When a registered telecoms company (an operator) takes a lease of property to use for its network, the lease is governed by special statutory rules called the Telecoms Code. The Code is designed to make it easy for operators to acquire land where they need it, share it with other operators without the site provider’s consent and without it costing the operators very much in rent. As such, the Code also provides a scheme for valuing new leases and that scheme tends to result in low rents.
The current Code replaced a previous version that was not quite so favourable to operators. Leases agreed under the old Code tend to be more restrictive and have higher rents. Paragraph 33 of the new Telecomes Code allows operators to be able to apply for their old Code leases to be modified. Some have sought to use that provision effectively to convert their less-favourable old Code leases into more favourable new Code leases.
In order to do that, the operators must either have the consent of the site provider or persuade the Lands Tribunal to impose new terms. One case in which the operator sought to have new terms imposed was EE/H3G v Duncan, which was decided in the Lands Tribunal for Scotland in late 2020. That decision was appealed to the Inner House of the Court of Session, which issued its opinion in May 2021.
The issues in the case
The two operators had, individually and together, nine leases agreed under the old Code. The leases had passed their end dates and were continuing on what is known as tacit relocation, which means that instead of ending on the nominal termination date, they ran year to year until one or other party ended them by giving formal notice.
The operators could have given formal notice of termination of the existing leases, and then applied for completely new leases to be imposed on the site providers (using different Code provisions); however, in order to do that, they would have had to vacate the site entirely in the time between ending the existing lease and a new one being imposed. That would no doubt have been highly inconvenient for them and may have resulted in customers in the areas suffering from a worse service. For those reasons, the operators sought to have the existing leases converted instead, so they did not have to remove from the site.
The site providers defended the claims on several bases, which included arguing that the Code only allowed an operator to change the terms of an existing lease where it had given a good reason for requiring the change. They argued it was not enough for the operator to say that it desired different lease terms or wanted to pay less rent and the new Code would allow them to do that. They had to show some objectively justified need for the specific changes it sought to make to the leases.
The site providers also argued that the operators' existing lease had to be at risk of termination by the site providers on one of the statutory grounds (i.e. the operator not paying rent or otherwise breaking the terms of the lease, or because the site provider intended to develop the land), and that if it could not show that there was such a risk, then it would have no right to seek that the terms of the agreement should be changed. The site provider argued, in addition, that the Code notice provisions did not apply to leases that continued on tacit relocation.
The Court of Session’s decision
The Lands Tribunal rejected the site providers’ argument about the lease being at risk of being terminated and that particular decision was not subject to any appeal to the Court of Session. The Court considered, and rejected, the tacit relocation argument. The operators merely had to show that their notice requesting a change to the lease terms was sent at a time when the agreement could have been terminated by either party (i.e. after its nominal end date).
The Court of Session also disagreed with the site providers that in order to change the terms of the existing leases in their favour, the operators had to show that the existing agreements were unduly onerous or restrictive or that there was a need to modify the arrangements.
The Court held that the operators required to do no more than point to the current arrangements as being out of step with the minimum rights available under the new Telecoms Code, for example in terms of assignation, upgrading of apparatus, site sharing and rent.
The Court said that, "Parliament has identified certain minimum code rights for operators, including sharing/upgrading abilities and reduced outlays resulting from valuation on a no scheme basis. The view was taken that these are required if network operators and infrastructure providers are to be in a position to deliver the modern low cost electronic communications system which Parliament wants and which business and the public at large expect" and that the "underlying aims and purposes of the new [Telecoms] code […] include that over time old agreements will be brought into line with new ones."
What the decision means for landowners
The decision is unhelpful for landowners who have operators on their land under old Telecoms Code agreements. It means operators under more restrictive old Telecoms Code agreements will now obtain from the Tribunal - on request - the minimal rights to share the site with other operators and upgrade apparatus as they would have under a new Telecoms Code agreement. They will also be able to obtain a modification of the agreement to allow them to pay rent that is assessed on the basis of a "no scheme" valuation. The operators will not have to show that any change to the existing arrangement is required, but only that the terms they seek are what they would be granted if they were to seek a completely new lease for the same site under the new Telecoms Code.
The decision is likely to mean that there will be a greater number of requests from telecoms operators for site providers to agree to more onerous lease terms and reduced rents. However, that does not mean that operators have an entirely free rein. There is a limit to what they are entitled to, albeit that limit is not where most site providers would like it to be.
Parties involved in a dispute about telecoms agreements should seek advice as soon as any dispute arises or any notice is received from an operator.
