Significant changes to telecoms code further impact landowner rights

by and on

As the new telecoms code comes into force, Emma Wells and Andrew Nayager discuss how the changes will affect landowners and developers.

Landowners and occupiers will, on the whole, be worse off than they were under the old code.  That is no surprise, given that the primary purpose of the Code is to improve the country’s electronic communications infrastructure and to make it easier for operators to install the equipment needed to do so.

The New Code

The Digital Economy Act 2017 created a new Electronic Communications Code (the Code) with effect from 28 December 2017.

Code of Practice and standard terms

In conjunction with the introduction of the act, Ofcom has published:

  1. A Code of Practice dealing with the provision of information by operators to landowners, the conduct of negotiations, and the conduct of operators in relation to landowners;
  2. Standard terms that operators and landowners/occupiers may use as a starting point when seeking to reach agreement on the conferral of Code rights under the new Code; and
  3. Template notices for use by operators and landowners/occupiers (some are compulsory, others are discretionary).

Ofcom has acknowledged that these documents are likely to need review once they have been in operation for a reasonable period of time.

What are the changes?

The aim of the Code is to make it easier for network operators to roll out infrastructure (such as phone masts, exchanges and cabinets) on public and private land.  As a result it brings with it significant changes that, on the whole, are detrimental to landowners and which cannot be excluded, including:

  • Rent – the consideration payable by the operator to the landowner for the grant of Code rights must be the sum representing the market value of the landowner’s agreement to confer Code rights. The Code defines ‘market value’ as the amount a willing operator would pay a willing landowner for the agreement in an arms’ length transaction assuming that:
    • The rights beings granted by the agreement do not relate to the provision or use of an electronics communication network;
    • The assignment, upgrading and sharing provisions of the Code do not apply;
    • That in all other respects the agreement corresponds with the Code; and
    • The operator has an alternative site it could use.

The effect of the Code is therefore to prohibit landowners from taking advantage of ‘real world’ factors to allow them to charge operators higher rents.

For example, the landowner cannot charge an operator a higher rent because the land is of special interest to the operator or because of a lack of availability of alternative sites in the area (such as lack of high rise buildings on which to site the equipment).

Furthermore, landowners will no longer be permitted to take a slice of the income that an operator obtains from sharing a site with another operator.

Consequently, the financial benefit landowners are able to receive from certain types of telecoms agreements will reduce.

  • Termination – Landowners will have to give an operator 18 months’ notice to terminate a telecoms agreement (as opposed to 28 days under the old code). The operator will then have 3 months in which to respond. The burden is on the operator to apply to the Court for an order that the telecoms agreement should continue. If the operator does not serve the counter-notice or apply to court for an order that the agreement should continue, then upon expiry of the 18 months’ notice the agreement will determine.
  • Removal of apparatus – the Code regards termination of a telecoms agreement and removal of the apparatus as separate matters. As well as serving notice to terminate the agreement, landowners will need to serve a separate notice on the operator giving them a ‘reasonable’ period of time to remove their apparatus.
  • Lift & Shift – under the old code, landowners had a right to relocate the apparatus, subject to certain conditions. That automatic right has now been removed. This is a major change.
  • Upgrades – Operators will be able to upgrade their apparatus without the landowner’s permission and without having to pay additional rent, provided there is no more than a ‘minimal adverse impact’ on the appearance of the apparatus and no additional burden is imposed on the landowner, including anything that affects the landowner’s enjoyment of the land or causes them loss, damage or expense.
  • Assignment – Operators will be able to assign their telecoms agreements without the landowner’s consent. Once they have assigned their rights, an operator will have no liability to the landowner for a subsequent breach of the agreement provided they have given the landowner/occupier written notice of the assignment (although the telecoms agreement may require them to guarantee the obligations of the assignee).
  • Sharing – Operators will be able to share their apparatus without the landowner’s consent, at no extra rental cost.
  • Landlord and Tenant Act 1954 – operators will no longer enjoy protection under both the Code and security of tenure under the Landlord and Tenant Act 1954. This is helpful to the landowner, on the basis that it now only has to look at the Code and not the 1954 Act in addition.

