The Upper Tribunal recently issued its first decision under the new Electronic Communications Code on the consideration and compensation payable by an operator to a site provider – EE Limited and Hutchison 3G Limited -v- The Mayor and Burgesses of The London Borough of Islington  UK UT.
Operators will welcome the decision as it supports their view that lower amounts are payable for Code agreements. The decision is also useful for the guidance it offers on: (1) how a Code agreement is put in place when the Tribunal is asked to impose one; and (2) whether the Tribunal could impose an agreement by way of a lease.
The operators identified the rooftop of a block of flats belonging to The London Borough of Islington (“Islington”) as an appropriate site to install their telecoms apparatus. The operators and Islington failed to agree on terms for a Code agreement. The operators therefore referred matters to the Tribunal for determination.
- Form and mechanics of imposing a Code Agreement
The Tribunal decided that the Code did not restrict the type or form of agreement to be entered into between the parties and that it had jurisdiction under the Code to impose an agreement by way of a lease. In addition, the Tribunal’s order, by itself, was sufficient to confer Code rights on an operator and would bind a site provider. There was no need for the parties to enter into a “parallel” agreement once the Tribunal had made its order.
Paragraph 24 of the Code provides that the consideration “must be an amount or amounts representing the market value of the relevant person’s agreement to confer or to be bound by the Code right“. Market value is the amount a willing buyer would pay a willing seller for the agreement and various assumptions are to be made, principally that the rights that the transaction relates to do not relate to the provision or use of an electronic communications network. The Tribunal referred to this as the “no network” assumption.
The operators argued that the roof top site only had a nominal rental value, on the basis that the only use of the site was for telecoms equipment and that this use had to be discounted because of the “no network” assumption. The Tribunal decided that:
- an operator is not able to use the absence of demand, by itself, to drive the consideration payable down to such a level that the site provider would not be willing to enter into an agreement;
- the value of the land in each case will depend on its characteristics and potential uses and not only on the number of potential bidders in the market; and
- transactions under the old electronic communications code could not be used as comparables to assist with calculating consideration under the new Code.
The Tribunal expressed that the consideration for the grant of the Code rights had a nominal value but that the consideration must also take into account the “risks and obligations” which Islington would be subject to as a site provider (such as Islington’s expenses of running the building). By referencing the service charges paid by flat owners in the building, the Tribunal assessed the consideration payable by the operators as £1,000 per year.
In addition to the consideration payable, the Tribunal may order (under paragraphs 25 and 83-86 of the Code) the operator to pay compensation for any loss or damage that has been, or will be, sustained by the site provider due to the exercise of the Code rights by the operator. In this instance, the Tribunal ordered that Islington was entitled to:
- its reasonable legal and valuation fees in connection with seeking to agree terms for a Code agreement (but not costs incurred in resisting an agreement from being imposed by the Tribunal); and
- compensation for the temporary use of its land at ground level for a working compound and the site of a crane whilst the operators’ apparatus was installed.
However, Islington was not entitled to compensation for any diminution in value of the land.
Whilst the “no network” assumption would prevent a site provider from realising the true value of its land this did not give rise to a loss for which compensation was payable. The Tribunal highlighted that it could not have been Parliament’s intention to treat the entry into a Code agreement as being an event that would give rise to loss or damage under the compensation provisions in the Code. Islington’s other claims for compensation were dismissed as being speculative or unfounded, although Islington is still entitled to bring future compensation claims.
Ultimately, the Tribunal imposed a 10 year lease on the parties with an annual rent of £2,551.77 (which the operators had already indicated they were prepared to pay) and otherwise on the terms of the agreement proposed by the operators.
While the case is likely to be considered a win for operators, there are still many grey areas to be clarified by the Tribunal. There are likely to be more cases on the new Code as both operators and site providers are still keen for clarification on how the Code is to be applied.
One further point from the judgment worth noting is that Islington failed to comply with directions made by the Tribunal to propose amendments to the draft agreement prepared by the operators. As a result the Tribunal debarred Islington from being able to call evidence or make submissions on the terms of the agreement proposed by the operators, except for on the issues of the consideration and compensation. The Tribunal has thus issued an early warning that it will not tolerate non-compliance.
Rob Shaw (Senior Associate) and Ben Rogers (Legal Director)