Electronic Communications Code: Consideration & compensation payable in respect of occupied communications site

Where a communications site is already occupied, the Upper Tribunal considers financial consideration and compensation payable under an agreement granting rights under the Electronic Communications Code.

The background

In EE Ltd and another v Affinity Water Ltd [2022], the respondent was a statutory water undertaker which owned a reservoir site, part of which was occupied by claimant telephone operators following the expiry of a previous lease. A 20-year lease of land at the site had been granted in 1998 by Affinity’s predecessor to Mercury Personal Communications Ltd, with rights to install electronic communications apparatus on top of a water tower together with similar rights granted to other third parties.

The lease was contracted out of 1954 Act security of tenure provisions but was classed as a subsisting agreement under the Code, as it pre-dated the Code. EE invited Affinity to enter into a new agreement in October 2018, but served notice over a year later under p.33 of the Code, which permitted either party to modify or terminate an agreement, and that any new agreement should take effect. Notice was to be given no earlier than during the final 6 months of the agreement. Where agreement could not be reached, parties may apply to the Tribunal for an order under p.34 of the Code.

The parties brought proceedings in the UTT, having been unable to reach agreement on the financial terms of the new lease in respect of grounds, building and site maintenance, security, tree works, pest control and anticipated repairs. They had been unable to agree a ‘site payment’, which was to comprise both the consideration for entering into the agreement, and compensation Affinity may have been entitled to under the Code. The site payment was considered an annual sum, but the parties agreed that part of the compensation may be payable on completion of the lease if it could be determined.

The decision

The Upper Tribunal considered the consideration payable, finding that an annual rent of £3,300 was appropriate.

In this case, the occupier was already in occupation of the site, whereas the Code allows for hypothetical buyers and sellers agreeing a transaction at arm’s length, with the apparatus not present on the site. It was clear that this situation did not apply when considering market value in this case.

The UT, having considered a three-stage valuation exercise which assessed the benefits conferred on the tenant by the agreement outside of its right of occupation, stated the need to take a step back and consider the outcomes of negotiations in the hypothetical market. The Tribunal assessed contributions from all parties towards additional benefits such as grounds maintenance, applying quantitative figures to each. The burden on Affinity was deemed to be minimal; the demised areas carried nominal value to Affinity and it would receive a modest rent for these which would adequately cover its costs. The Tribunal found no reason to make a pre-emptive assessment of potential future costs which may be incurred when alterations are made to the premises, and assessed the site on the basis that it was vacant.

The UT set a rent figure of £3,300 per annum and ordered that a new agreement be entered into, representing Affinity’s agreement to confer Code rights for a ten-year term, with an annual break right for EE. The water tower was a ready-made structure where it could hypothetically install its apparatus and was deemed to be more akin to a commercial building when assessing consideration.

In considering the compensation payable, the UT found that the claimants were to pay compensation for professional fees in the sum of £7,500. Compensation was payable for any ‘loss or damage which had been sustained or will be sustained…as a result of the exercise of the code rights…’ The UT found that this included reasonable legal and valuation expenses.

Advice and action for landlords

This decision provides some useful guidance on how to approach the issue of consideration and compensation for pre-existing communications installations where original agreements have come to an end.

The Tribunal directed the parties to enter into a new agreement and assessed consideration and compensation payable under the new agreement’s terms. In order to determine the appropriate valuation, the UT assumed the site to be vacant and stated the need to step back and consider the outcome of hypothetical negotiations.