1954 Act Lesson for Operators: with Reform on the Horizon what does the recent case of Pippingford teach us about the Code?

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1954 Act Lesson for Operators: with Reform on the Horizon what does the recent case of Pippingford teach us about the Code?

Published 19 January 2022

The latest in a long line of decisions each contributing, in their turn, some much needed additional clarification for operators and site providers alike, comes not from the Upper Tribunal and the Electronic Communications Code (referred to simply as “the Code”), but from a Landlord and Tenant 1954 Act (“1954 Act”) unopposed lease renewal in the Mayors and City of London County Court.

The recently reported decision in EE Limited (1) Hutchison 3G UK Limited (2) v Richard Morriss (1) David Holroyd Tayler (2) Pippingford Estate Co. Limited (3) ([2022] EW Misc 1 (CC)) is extensive in the range of issues it covers (including the use of an access protocol, break clause, indemnity, and equipment rights). The commentary on each of these crucial issues should prove valuable for both landlords and operators as they navigate renewals under the Code and 1954 Act in the months and years ahead.

As with the first such 1954 Act / telecoms crossover case (CTIL v Hanover [2020] EW Misc 18 (CC)) the headline issue, however, is that of rent and the means of its determination. Again, as with Hanover, the complexity and importance of this point required that this renewal claim was heard before Martin Rodger QC, Deputy Chamber President in the Upper Tribunal (Lands Chamber), sitting as a Judge in the County Court.

Valuation

As is now well-documented, the introduction of the new telecoms code in December 2017 brought with it many contentious provisions, not least of which being the ‘no network assumption’ method of valuation that must be applied when determining rent (termed ‘consideration’) within Code agreements.

The 1954 Act currently has wholly different valuation principles, less favourable to an Operator than those contained within the Code, and - as confirmed in Vodafone v Ashloch ([2019] UKUT 0338 (LC)) - an operator cannot circumvent those less favourable principles by instigating the renewal procedure under the Code. An Operator in occupation under an existing agreement with security of tenure under the Landlord and Tenant Act 1954 must renew their lease under the 1954 Act in the first instance, and thereafter they will have a Code Agreement with all the benefits that conveys. This position is unlikely to change with reform of the Code in due course.

The question before Martin Rodgers QC in Pippingford was how, if at all, should a 1954 Act valuation exercise in the case of a telecoms site take into account the valuation principles set out in the Code.

The parties’ respective experts had two very different methods of approach to this question:

(a) For the Claimants, the expert followed the six stage structured approach established in Hanover (see here) and came to a figure of £950 per year, rising to £1,200 per year if – as did come to be the case – the Court decided that no payment was due from the Operator in exchange for access (as the Defendants had requested).

(b) For the Defendants, the expert considered there to be sufficient market evidence to undertake an open market exercise based on comparable evidence and more in line with s34 of the 1954 Act, rather than to follow Hanover, and came to a figure of £12,000 per year. That figure included a substantial uplift of some £5,500 to account for ‘site sharing potential’.

The court was persuaded more by the Defendants’ expert’s approach and confirmed that “where a rent is to be determined under section 34 of the 1954 Act the adoption of the structured approach resorted to in Hanover Capital is only necessary where reliable transactional evidence is missing” (p.88).

However, the court did not agree with what he termed “older comparables and the substantial and apparently arbitrary adjustments made to the transactional evidence” (p.91) which lead the expert to land on a rent which was “more than double the average of the rents agreed for his chosen comparables and 60% higher than the highest of the nine transactions with any claim to comparability” (p.95). Additionally, the court was convinced that there did not need to be any adjustment for sharing or for “competition” between operators in the market, largely accepting this does not happen in reality.

A particular point of interest is how the court dealt with the (supposed) market practice of offering additional ‘incentive’ payments on completion of a lease. According to the evidence presented, these payments typically are around £15,000 and, where not paid as such, instead seem to be annualised as part of the rent such that Site Providers not receiving an ‘incentive’ instead receive a higher annual rent, the fact of which the Claimants’ expert valuation did not take account.

The Court confirmed that, on the evidence before it, capital payments are an ‘established feature of the market’ and should be taken into account. It was also deemed that the yearly instalments should incorporate the 5% yield which might be expected had the lump sum instead been paid at the outset of the 10 year term.

Starting with the Claimants’ expert valuation of £1,200, and adjusting for the market practice incentive, lead the court to a figure of £3,000 per year. An additional £500 was then added to make allowance for the Operators’ expected contribution towards the Site Providers’ professional costs, providing a final determination that the rent will be £3,500 per year.

Reform

Of course, this is a s.34 1954 Act valuation and following the reforms proposed in the recently published consultation response (see here) we can expect this to change substantially when in relation to leases the primary purpose of which is to grant Code rights, in order to align with the same ‘no network valuation’ principles and methodology contained in Part 5 of the Code.

Until those reforms are enacted, however, this decision will provide very useful guidance for the many 1954 Act renewals that are surely in train, and for the many more which will no doubt come.

Other Key Issues

As mentioned, this decision is broad in its subject matter and applicability. The other key points for discussion and our brief analysis of the same were:

  1. Equipment Rights: The Defendants wanted a cap on the equipment that could be installed, but the court granted unlimited rights in favour of the Claimants subject only to a qualified restriction on the height of the mast (owing to the nature of the area). The court considered that the Defendants’ concerns could either be reasonably addressed via the agreed access protocol, or else need not be accounted for at all, and particularly noted that the need for an Operator to periodically upgrade its equipment should not provide an opportunity for ransom.

  2. Access: The Access protocol was a significant point of dispute between the parties. It was settled that the access protocol should allow access generally on 5 days’ notice, with no payments to be made, and if the date requested was not acceptable to the Defendants then they must provide an alternative date within 7 days of that requested. In applying the rationale here, the exceptional and specific site features in this case should be noted well, particularly given the site’s use for Ministry of Defence and military exercises.

  3. Indemnity: The Claimants sought a cap on the indemnity and modernised wording. The court was unconvinced by the Claimants’ arguments, and in line with established 1954 Act practice and case law, ordered that the existing indemnity wording remain.

  4. Break Clause: The Operator sought a rolling unconditional break on 3 months’ notice following the 5th anniversary of the term commencement; the Defendants will agree to a break right after the 5th year but not on a rolling basis and conditional on the Site being unsuitable for telecommunications apparatus.

    This decision followed Hanover by ordering a break right after year 5 on 3 months’ notice to expire on each anniversary of the term thereafter.

Authors

Clare Hartley

Clare Hartley

+44 (0)113 251 4913

Kai Ricciardiello

Kai Ricciardiello

Leeds

+44 (0)113 251 4886

Louise Day

Louise Day

Leeds

+44 (0)113 251 4866

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