Apparatus or Land? Two Telecoms Industry Giants Clash in the Upper Tribunal

In the recent telecomms case of On Tower UK Ltd v British Telecommunications PLC, the Upper Tribunal had three important points to consider:-

1. When is a building itself considered to be “land” or “electronic communications apparatus”;
2. Whether an agreement was a code agreement; and
3. The validity of a notice under paragraph 31 of the Code.

Key Summary of the Case:

The case involved a dispute between two major Code operators; On Tower UK Ltd, the Claimant, an infrastructure provider who builds and maintains masts and other apparatus, for the use of mobile network providers; and British Telecommunications PLC, the Respondent and a household name who provides fixed line telephone and data services throughout the UK.

The Claimant installed telecommunications apparatus on a sought-after flat roof of a telephone exchange, belonging to the Respondent, which the Respondent wanted to remove. Once built to house heavy equipment, telephone exchanges are slowly becoming a thing of the past, due to the rapid advancement of telephone technology. The Respondent, as owner of several thousand exchanges across the country, has made plans to close at least 100 superfluous exchanges by 2030, including the building on Kenton Road, where the Claimant’s equipment was located.

In 2021, the Respondent granted to the Claimant a lease of part of the roof of the Kenton Road Exchange (“the Site”) for a term expiring on 14 November 2030. The lease gave the Claimant the right to put telecommunications apparatus on the Site. By the time the lease was granted, the Respondent’s plans for divesting itself of telephone exchanges were well-developed and the lease contained provisions for the landlord to bring it to an early end.

The Electronic Communications Code (“the Code”) regulates the legal relationship between code operators and site providers, whose land the equipment is placed on. Code rights are defined in paragraph 3 of the Code and provide a statutory right to those with Code powers to inter alia:- “(i) install electronic communications apparatus on, under or over the land, (ii) keep installed electronic communications apparatus which is on, under or over the land”. However, a right to do something anywhere other than on, under or over land is not considered a code right.

This means that if the Claimant were to grant a mobile operator a right to install an antennae on one of its masts, the agreement would not be considered a code agreement, as the right affords the operator a right to install apparatus on other apparatus and not on, under or over land. This was asserted by the Respondent in this case. The Respondent claimed that the Kenton Road telephone exchange itself was “electronic communications apparatus” (“ECA”) and not “land” for the purpose of establishing code rights, as defined under the Code. The reason behind this claim is that paragraph 5(3) of the Code provides that if the sole purpose of a building is to enclose other ECA, then such a building is electronic communications apparatus.

If the Respondent’s claim was true, then the agreement between the parties would be considered a lease and not a code agreement, as the Claimant would be installing apparatus on apparatus, and not on land. The result would prevent the Claimant from claiming code rights under the Code. It would mean that the Claimant could not rely on paragraphs 30 and 31 of the Code, which ultimately would have an effect on how the agreement could be terminated. Paragraph 30 of the Code allows operators to continue to exercise their code rights i.e. keep their equipment and apparatus installed on/over private land, and the site provider will continue to be bound by those rights, even after an agreement has expired.

For a site provider to terminate an agreement conferring those code rights, it would have to serve a notice in accordance with paragraph 31 of the Code. The provisions of paragraph 31 specify that the site provider must satisfy one of the four grounds which the site provider can rely on, to end the agreement. A paragraph 31 Notice must also specify the date of termination, which must be 18 months after the paragraph 31 notice is given, and the termination date “must fall after the time at which, apart from paragraph 30, the code right to which the agreement relates would have ceased to be exercisable, or to bind the site provider or at a time when, apart from that paragraph, the code agreement could have been brought to an end by the site provider.”

The Tribunal was asked to consider whether the telephone exchange constitutes ECA for the purpose of the Code, whether the Claimant had a code agreement or a lease, which notice should have been served on the Claimant and whether that notice was validly served.

Whether an agreement was a code agreement

The claim from the Respondent was that the Claimant could not acquire code rights over the telephone exchange as the exchange itself was ECA, and this was the reason for serving a contractual break notice to bring the lease to an end. While a paragraph 31 notice was also served on the Claimant, it was served on a without prejudice basis, notwithstanding the Respondent’s claim that the lease was not code agreement and did not confer code rights on the Claimant.

