Tribunal backs replacement of ‘subsisting’ telco land agreements

Out-Law News | 19 Jul 2021 | 11:18 am | 6 min. read

A recent tribunal ruling should make it easier for telecoms operators to require providers of land on which their telecoms equipment is situated to enter into new agreements on more favourable terms in cases where existing legacy agreements have expired, according to legal experts.

It is common for telecoms operators and landowners to enter into commercial contracts governing the rights of the operators to install, operate and maintain equipment such as fibre, masts and cabinets on public or private land. In 2017, the UK government finalised a new Electronic Communications Code (ECC) that governs the relationships between site providers and operators of electronic communications services licensed by Ofcom.

The 2017 Code superseded the 2003 Code, with the purpose of making it easier and cheaper for telecoms operators to roll-out next generation digital infrastructure deemed to be vital to the UK's future economic growth. Amongst other things, the Code restricts the ability of landowners to charge premium prices for the use of their land by requiring the rent to be determined by reference to market value subject to certain assumptions.

The 2017 Code, however, does not apply retrospectively to agreements entered into prior to the new Code taking effect. Instead, transitional provisions apply to so-called ‘subsisting agreements’ – those being agreements that were formed under an earlier version of the Code but which nevertheless continue to apply until they expire and are properly terminated.

Part 5 of the new Code contains a mechanism for modifying expired agreements. Modification can take the form of a variation of an existing agreement or to a wholesale replacement.

The Lands Chamber of the Upper Tribunal was asked to consider the rights of telecoms operators to terminate expired subsisting agreements and to replace them with new agreements under the terms of the new Code in a case brought by the companies behind mobile network operators EE and Three against site provider AP Wireless II (UK), which leases farmland in Cornwall.

There is no automatic right of telecoms operators to replace an agreement formed under an old version of the Code with a new agreement that provides it with the rights provided under the 2017 Code, even in the case of subsisting agreements. The Code refers to four factors that need to be considered to ensure that there is the correct balance achieved between the interests of operators and site providers in each case.

The factors to be considered are: the operator’s business and technical needs; the use that the site provider is making of the land to which the existing code agreement relates, any duties imposed on site provider, and the amount of money they are paid by the operator under the existing agreement – though this latter factor is not to be considered in the case of a subsisting agreement.

In addition, where parties cannot agree on terms of a new agreement, the Tribunal must decide having regard to the terms of the old agreement.

Earlier this year the Inner House of the Court of Session in Edinburgh held that the reference in the new Code to factoring in an operators’ business and technical needs when considering whether to impose a replacement agreement was not an additional “hurdle” that operators need to clear to justify the grant of a replacement agreement. Importantly, the operator does not need to show that there is some specific project which is being prevented by the terms of the existing agreement. The benefits of the new Code were deemed to be clear enough on their own to merit a replacement agreement being put in place.

The Lands Chamber of the Upper Tribunal, falling within the jurisdiction of England and Wales, was not bound by the judgment of the Scottish court. However, Mr Justice Fancourt, president of the Lands Chamber of the Upper Tribunal, considered that he should follow the ruling “unless, after according that decision all the respect that is due to a reasoned decision of a higher court, I am nevertheless persuaded that it is clearly wrong”. He went on to agree with its reasoning.

Mr Justice Fancourt said: “As the Court of Session held, the changes introduced by the Code and the generic business and technical needs of operators in the current market are at least arguably sufficient in themselves to entitle an operator to apply for termination and the grant of a new, Code-compliant agreement. An operator is not, at the stage of pleading its claim, required to justify seeking a new agreement in place of a subsisting agreement that has expired.”

Mr Justice Fancourt said that there should be no need for telecoms operators to “prove a special justification” for updating a subsisting agreement with site providers. He said: “The significant additional rights conferred by the Code, the benefit of some or all of which will have been denied the operator for the duration of the subsisting agreement, are themselves a reason for the grant of a new agreement on different terms, if the subsisting agreement has run its agreed course.”

Mr Justice Fancourt had assessed the intentions of UK parliamentarians in finalising the wording of the new Electronic Communications Code (ECC) in 2017. He said they could not have intended for “the public benefits and investment incentives conferred by the new Code” to be “stultified by the continuation of subsisting agreements, with more limited rights at higher rents or fees, for a significant time after their expiry dates”.

Alicia Foo of Pinsent Masons, the law firm behind Out-Law, said: “The judgment is to be welcomed given it confirms and provides a uniformity of approach both north and south of the border and rejects attempts by site providers to keep in aspic terms which do not allow for the ‘public benefits and investment incentives’  the new Code was meant to bring in. It makes clear that site providers should expect to have to accept some change in their agreements ‘in the public interest of facilitating the provision of a choice of high quality networks’.”

Pierre Smith of Pinsent Masons said: “This decision acknowledges the need to transition from old Code agreements to new Code agreements and that the requirement for the tribunal to have regard to the ‘operator’s business and technical needs’ should not prevent that transition. There is no need for a site-specific justification. A degree of change must be accepted in order to move into the, publicly beneficial, new Code world.”

In its decision, the Lands Chamber of the Upper Tribunal considered what approach it is bound to take when it is asked by telecoms operators to grant them a replacement agreement under the new Code. Mr Justice Fancourt confirmed that the so-called ‘O’May principle’, which provides for a general albeit rebuttable presumption against change of terms agreed in lease renewals under the Landlord and Tenant Act 1954, does not directly apply in the context of subsisting agreements when the tribunal is considering which order it should make.

Foo said: “In addition, the decision also clarifies that whilst the Landlord and Tenant  Act 1954 principles have a useful part to play in throwing light on certain Code wording, they are not determinative and need not be followed slavishly.”

The tribunal also considered, in the second of two preliminary issues, whether a telecoms operator can alter the basis on which its application to the tribunal for a variation of the terms of its existing old Code agreement should be considered after submitting their Ofcom-prescribed ‘paragraph 33 notice’ to the tribunal seeking termination of the subsisting agreement and the making of a new agreement.

According to Mr Justice Fancourt, an operator who confirms in its paragraph 33 notice that it seeks an entirely new agreement will not later be able to advance a case seeking a different order, for example an order to vary an existing agreement so as to change certain terms or to add new terms.

Smith said that this means that, if the operator later decides it wants a modification rather than a replacement, it may have to start the whole process again, at the expense of delay and wasted costs. However, he said that while the operator will be prevented from seeking an alternative order, the tribunal had confirmed that it still has jurisdiction to issue such an order.

“The decision will remind operators to think carefully as to the type of change it is seeking as soon as it initiates a renewal under Part 5 of the Code,” Smith said. “Getting this wrong can be costly.”