landlord would inevitably incur costs to run the building which the Operators would benefit from. The Tribunal therefore valued the consideration payable under the Code at £1,000 per annum.

Compensation for loss and damage

Paragraph 25 of the Code contains provisions for a Tribunal to order compensation to landlord owners due to loss and damage incurred as a result of an operator exercising its rights under the Code. Part of the compensation available under the Code is for the diminution in the value of the land.

The Council claimed that the Tribunal should be awarded compensation for the difference in value of the consideration under the Code, in comparison to the previous agreement. The Tribunal swiftly rejected this argument as it was essentially an attempt to regain some of the consideration previously available.

The Tribunal did, however, grant the Council compensation for some of its legal fees incurred in relation to agreeing the new terms under the Code, but not for any costs incurred as a result of resisting the Operator's code rights.

Our thoughts

Although it is always important to comply with a Tribunal's directions, it is particularly important with this type of case, as non-compliance may result in a party losing its ability to negotiate the terms of a new Code agreement.

This case is the Tribunal's first interpretation of consideration and compensation under the Code, which will inevitably set a precedent across the industry. Telecommunications operators will no doubt seek to rely on the result, but there will likely be a string of further cases where the matter is considered from different perspectives.

While the Tribunal's calculation of the consideration was low in this case, landlords can expect higher consideration when it is possible to use the land for more than a telecommunications mast and landlords should consider these uses in preparation for any future negotiations under the Code.