UK developers beware - intermediate leases sterilise ability to terminate telecoms rights

The Electronic Communications Code gives telecoms operators rights to remain in situ unless Code agreements are terminated in accordance with strict provisions. Developers need to plan carefully for termination and removal, but the latest decision from the Upper Chamber of the Lands Chamber has thrown another spanner in the works.

A wrong turn corrected…

In June 2022, the property industry welcomed the clarity that the Supreme Court brought to the interpretation of the new Code (Cornerstone Telecommunications Infrastructure Ltd v Compton Beauchamp Estates Ltd). The new Code came into force in December 2017, but an early wrong‑turn in a couple of decisions led to a situation where operators in situ under an old Code agreement which expired before December 2017 found themselves shut of out of the provisions of the new Code.

The issue turned on the interpretation of "occupier", as the Code provides that an agreement can only be conferred on an operator by an occupier. If an operator is already in situ, it is the occupier therefore cannot grant an agreement to itself. For a new or subsisting Code agreement, Part 5 of the Code is the path for a renewal or modification of a Code agreement, but this is not available where the agreement has expired.

The impact was serious enough that Parliament intervened and proposed legislative changes to correct the issue. Ultimately, however, the Supreme Court found a way through by disregarding the occupation of a sitting operator for the purposes of new agreements under the Code.

… but another structural defect opens…

In August 2022, the Upper Tribunal was asked to consider the interplay between two paragraphs of the Code. The first, paragraph 10, sets out who is bound by a Code right and it includes:

1. an occupier with an interest in land who conferred the Code right (we'll call them "O")
2. a successor in title to O (ie a purchaser of O's property interest) ("P"); and
3. any subleases created out of O's interest after the Code rights had been granted ("S").

However, paragraph 10 expressly provides that only P is treated as a party to the Code agreement, alongside O.

The importance is that Part 5 (termination and modification of a Code agreement) can only be triggered by a notice served by or on "a site provider who is a party to a Code agreement". Whilst O, P and any S are all bound by the Code agreement, it is only O or P who are treated as parties to the Code agreement.

Can S serve a termination notice?

No, as it is not considered to be a party to the Code agreement for the purposes of Part 5.

Can P serve a termination notice as a party to the agreement whilst the intermediate lease continues?

Not according to the Upper Tribunal. If P does not meet the termination ground, the Tribunal may order that the Code agreement is renewed, modified or replaced with a new one. As a Code agreement can only be conferred by an occupier of the land, P would only be entitled to serve a termination notice if it were the person entitled to occupy the land (ignoring the operator's occupation) and therefore able to confer a new agreement. As S is the person entitled to occupy whilst the intermediate lease continues, P is not in this position and therefore cannot serve a termination notice.

Martin Rodger QC, Deputy Chamber President, gave the decision and said:

I do not see a solution to that small but potentially important structural defect … I would add, however, that for so long as this gap in the structure of the Code remains, a concurrent lessee who wishes to redevelop a building over which code rights have been granted by a superior landlord will find themselves in difficulty, and with no obvious means of bringing the code rights to an end. A person contemplating taking a concurrent lease with a view to redevelopment would therefore be well advised either to adopt a different structure or to ensure that any code agreement which may interfere with their proposals has been terminated before they acquire their interest.

There is an inherent problem with the latter suggestion, as only the person with an intention to redevelop may terminate the Code agreement on that ground. A seller of the site with no plans to develop itself will not be able to satisfy the Tribunal of an intention to redevelop. As the other termination grounds are limited, this may not provide the solution. Instead, a developer would be well-advised to terminate any intermediate leases of the telecoms site so it once again becomes the person with the immediate reversion to the Code agreement (ie the person entitled to occupation other than the operator). At that point, it would satisfy the requirements of Part 5 to terminate the Code agreement.

Another correction on the horizon?

Going forward, it is common for large developments to be structured with intermediate leases of specific plots. Where these plots include telecoms equipment, provisions anticipating the grant of intermediate leases and requiring the novation of Code agreements into the name of the intermediate lessee (or adding additional parties to the agreement) can be included in wayleaves, leases and other Code agreements to help mitigate the issues created by this decision. However, careful consideration should be given to the future use of the plots and who should be entitled to exercise the right to terminate Code rights for redevelopment.

Whilst this case was not about termination for redevelopment, but rather renewal of a Code agreement in the context of intermediate leases, the wider implications for developers may lead to an appeal to the Court of Appeal. If not, Parliament may need to consider further intervention but neither of these routes will provide the clarity that developers will need quickly.

Vodafone Limited v Gencomp (No.7) Limited and A P Wireless II (UK) Limited (LC-2021-613)

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