On 17 May 2016 the Government published details of its revised proposals for a radically overhauled Electronic Communications Code. The aim is to ensure that the Code is up to date with the advance in modern technology while continuing to balance the rights of landowners and the public demand for modern communications services. In addition, the Government wants to increase and incentivise more investment in UK infrastructure, and a wider choice and quality of digital communications services for consumers. It is fair to say that the new proposals strongly advantage the ‘operators’ (the licensed providers of electronic communications services) as opposed to the landowners.

The Code governs the relationship between landowners and operators. Broadly it allows and facilitates the construction, operation and use of the operators' physical network of base stations and other infrastructure; and confers security of tenure on the networks and apparatus of operators.

The Code was in desperate need of reform due to it being outdated, complex and difficult to apply. It was famously described judicially as “…one of the least coherent and thought-through pieces of legislation on the statute book…” The real problem for landowners and occupiers has been in recovering possession of land occupied by an operator and the interface between the Code and the separate form of security of tenure under the Landlord & Tenant Act 1954. The Code also lacked clarity around how to assess the level of payments for the grant of rights, enforcing the termination of those rights and a swift and effective route to resolving disputes.

The Reforms

The new draft Code has now been published as a schedule to the Digital Economy Bill and implements the Government’s aims in the following key ways:

An automatic right for operators to assign Code agreements

Any provision in a Code agreement (being an agreement which allows an operator to install or keep equipment on a landowner’s land – the most common being a lease or a wayleave agreement) will be void to the extent that it purports to prevent or limit the assignment of the agreement, or make assignment subject to the fulfilment of conditions. The only exception to this is that a Code agreement that is a lease under the Landlord & Tenant (Covenants) Act 1995 can still require that the outgoing operator/tenant provides an authorised guarantee agreement.

An automatic right for operators to upgrade or share apparatus

If the two conditions set out below both can be satisfied, an operator will be able to upgrade apparatus and share its use with another operator, notwithstanding any term of the Code agreement:

(1) the upgrade or sharing of apparatus should have no adverse impact on the appearance of the apparatus; and

(2) the upgrade or sharing of apparatus should not impose any additional burden on the landowner.

The automatic right to share includes the right to carry out works to enable the sharing.

“No scheme valuation”

The new Code will make major changes to the way land is valued. In circumstances where a Code agreement is imposed upon a landowner, the premium or rent to be paid by the operator will be valued on a “no scheme” basis. The market value under the draft Code “must not be assessed on the basis of the value to the operator…having regard to the use which the operator intends to make of the land…”, and it is to be assumed, for the purposes of assessing the market value, that there is more than one appropriate site which the operator could use.

This could make a substantial financial difference. Rents will, in effect, be regulated and we expect that this approach will favour operators.

Limitations on compensation and liability

It has never been possible to “contract out” of the Code but it was often the case that landowners would agree a contractual arrangement with operators whereby they agreed to not exercise their Code powers and then indemnified the landowner for any costs or losses it incurred if the operator exercised their Code powers and remained on site at the end of a Code agreement. This will now be prevented by a provision in the new Code that expressly states that, save for compensation due under the provisions of the Code itself, operators will not be liable to pay compensation, or be subject to any other liability, in respect of any loss caused by the lawful exercise of their Code rights. Parties will no longer be able to make private agreements capable of effectively excluding Code provisions by the “back door”.

This will dramatically affect the drafting of most Code agreements and cause many landowners real reservations about voluntary accepting to have electronic communication apparatus installed on their property.

Termination

There are new provisions governing how a Code agreement can be brought to an end and provision to govern the continuation of Code rights after the expiry of an agreement. The new Code also introduces a procedure for making payment under an agreement whilst disputes relating to the removal of apparatus are resolved. Where the Code agreement has come to an end the operator may continue to exercise that right and the site provider will continue to be bound subject to the termination procedure. As with the existing Code the site provider must first give notice to the operator citing the grounds on which the Code agreement should come to an end and the end date. At least 18 months’ notice is required. The new Code sets out four grounds upon which the site provider can rely. The grounds will be readily recognised from section 30(1) of the Landlord and Tenant Act 1954 and include substantial breaches of the agreement by the operator and an intention to redevelop by the landowner. Upon receipt of the notice the operator then has three months (as opposed to 28 days) to give counter-notice stating that (i) the operator does not want the agreement to come to an end, (ii) that the operator wants the site provider to confer/be bound by the existing Code rights on new terms, or, new Code rights. Within three months of the date of the counter-notice the operator must apply to the Court for one of a series of orders that can be granted.

Removal Of apparatus

A site provider has a right to require the removal of apparatus where one or more of five conditions are met (such as the Code right having come to an end following determination by the Court; or the apparatus no longer being used in connection with the operator’s network). The site provider must first give notice to the operator requiring removal of the apparatus and the making good of the land within a reasonable period of time. If the site provider and operator are unable to reach agreement within 28 days of the notice upon (i) whether the operator will remove the apparatus, (ii) restoring the land (iii) the timing for removal or (iv) the timing for restoring the land, then the site provider may make an application to the Court for an order which requires the removal of the apparatus and the restoration of the land by the operator within a stated period.

If the operator fails to comply then the site provider can apply to the Court for an order to enable the site provider to remove/sell the apparatus and restore the land. The site provider is entitled to recover the costs of such action from the operator or retain such costs from the proceeds of the sale of the apparatus. The Court may order the payment by the operator of compensation for loss and damage suffered by the site provider as a result of the presence of the apparatus during the period when the site provider was entitled to require the removal but unable to enforce that.

Dispute Resolution

In order to ensure more effective and speedier dispute resolution the forum for almost all disputes under the Code will be the Lands Chamber of the Upper Tribunal. There will be a move away from the ordinary Court system to provide swift adjudication for this sort of dispute given the time, expense and delay involved in securing determination through the Courts.

Impact On Existing Agreements

Fortunately the new Code as a whole will not apply to all existing agreements retrospectively (as was suggested would be the case in last year’s draft of the Code) but there are intricate transitional provisions in the new draft Code by which some provisions of the new Code will apply to all Code agreements whenever entered into. Landowners and operators alike would be well advised to proceed with caution when considering the application of the Code to prior Code agreements. The Government intends to make transitional arrangements that will make clear how and when existing agreements transition to the provisions of the new Code.

Interface with Landlord & Tenant Act 1954

Fortunately the new draft Code provides some much needed clarity regarding the interaction between the Code and the Landlord & Tenant Act 1954 and states that the security of tenure provisions of the 1954 Act will not apply to a lease the primary purpose of which is to grant Code rights. The new Code will therefore remove the “double whammy” of operators resisting the landowner seeking to recover possession by relying on the security of tenure provisions under both the Code and the 1954 Act. Nor will the grant of Code rights be a disposal that give rise to a tenant’s right of first refusal under the Landlord and Tenant Act 1987.

Comment

The intention is that the new Code will be implemented through primary legislation (the Digital Economy Bill) as soon as possible.

Of course it remains to be seen how the reforms will work in practice and throughout the transitional period. Whilst the reforms will be welcomed by the operators (who will feel that they have finally been put on a level playing field with other “utility” companies), they will affect landowners adversely. Landowners will be greatly concerned about the development risk of electronic communication apparatus on their property, and will likely see rental income rapidly diminish.