On 27 April, shortly before parliament was dissolved for the general election, the Digital Economy Act 2017 (“the Act”) received royal assent. Schedule 1 to that Act has introduced the new Electronic Communications Code (the “new code”), replacing (subject to transitional provisions) the amended Code that was contained in Schedule 2 to the Telecommunications Act 1984 (the “old Code”). The new Code will come into force when the secretary of state appoints regulations to that effect (see section 116 of the Act).
Until then, the old Code remains in force.
Has the new Code improved and clarified the law, and what adjustments do landowners need to make in light of these reforms? Here, we consider some of the headline issues that will need to be taken into account in the future.
The 1954 Act/Code overlap
One of the key problems under the old Code was the potential for its protection to overlap with Part II of the Landlord and Tenant Act 1954 (the “1954 Act”). The lack of clarity regarding the interaction of these regimes often led to uncertainty, increased costs and delay.
For agreements entered into under the new Code, there will be no such overlap. Leases that are not primarily for the purpose of conferring Code rights and which are regulated by the 1954 Act (or would be absent contracting out) are excluded from the Part V termination process under the new Code.
Any other agreement, including a license or lease (whether or not the 1954 Act is excluded from it), which is primarily for conferring Code rights, will benefit from the restrictions on termination within Part V of the new Code. Leases where the primary purpose is conferring Code rights are expressly excluded from the 1954 Act by reason of an amendment to section 43.
While there may be a sigh of relief at the removal of this overlap, the way in which it has been dealt with in the drafting of the new Code means that there is still room for argument about a lease’s primary purpose, and this may arise in a small proportion of cases. Although in the case of most mast sites the answer may be obvious, in other cases it may not be. It is also not possible to say quite yet that the old Code conundrum (in terms of its relationship with the 1954 Act) has been consigned to legal history since there could still be cases progressing through the courts where the old Code applies.
Under the old Code, it was not clear whether the conferral of a “code right” carried with it all of the sub-rights under paragraph 2(1)(a)-(c).
The assumption appears to have been that there was no need to specifically confer any old Code rights. It was sufficient that there was a lease or licence document and that this document permitted the installation of relevant apparatus. This looseness resulted in a great variety of “code agreements”, ranging from full leases all the way down to quite sparse “site access agreements”. Under paragraph 3 of the new Code, there is less room for doubt.
Although the opening words of paragraph 3 might suggest a single and compendious right, in fact it would seem from other parts of the new Code (eg paragraph 13 and Part V) that these rights in fact separate and, unless expressly conferred (whether by individually mentioning them or expressly stating that the full range of rights is conferred), an operator will not receive them. Any omission could be remedied by compulsory purchase (see Part IV of the new Code), but that is ideally to be avoided.
Accordingly, it seems likely that code agreements will need to be more carefully drafted in future than they may have been in the past.
All that the old Code required was an agreement in writing by the occupier (paragraph 2(1)). The new Code requires rather more than that. Paragraph 11 now states that an agreement must be in writing, must be signed by or on behalf of the parties to it, must state how long the code right is exercisable, and must provide for a notice period for termination, if that mode of termination is to be employed. Naturally any right granted that is actually intended to be a lease must comply with the relevant additional formalities.
Recovering land from operators
If an agreement relates to electronic communications apparatus, there are two routes to terminating it. If an agreement is “regulated” by the new Code, then it can only be terminated in accordance with the notice procedure under Part V.
The notice procedure (found in paragraph 30) requires the giving of an 18-month notice (or longer if the contract requires this) stating why it is being given. Paragraph 30(4) then states a series of grounds on which the landowner may rely, based on breach, redevelopment or on the fact that the test of imposing a code right is not satisfied. The operator then has three months to give a counter-notice, either admitting or contesting the termination notice. The court is then able to order termination or renewal.
The headline point here is that, rather than the short time limits of 28 days for notices and counter-notices under paragraphs 20 and 21 of the old Code, landowners with development ambitions will now need to allow much longer lead-in times for terminating these types of arrangement. There could then also be court delays as the parties explore their respective rights under the new Code.
Even if there are no proceedings to challenge the notice served, the new Code apes the 1954 Act in that the termination process does not result in a possession order. Instead, the landowner must comply with the further removal procedure under Part VI of the new Code unless the operator departs voluntarily. Where this applies, there is a need for notice to be given for removal (giving a further reasonable notice period) and the court may be required to adjudicate on the matter.
Once again, this will give rise to delays in securing vacant possession for development.
It should also be noted that, although mere occupiers can confer Code rights and bring termination proceedings under Part V, it is only a “landowner” (that is, a person with an interest in land) who is able to secure removal.
Part IV of the new Code provides a new compulsory purchase mechanism.
The most immediately eye-catching feature of this is the calculation of “market value”. The first question is: “market value” for what? The new Code states that it is the market value of the relevant person’s “agreement to confer or be bound by the code right”.
The second question is how “market value” is to be assessed. There is the familiar willing buyer/willing seller formula in paragraph 24(2), and there are then assumptions to be fed into the hypothetical transaction under paragraph 24(3): that the right to be conferred does not relate to the provision or use of a network, that the assignment/sharing/upgrading powers do not apply but that the right is otherwise a code right, and that there is no scarcity.
It is interesting that the valuation formula is focused on the price of the occupier’s agreement and there has been much debate about the valuation basis under Part IV, in particular whether “telecoms rents” are going to be depressed going forward.
Although it will vary depending on the nature of the land, no doubt the new wording will lead landowners, occupiers and their advisers to consider carefully what alternative non-electronic communications uses their land might have in order to establish what the best market value might be.
In addition to the key points outlined above, there are a number of other changes to Code arrangements which will take effect when the new Code is brought into force.
Hopefully, the publicity surrounding the Digital Economy Act will result in a greater awareness of the ramifications of new Code-protected agreements. However, it will probably be some time before these are fully explored and both landowners and operators may well find this a challenging process.
We await the statutory instrument under section 116 of the Act with interest – heralding a new era of telecoms law and litigation.
This article was co-written by Oliver Radley-Gardner, barrister at Falcon Chambers.
This article first appeared in Estates Gazette on 18th May 2017