For the first time since the introduction of the Electronic Communications Code 2017 (“Code”), the Court was asked to determine a claim for the renewal of a lease of a telecommunications mast site benefitting from the protection of the Landlord and Tenant Act 1954 (“Act”) – Vodafone Limited v Hanover Capital Limited .
The case follows the Upper Tribunal decision that renewal of a Code agreement entered into before the new Code came into force (known as a “subsisting agreement”) that is protected under the Act must follow the procedure in the Act, rather than Part 5 of the Code (see Cornerstone Telecommunications Infrastructure Ltd v Ashloch Ltd and another ).
Vodafone (the “Operator” under the Code) occupied the site under a five year lease on payment of a £10,000 premium and a peppercorn rent. Following service of a Section 25 notice, the Operator issued proceedings for a new tenancy under Section 24 of the Act. At the time of the hearing, the remaining points at issue were the term, any provisions for a break clause and the rent.
Term and Break
The Operator argued for a three year term with a rolling unconditional break subject to six months’ notice, in opposition to the Landlord who sought a ten year term with provision for a break after five years, conditional on being granted vacant possession of the site.
In determining the duration of the new tenancy and provision for a break clause, the Court sought to “balance the degree of protection to which the tenant is entitled in the interests of its business and the need to ensure that the decision is neither unfair on nor oppressive to the landlord”.
The Court concluded that in order to balance the Operator’s desire for flexibility with the Landlord’s interest in preventing uncertainty and expense, the tenancy would be granted for a term of ten years with a break clause exercisable on six months’ notice expiring on the fifth or subsequent anniversary of the term. The break clause was to be conditional on payment of all rents and all covenants having been materially complied with, but was not to be conditional on the Operator giving vacant possession of the site.
In determining the rent, the Court looked to the Valuation Hypothesis pursuant to Section 34 of the Act to imagine a negotiation between two hypothetical parties entering into a tenancy of the site on the terms of the lease.
The Operator argued that the Court should have regard solely to the ‘no network assumption’ valuation basis under Paragraph 24 of the Code, i.e. that the value of the site to an operator in using the site as part of its network should be excluded from an assessment of the level of the rent. The Landlord, however, argued that the the value of the site to the Operator should be used as the basis for determining the rent.
In his judgment, Martin Rodger QC turned away from the no network assumption and found that the rent should be based on the value of the site to the Operator and not to its potential value to the Landlord. The fact that the site would be in substantial demand by other telecommunications companies as evidenced by the current use of the site by other additional operators was persuasive enough for the Judge to find for the Landlord’s position, albeit not quite to the extent of the Landlord’s suggested valuation. The Landlord had submitted to the Court that a rent of £8,000 was appropriate but the sum ultimately awarded was £5,750.
Importantly, the judgment highlights that this position may not be appropriate in all instances, particularly if a site is suitable/of interest to only one operator.
Whilst decided in the County Court (sitting in the Upper Tribunal) and therefore non-binding, the judgment will bring some much needed clarity and will be welcomed by landlords who may now seek higher rents in respect of subsisting Code agreements protected under the Act.