Landowners wishing to determine Code rights can only do so if they can prove certain conditions are satisfied e.g.

  • breach of the operator’s obligations,
  • persistent delay in payments by the operator,
  • proposed redevelopment of the land that could not reasonably take place unless the agreement is determined.

If Landowner agrees to installation

Code rights will be conferred/contained in a written agreement between an operator and the landowner/occupier of land and will bind subsequent owners/occupiers.  Code rights will continue by virtue of statute until they are determined in accordance with the Code.

If Landowner does not agree to installation

As was the case under the old code, if a landowner refuses to grant an operator Code rights over their land then the operator can apply to court for an order imposing an agreement.  The court may make an order if it thinks that:

  1. the prejudice caused to the landowner can be adequately compensated by money; and
  2. the public benefit likely to result from the order outweighs the prejudice to the landowner. In analysing this, the court must consider the public interest in having a choice of high quality electronic communications services.

The Court cannot make an order if the landowner intends to redevelop all or part of the land or neighbouring land and could not reasonably do so if the order were made. The provisions of the new Code will apply to a court-imposed agreement in the same way as they would to a voluntary agreement, although the Court can grant the operator Code rights with such modifications as it thinks appropriate.

The Code also contains provisions allowing the Court to grant:

  1. An interim order if the operator wants Code rights for a specified period or until the occurrence of a specific event. Once the period has expired or the event occurred the landowner can require the operator to remove the apparatus installed pursuant to the interim order, unless a permanent order has been granted by the court; and
  2. Temporary Code rights – the operator can apply for temporary Code rights where there is existing apparatus on land but the operator has no right to keep it there or use it. The court can confer Code rights on an operator for as long as it thinks reasonably necessary to ensure the network is maintained and the apparatus is repaired until the operator has obtained a permanent Code agreement from the Court or the landowner has successfully obtained an order for removal of the apparatus.

Pre-existing Code agreements

The new Code will apply to Code agreements that were already in place when it came into force but with modifications.  The key modifications are:

  1. The automatic rights under the new Code which prohibit restricting the assignment, upgrading and sharing capabilities of operators, do not apply to pre-existing agreements. Therefore, any terms that have been agreed in pre-existing agreements relating to assignment, upgrading and sharing are still valid and enforceable against the operators. For example, if there is a restriction on the operator preventing the sharing of apparatus without Landlord’s consent and without paying an uplift in rent, this will still apply.
  2. The more onerous termination provisions under the new Code will not apply if the pre-existing agreement benefits from security of tenure. Otherwise the termination provisions apply to the pre-existing agreement but with minor amendments, including where the unexpired term of the pre-existing agreement at the coming into force of the new code is less than 18 months, the 18 month notice period will be replaced with a period equal to the unexpired term or 3 months, whichever is greater.
  3. Compensation under pre-existing agreements will continue to be calculated on the basis that the land is to be used for telecoms apparatus. Therefore, this should keep the level of compensation high for certain key sites.
  4. The conferral of Code rights under the Code will not be a relevant disposal for the purposes of tenants’ right of first refusal under the Landlord and Tenant Act 1987.

There may be trouble ahead

The legislation is likely to lead to the following:

  • Reduction in income for landowners due to their inability to charge more thank market value (as defined by the Code) or to share in the income an operator makes from specific apparatus;
  • Loss of control by the landowner over identity/number of telecoms occupiers on their land;
  • Potential for damage/reduction in value of land due to operators’ ability to freely upgrade, share and assign telecoms sites and potential insurance issues (e.g. overloading of roof spaces by operators); and
  • Delay: 18 months’ notice to end a telecoms agreement (plus separate notice to remove their equipment) is a significant increase on the old 28 days’ notice and thus requiring the landowner to give the issue much earlier consideration in any development scenario.

Is there any silver lining?

The simplification of the process to terminate telecoms agreements and the removal of dual protection under the Code and the Landlord and Tenant Act 1954 for future agreements is a definite plus.