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Published 28 September 2020
The highly anticipated decision marks the first judgement issued on modification of code agreements under Part 5 of the Electronic Communications Code (ECC).
The Tribunal’s latest decision follows a debate in EE Limited and Hutchison 3G Limited v Duncan and Others (LTS/ECC/2019/12 to 16 and 2020/01, 02, 03 & 13) on the relevancy of nine conjoined applications under Paragraph 33(5), Part 5, of the ECC.
Paragraph 33 of Part 5 deals with the ability of parties to modify the terms of existing code agreements that have expired, or are about to expire (which have either been originally granted under the ECC or, most often, are subsisting agreements under the transitional provisions). Various orders may be granted, ranging from a simple addition or amendment through to termination and substitution of the existing agreement with an entirely new one.
The ECC itself is widely regarded as more operator-friendly than its predecessor under the Telecommunications Act 1984. Rental values under the ECC are considerably lower, and ECC agreements carry more extensive statutory rights and protections such as wider sharing and alienation provisions.
Many operators have as a result been looking at ways of renewing their existing code agreements under the ECC to enjoy the benefit of these new Code terms.
Up until now, the bulk of ECC litigation has focused on Part 4 (specifically Paragraphs 20 and 26) of the ECC, which deals with the grant of new Code rights over land. One of the key patterns that has emerged, however, is a limitation on the ability to use Part 4 in circumstances where existing code agreements are already in place.
Operators are therefore being encouraged to change the direction of their renewal strategy and to look to the alternative modification process under Part 5, specifically Paragraph 33.
This Opinion is the first decision issued on applications made under Paragraph 33, as well as the first clear divide between Scottish and English approaches to the ECC. It provides some essential clarification on both the effect of tacit relocation in Scottish leasing law and on the interpretation of Paragraph 33.
To understand the importance of this decision, it is helpful to recap what we have learned so far from the courts and tribunals south of the border on the application of the ECC:
It is also worth touching on some of the key legal differences between Scottish and English commercial leases, given that these underpin the reasoning in this decision.
Unlike the position in England and Wales, there is no legislative framework that underpins commercial leases in Scotland.
Instead of the security of tenure and renewal provisions under the 1954 Act, Scottish leases simply automatically continue from year to year after their initial contractual expiry date unless and until either party gives notice to the contrary. This is known as tacit relocation and is rooted in the presumption that parties have by implication consented to the continuation of the lease.
Importantly, the effect of tacit relocation is to continue an existing lease on the same terms (except as to duration) for another year, and from year to year thereafter. Tacit relocation does not amount to a renewal as such, nor does it create a new implied lease between the parties (as in England and Wales).
The practical effect of this has now been confirmed EE and H3G v Duncan and Others. The two key points to take from this decision are:
This quite rightly distinguishes the Scottish position from the likes of 1954 Act protected tenancies per Ashloch and unwritten Tenancies at Will per AP Wireless, neither of which are a feature of Scottish leasing law and have very different characteristics.
The lines have now been very clearly drawn as to the underlying differences in Scottish and English leasing, and how this impacts the application of the ECC in different jurisdictions.
Here, the Tribunal was not satisfied that this had been done. The operators had cited general policy considerations for promoting electronic communications networks as the reason for renewal. However the Tribunal said that “more requires to be pled in the way of particular agreements being unduly onerous or restrictive” in order to justify orders being granted under paragraph 33.
Some examples of what the Tribunal was looking for are peppered throughout the decision, including the following:
The fate of Scottish code agreements continuing by tacit relocation was potentially up in arms following the recent decision in AP Wireless.
This latest decision has importantly drawn the lines on the key differences in Scottish and English leasing law by clarifying that such agreements are subsisting agreements under the ECC.
This will be welcome news for operators. It confirms their existing sites in Scotland held by agreements on tacit still enjoy the protection of (transitional) Code rights under the ECC. They are not therefore locked into a potentially redundant position in the same way as the Upper Tribunal was bound to determine in AP Wireless.
What will be less welcome news for operators, however, is that the decision has also limited the use of Paragraph 33 to circumstances where there is a specific need to replace or modify an agreement. This will likely impact renewal strategy on sites across whole of the UK, at least until the Upper Tribunal is given a similar opportunity to scrutinise Paragraph 33.
Operators can no longer therefore rollout expansive renewal strategies without examining the characteristics of each particular site and identifying a particular need for the renewal. If what they are looking to achieve can still be done under their existing agreements, albeit on less favourable terms, it will not be enough to justify modification under Paragraph 33.
The decision is yet another example of the many uncertainties and tensions created by the introduction of the ECC. It is worth remembering that the ECC itself was introduced to make it cheaper and easier for operators to expand infrastructure and to rollout digital technologies such as 5G to existing sites. The rocky road of litigation since then has been anything but that, and it is not set to slow down any time soon.
A full copy of the Tribunal’s Opinion can be found on its website, accessible here.
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