Telecommunication site providers (or landlords) in Northern Ireland have not yet experienced the application of the new telecommunications statutory regime (“the New Code”) to the same extent as site providers in England. The New Code came into force in December 2017 as part of the Digital Economy Act 2017; the New Code is now found in Schedule 3A of the Communications Act 2003.
The Purpose of the New Code
The New Code is intended to clarify the law, give telecoms operators’ clearer rights as well as greater flexibility in enjoying those rights, and is intended to facilitate the sharing of network apparatus. As the number of telecoms site cases going through the English judicial system is increasing, the availability of comparative evidence used to assist when determining rent is also increasing, which the Northern Irish Courts and Lands Tribunal will likely follow closely.
The New Code offers a more favourable mechanism for rent valuation for telecoms operators due to the “no scheme” assumption under the New Code; this means that any element of value attributable to the intention of the operator to use the site as part of its network is excluded from rent assessment.
There is an evident dichotomy between the “no scheme” assumption under the New Code and the market rent approach under the business tenancies legislation – for both in NI and England.
EE Limited and Hutchison 3G UK Limited v Richard Morriss, EE Limited and Hutchison 3G UK Limited (“the EE Case”)
The recent EE Case demonstrated how the courts in England are calculating the rent payable for New Code agreements for sites benefiting from “security of tenure” under the Landlord and Tenant Act 1954 (“1954 Act”). Security of tenure means that the tenancy continues until validly brought to an end under the statutory provisions.
Richard Morriss, EE Limited and Hutchison 3G UK Limited’s (“the Claimants”) lease had expired where they remained in occupation by virtue of the statutory protections under the 1954 Act (i.e. they were holding over). The telecoms operators’ claim for a renewal lease was made under the 1954 Act, subject to the provisions of the New Code, in accordance with the Court of Appeal’s ruling in the case of (1) Cornerstone Telecommunications Infrastructure Ltd (2) Ashloch Ltd.
When determining the rent payable under a telecommunications lease, the Court will include in its calculation any early completion payments (“ECPs”) made by the operator to the site provider in comparable sites. In this particular case, the valuer for the Claimants excluded ECPs paid to the site providers (or landlords) when assessing comparable evidence for the purposes of calculating the new rent. They believed it would be an incentive not usually paid by a willing landlord. It was held by the county court judge that these “early completion payments” should be factored into the new rent calculation. It was established that to calculate the new rent payable an apportionment of the ECP should be made spreading such payment over the term of the lease.
Calculating Rent for Telecoms Sites: What to Expect Going Forward
Market evidence is now readily available for assessing the rent payable for a telecoms site since the New Code came into effect and it is now clear that ECPs are relevant for determining rent. Under the Business Tenancies (Northern Ireland) Order 1996 (“BTO”) most “business” leases in NI for a term of 9 months or more have security of tenure (in NI parties are unable to contract out of the BTO as with the 1954 Act). The ruling in Cornerstone Telecommunications Infrastructure Ltd v Ashloch Ltd was that leases protected by the 1954 Act must be renewed under the statutory procedure found therein, rather than exclusively under the New Code. The same will apply to BTO leases in that they must be renewed under the BTO rather than the New Code. However, the recent EE Case will provide some comfort for telecoms providers in that the courts are factoring in the principles in the New Code when determining the rent for lease renewals deemed as being “outside” the New Code.
If you would like to seek further information about any of the issues raised in this article, please contact our Commercial Real Estate 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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