Although the Digital Economy Act received Royal Assent on 27 April 2017, the provisions for the new Electronic Communication Code were only recently brought into force with effect from 28 December 2017. The new Code replaces the previous Electronic Communication Code.
Our Scott Logan has previously blogged on the background to the Code and the key changes being introduced. The overarching aim of the new Code is to put in place modern regulation that supports the rapid rollout of digital communications infrastructure, including 4G networks, superfast broadband and future generations of technology. As a reminder, the Code is a statutory framework which underpins (and can override) contractual terms agreed between landowners and operators for the installation, maintenance and use electronic communications apparatus.
Between April and December of last year we experienced a large upsurge in the number of new agreements being put in place (and the renewal and replacement of existing agreements) between landowners and operators.
Why the rush?
From the landowners’ perspective, there were clear advantages in signing up before the new Code came in to effect. In addition, where commercial terms had been agreed on the basis that the agreement would be brought in to effect under the old Code, there was an impetus to do so to avoid the renegotiation of the agreed commercial terms.
A key driver for this is the move from the previous market value approach to the new “no scheme” value approach for mast site rents. Given the volume of telecoms masts located up and down the country, well established market comparables were available to agents involved in the negotiation of mast site rents. Under the new Code, the payments landowners can expect to receive for having equipment installed on their land is likely to drop because the basis of valuation disregards the operator’s use of the site for electronic communications and the new provisions on assignation, upgrading and site sharing (which might otherwise increase values) are to be disregarded. Given the infancy of the new Code and the lack of comparables under the new regime, it is difficult to predict how operators and landowners will tackle rent negotiations going forward.
On assignation the new Code prevents any contractual limitation on assignation of the operator’s rights and landowners will no longer be able to impose assignation fees or other conditions on assignation – such as a covenant test. However, one important point to note for landowners is that “guarantee agreements” are permitted. Landowners can contractually require that on assignation a guarantee will be provided by the outgoing operator of the obligations taken on by the new operator – akin to authorised guarantee agreements as are commonly encountered in England and Wales. Although unusual in Scotland, we expect to see increased use of such arrangements in the telecoms sector.
Under the previous Code, landowners could legitimately limit the permitted apparatus on their land by reference to an agreed specification, drawing or some other description. Often, upgrading was permitted so long as this was reflected by a rent increase. Under the new Code, operators have an automatic right to upgrade so long as there is no more than minimal adverse impact on the appearance of the apparatus and no additional burden is put on the landowner. Conditions requiring the payment of money are expressly prohibited.
Finally, on the sharing of sites, previous agreements would typically contain an express exclusion on sharing sites between operators or, where site sharing was permitted, this would often be conditional on the landowner sharing in the financial return – whether that be by a set sharing charge or a percentage of the income received by the operator. The new Code gives operators an automatic right to site share with other operators. Again, the usual conditions we would have expected landowners to call for under the old Code, cannot now be imposed.
Whilst the new Code generally applies to agreements entered into before 28 December 2017 the new provisions on assignation, upgrading and site sharing highlighted above do not. Post 28 December 2017, all future agreements will be governed by the new Code and it is not possible to contract out of the overriding provisions of the Code.
As Scott explained in his earlier blog, the new Code clearly strengthens the powers of operators and should significantly reduce their rent roll. Landowners, however, are likely to lose out so that the public can benefit from having the improved networks that society demands in the modern digital era.
If you are negotiating terms for a new agreement or the renewal of an existing agreement, it is important that you are aware of the provisions of the new Code. Taking early advice in negotiations is key.