Two recent cases have looked at the issue that is probably most relevant to landowners with electronic communications equipment on their land (and probably most relevant to the operators as well) – the rents payable under the Code. This is a summary of the key points arising in EE and H3G v Morriss and others and EE and H3G v Affinity Water Limited.
This case involved the grant of a new agreement to the operators EE and H3G under the Landlord and Tenant Act 1954. Previous case law (CTIL v Ashloch) has already determined that where an agreement under the old code is protected by the Landlord and Tenant Act 1954, an operator must renew that agreement under the 1954 Act rather than seeking to do so under the new Code.
In this instance the site was a ‘greenfield’ site, being a mast located in a field on the landlord’s estate.
The rent payable under the new agreement was therefore to be determined under section 34 of the 1954 Act. This meant considering the rent at which the site might reasonably be expected to be let in the open market by a willing landlord. The judge applied the principle from an earlier case (Vodafone v Hanover Capital Ltd) that Code valuation principles would provide the framework for the hypothetical parties’ negotiations in the open market, and so the same principles ought to be kept firmly in mind when determining rent under the 1954 Act. The most significant Code valuation principle is the “no-network” assumption that applies, whereby when thinking about the consideration payable it has to be assumed that there is no intention for the site to be used for electronic communications.
Whereas previous cases of this nature have had to try to come up with approaches to valuation because of a lack of comparable evidence, the judge in this case said that he believed there was sufficient evidence of new lettings now under the new Code to make it unnecessary to follow the approach taken in Vodafone v Hanover Capital Ltd in 2020.
Taking into account comparable lettings and the particular circumstances of the site, the judge came to a figure of £3,500 per year. What is interesting is that in coming to this figure the judge took into account the practice, which is common in the telecoms market, of paying incentives to landowners and paying their professional fees on the grant of an agreement.
The case lifted the lid on ‘early completion incentive payments’, which are routinely offered to landowners, but are not recorded in the agreements or referred to as premiums. This is precisely in the hope that they can be kept quiet and not brought up in court proceedings such as these. The judge did not accept that these were offered as an incentive for early completion, as in practice they were demonstrably not dependent on early completion. He pointed to an example where £13,000 had been offered to a landlord, and was to be payable on completion provided this was achieved by 16 April 2020. Completion was not achieved until 17 June 2020 but the payment was still made in full. This contradicts the argument that these payments are not part of the consideration offered to the landlord.
Another element which the judge took into account was the payment of the landlord’s professional fees (i.e. legal and agents fees), which again is common practice. The judge accounted for this as part of the yearly rent determined, taking what he considered the landlord would receive as a contribution and dividing this annually across the term.
This case, unlike Morriss was a renewal to which the 1954 Act did not apply. It was a renewal under the new Code, and so the method for determining consideration would be on the “no-network” assumption.
This site was located at the top of a water tower. As such it needed a slightly different approach to that in Morriss when determining consideration under the new agreement.
In the absence of much comparable evidence of rents for water tower sites, the court used the approach from Vodafone v Hanover Capital Limited assessing (1) alternative use value (under the no-network assumption) (2) additional benefits for the operator in respect of the site and (3) the need to compensate the landlord for any adverse effects.
The parties looked in some detail at the additional benefits over and above occupation which will be conferred on the tenant by the agreement, and any adverse effect on the site provider. They looked at the cost to the landlord of grounds maintenance, security, site maintenance, tree works, pest control, repairs and other benefits. The judge took quite a dim view of this, stating “on any view the level of rent being negotiated is modest, and we are sceptical that the notional parties seeking to agree it would descend to the level of granularity with which the experts have analysed the evidence in this reference”. In other words, the rental value of the site is so low that in real life the parties would just make a rough assessment of what rent should be paid and negotiate from there rather than pouring over the various associated costs to the landlord.
An interesting comment from the judge in this case was that the consideration likely to be agreed for a water tower under the statutory hypothesis should be somewhere between that of a greenfield site and a rooftop site on an office or commercial building. The figure that he eventually arrived at was £3,300 per year, but with an additional one-off payment of £7,500 in respect of the landlord’s professional fees.
If you have any questions relating to telecoms matters then you can contact the author by email – [javascript protected email address]. Graham has extensive experience in this area, having worked in the telecoms team at a previous firm.
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