The Tribunal had to consider whether the building containing ECA was itself ECA, or was in fact “land”, within the meaning of the Code. Paragraph 108 of the Code provides that “land” does not include electronic communications apparatus”. Paragraph 5(d) of the Code provides that “electronic communications apparatus” means other structures or things designed, or adapted for use in connection with the provision of an electronic communications network. Paragraph 5(3) stipulates that a “structure” includes a building only, if the sole purpose of that building is to enclose other electronic communications apparatus.

The Tribunal held that regardless of its main purpose, the sole function of the exchange was not to house ECA, and the exchange had subsidiary purposes, including “the provision of office, storage and welfare facilities.” The building was considered to be “land” within the meaning of the Code, and accordingly the agreement was a code agreement, conferring code rights on the site provider (BT).

The importance of the agreement being considered a code agreement and not a lease, is that paragraph 30 of the Code gives an operator a form of security of tenure, and any attempt to bring the lease to an end by serving the contractual break notice has no effect.

The next question for the Tribunal, was around the validity of the paragraph 31 Notice served by the Respondent on a without prejudice basis.

The validity of the paragraph 31 Notice

The Claimant contested that the break notice needed to be valid for the paragraph 31 notice to be valid, as paragraph 31(3)(b) provides that the termination date specified in the paragraph 31 notice “must fall…..at a time when….the code agreement could have been brought to an end by the site provider”. The Claimant argued that the break notice had to be served first and if the break notice was invalid due to errors, then the code agreement could not have been brought to an end by the site provider.  However, the Tribunal held that a paragraph 31 notice alone was sufficient and it was not necessary for the Respondent to serve a break notice and whether valid or not, the break notice, was “of no effect because of paragraph 30 of the Code.”

The Tribunal explained that: “… the key word [in paragraph 31] is ‘could’. It refers not to something that would actually happen absent paragraph 30, but to something that could have been made to happen absent paragraph 30. If the intention was that the landlord actually serve a break notice, then (quite apart from the fact that one would expect the statute to say that expressly), the correct word would be ‘would’.”

So long as the date specified in the paragraph 31 notice was a date after the break specified in the lease then the Respondent will successfully have served the notice, as this would have brought the lease to an end in accordance with the provisions contained within the lease.

The notice was served on the Claimant on 3 October 2022 bringing the lease to an end on 8 April 2024, which satisfied the 18 months’ notice period requirement. The paragraph 31 notice expired after the date on which the break could have been exercised which satisfied the second condition, i.e. that it must fall at a time when the code agreement could have been brought to an end by the lease.

The Tribunal determined that a notice had been validly served pursuant to paragraph 31.

Summary

This is the first case where the Tribunal has considered whether a building constituted “land”, under the code, by applying the sole purpose test. The takeaway point is that it will be difficult for buildings to satisfy this test, with the Tribunal highlighting that there is a distinction between the main purpose and the sole purpose.

Another important point is that it is not necessary to serve a contractual break notice for a valid paragraph 31 notice to be served, and if break provisions exist, a site provider can rely on the Code to terminate the agreement, with the operative notice being a paragraph 31 notice. The Tribunal made a point that such lease formalities cease to have any practical effect because there is nothing in either paragraph 30 or paragraph  31 of the Code which requires compliance with such formalities. That being said, it would be prudent for a site provider to consider break conditions when terminating a lease, if not to simply avoid a dispute with an operator which may cause an unnecessary delay when terminating the lease. After all, an operator is entitled to dispute the validity of a site provider’s notice. The Tribunal was quick to point out that “conditions precedent or subsequent to the service of a break notice are a little more difficult to analyse”. This could be particularly important if a landlord is intending to terminate a lease on the redevelopment grounds as any delay may cause a knock-on effect to their plans for redevelopment.

The Claimant had a right to appeal. If they decided not to, the next step for the Tribunal was to decide was whether the Respondent had satisfied one of the four grounds for termination under paragraph 31 of the Code.

If you would like to seek further information about any of the issues raised in this article, please contact our Telecommunications team at Cleaver Fulton Rankin.

This article has been produced for general information purposes and further advice should be sought from a professional advisor.

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