Telecoms Code: Consideration and compensation finally under the judicial spotlight

We have the Tribunal’s first view on how money should be shared between operators and landowners on the grant of Code rights.

In 2016 the Government issued a statement that it considered “rents” in the telecommunications sector were too high when compared to other essential services. The Government suggested that under the new Code, rents were expected to be “up to 40% lower than current rates”.

Since the new Code came into force, operators have taken a bullish interpretation of the statutory concepts of ‘consideration’ and ‘compensation’, regularly proposing to pay just 1% of the sums that were previously offered.

Facts

EE and H3G (the Operators) approached Islington Borough Council (the Council) with a proposal to erect a new mast site on the rooftop of one of its blocks of flats. Inevitably the main issue over which the parties struggled to agree was the value of the financial package payable for the grant of the Code rights sought by the Operators.

Consideration

Under paragraph 24 of the Code, the consideration must be an amount representing the market value of the landowner’s agreement to confer or be bound by the code right.  Market value is defined as being the amount that a willing buyer would pay a willing seller for the agreement.  Various assumptions apply, including that the transaction does not relate to the provision of an electronic communications network.

The Operators considered that there was no viable use for the rooftop site other than for a telecoms mast and, as this latter use must be discounted, asserted that the consideration payable should be a nominal sum of £1 per annum.

The Council asserted that the concept of ‘willing seller’ means that there is a value below which no landowner would bother agreeing to enter into such an agreement and assessed this value as being £13,250 per annum. The Tribunal rejected this argument, saying that a floor level was inconsistent with the concept of a willing seller.

The Tribunal therefore ordered that the consideration for the grant of the Code rights be set at £50 a year. However, the Tribunal also ordered that the consideration should be increased to reflect the Council’s expenses of running the building and keeping the communal areas in good repair. By reference to what was paid by the residential tenants within the building, the Tribunal ordered that the overall value of the consideration payable by the Operators should be increased to £1,000 a year.

Compensation

Under paragraph 84(2) of the Code, the Tribunal has the power to order the payment of compensation for loss or damage including for expenses, diminution in the value of land and costs of reinstatement.

Claiming diminution in value, the Council asserted correctly that there was no requirement to disregard the fact that the rooftop was being used for the provision of a telecommunications network when assessing compensation. It therefore asserted that it was entitled to compensation to reflect the income it would have received from the rooftop site by letting it to a telecoms operator outside of the auspices of the Code.

Unsurprisingly, the Tribunal dismissed the Council’s argument on the basis that the cost-savings granted in the assessment of consideration should be rendered academic by inflated ‘compensation’ claims to bring the total financial package back up to old Code levels.

The Tribunal accepted that the Council was entitled to receive payment of legal and other fees from the Operators, the recoverable fees were limited to those incurred in seeking to agree terms for the new Code agreement. Costs incurred in resisting the imposition of the agreement were a matter for the Tribunal’s own discretion.

The Council sought unsuccessfully to claim additional sums of compensation for issues including the loss of entitlement to sharer income and the cost of supervising the Operators’ access to the rooftop.

Under old Code agreements landowners benefited financially when operators shared each other’s sites. However, the Tribunal was again keen to make the point that new Code expressly sought to facilitate sharing at no additional consideration and it could not have been Parliament’s intention for landowners to recover such value via the backdoor of compensation.

In respect of the anticipated costs of supervising access to the rooftop, the Tribunal stated that as it intended to grant the Operators a lease of the rooftop, they would be responsible for the health and safety of their operatives whilst on site. Whilst there was nothing to prevent the Council from ‘shadowing’ such operatives, it would not be fair for the Operators to carry the financial burden of it doing so.

Comment

This decision was hotly anticipated by both operators and landowners alike, both communities hoping that the Tribunal would favour their respective interpretation of the Code’s valuation principles.

Whilst it is likely to be trumpeted as a win for operators, with such a significant income stream at stake for landowners and with many grey areas still to be clarified by the Tribunal, we anticipate several further cases on these issues before a market-wide acceptance of what constitutes consideration and compensation is achieved and the deals once again start to flow.

EE Limited and Hutchison 3G UK Limited v The Mayor and Burgess of the London Borough of Islington [2019] UKUT 53 (LC)