Rulings shape rent valuations for telco sites

Emphasised by the rulings is the different approach to calculating rent valuations for agreements governed by the Electronic Communications Code 2017 and for renewal of agreements under the Landlord and Tenant Act 1954 (1954 Act). Continued bifurcation in relation to valuation in the market seems likely until the Product Security and Telecommunications Infrastructure Bill becomes law and brings alignment.

2017 Code valuations

Three of the four recent rulings issued by the Upper Tribunal (Lands Chamber) (UT) and concerned disputes over rental value for telecommunication sites under the 2017 Code. The disputes arose in the following cases:

• EE Limited and Hutchison 3G UK Ltd v Affinity Water Limited (the Affinity Water ruling)
• On Tower UK Limited v AP Wireless II (UK) Limited [2002] (the Audley House ruling)
• EE Limited and Hutchison 3G UK Ltd v David Paul Stephenson and AP Wireless II (UK) Ltd (the Pendown Farm ruling)

The UT has the power to set 2017 Code agreements where telecoms operators and landowners cannot agree the terms between them. In performing this role, it had become increasingly common for the tribunal proceedings to be burdened by volumes of evidence presented in relation to comparable lettings.

The recent rulings, however, confirm the shift away from the comparative method of value assessment to the so-called ‘Hanover’ approach instead, which entails parties first identifying the alternative use value of the land and then the value of the additional benefits and the additional burdens which arise from the grant of the Code agreement that are over and above those arising from the alternative use identified.

The comparative method was described in the Affinity Water ruling as having “obvious dangers” as the hypothetical market, in which Code agreements are assumed to be granted for something other than the provision or use of an electronic communications network, does not exist in reality. In the Pendown Farm ruling, sitting arbiter Martin Rodger QC said parties should avoid preparing such evidence in the future, describing them as being of “no assistance”.

The UT has left room for comparative assessment to be applied at stage one of the Hanover approach where the parties seek to cite transactions supporting the alternative use value. However, in practice there is often no, or no significantly more valuable, alternative use to warrant the introduction of evidence on the scale we have been familiar with to date.

The UT’s clear expectation now is that its valuation decisions set parameters within which telecoms operators and landowners should be able to reach agreement in future cases, without the need for a detailed Hanover assessment. This was clear from the Audley House case where the experts did not even get as far as the witness box and were directed on the first day of trial to attempt to reach agreement having regard to what was said in the Affinity Water ruling, which they did. In that case, the judge expressed doubted valuation evidence would even be needed at all in future – in our experience, this is already playing out in practice.

Colin Cottage, managing director of compensation at Ardent, said: “The UT is making it clear that valuers should undertake their valuations having regard to its previous valuations. This has led to suggestions that the UT effectively wants to apply a tariff and it certainly seems that any valuer appearing before the UT with a valuation that is inconsistent with the ‘Affinity Water table’ is likely to get short shrift.”

1954 Act valuations

The 2017 Code enhanced the rights of telecoms operators to install, maintain and operate telecoms equipment on land owned by others. It also curbed the ability of landowners to set premium rent rates because it makes specific provision that any increase or decrease in the value of land attributable to the purpose for which it has been used should be disregarded.

There is no equivalent disregard provision in respect of 1954 Act agreements that pre-date the 2017 Code. This has a bearing on valuations in respect of the 1954 Act case renewals – a fact highlighted by the County Court’s recent decision in the case of On Tower UK Limited v AP Wireless (II) UK Limited (the New Zealand Farm ruling).

For 1954 Act cases, the UT has recently shifted away from favouring the Hanover approach to valuation, citing the fact that there is now enough information in the market, post the 2017 Code taking effect, to support a more traditional comparative assessment.

In the New Zealand Farm ruling involving a rural site, though, the County Court has confirmed that the analysis of comparables should not merely be based on the rents agreed for telecoms sites but also take account of the rental value of any capital payments that have been made, either as premiums or compensation payments.

Other findings were more favourable for operators. The court ruled it is not to be assumed that other sites, against which rent levels are hypothetically matched, are offered in the open market where the value is typically higher. The court also appeared to reject the notion that hypothetical competition from operators seeking to address ‘not spots’ in their network would drive up rent prices for vacant sites.

While it is clear that the County Court will ultimately look at the evidence and the level of rents being agreed in the market, it too favours a fairly broad-brush approach to landing at an appropriate valuation.

Colin Cottage of Ardent said: “The courts appear to have arrived at the view that a 1954 Act case for a rural telecoms site would normally involve a negotiation in the range of £2,000-to-£3,000 per annum, and rents would normally be expected to fall in that range. There might be some minor variation around this general trend if there were special circumstances. In the Hanover case, a rent of £5,750 per annum was determined for a telecoms site in a car park with a greater than nominal alternative use value. As there have been no 1954 Act cases involving roof-top sites, the courts’ view on these remains unclear.”

Valuation under Paragraph 24 of the Code

A version of this article was originally published by Estates Gazette.