Breaking the Code: has the Tribunal thrown the termination of telecoms leases into turmoil?

The Upper Tribunal (Lands Chamber) has ruled that service of a break notice is not required for early termination of code agreements under the Electronic Communications Code, which creates uncertainty for break conditions.

In On Tower UK Ltd v British Telecommunications plc [2024] UKUT 51 (LC), a critical point was established that has significant implications for site providers that want to terminate code agreements on their land. The case involved a dispute between two code operators. On Tower is an infrastructure provider, building and maintaining masts and other apparatus for use by mobile network providers. The dispute arose over equipment that On Tower had on the roof of a telephone exchange belonging to BT, which BT wanted to remove. BT was decommissioning the building and had an obligation to give vacant possession to its landlord to facilitate the landlord’s redevelopment of the site.

The legal landscape

Registered operators enjoy a form of security of tenure under the Code. By virtue of paragraph 30, they may continue to enjoy code rights to keep their electronic communications apparatus installed on/over private land even after the code agreement has expired.

The only way that a site provider may terminate a code agreement is by serving a paragraph 31 notice on the operator. This notice must specify the termination date and at least one of the four statutory grounds for termination (which include an intention on the part of the site provider to redevelop the land).

There are two conditions relating to the termination date. First, it must be at least 18 months after the paragraph 31 notice is given. Second, it “must fall after the time at which, apart from paragraph 30, the code right to which the agreement relates would have ceased to be exercisable or to bind the site provider or at a time when, apart from that paragraph, the code agreement could have been brought to an end by the site provider”.

Breaking convention

BT had the benefit of an early break clause and it served on On Tower a break notice pursuant to the lease followed by a paragraph 31 notice under the Code. However, On Tower argued that the break notice served by BT was invalid, and therefore the paragraph 31 notice was also invalid.

The critical point established in this case is that a site provider can serve a paragraph 31 notice without having to serve any break notice first. This is contrary to the accepted approach to terminate protected business leases in relation to the Landlord and Tenant Act 1954, on which the termination provisions of the Code were modelled.

The tribunal explained its decision by saying: “… the key word [in paragraph 31] is ‘could’. It refers not to something that would actually happen absent paragraph 30, but to something that could have been made to happen absent paragraph 30. If the intention was that the landlord actually serve a break notice then (quite apart from the fact that one would expect the statute to say that expressly) the correct word would be ‘would’.”

However, this approach raises tricky issues. There can be mandatory formalities prescribed in the provisions of a lease for service of a valid break notice – such as, to give a classic example, the notice needing to be served only on pink paper. Normally, where such formalities are specified, strict compliance would be needed to operate the break clause successfully.

The notice period and preconditions of BT’s break clause depended on which ground it was relying on. The tribunal agreed that, as a matter of practicality, BT would need to tell On Tower on which ground it could have brought the lease to an end, absent paragraph 30. But this did not need to be in the form of a break notice. Instead, where a break provision exists in a code agreement (apparently, regardless of how complicated the specified requirements for it to be exercised), the site provider can turn straight to the Code and rely on that. The tribunal made the point that, because there is nothing in paragraphs 30 or 31 which requires compliance with such lease formalities, they simply cease to have any practical effect.

The tribunal recognised that conditions precedent or subsequent to the service of a break notice, such as payment of a reverse premium to the operator, “are a little more difficult to analyse”, but as they did not arise in this case, it was inappropriate to speculate about hypothetical cases.

What next?

This decision appears helpful to site providers at first blush, but it raises many questions that remain unanswered. Site providers should be wary of simply disregarding break conditions when planning to terminate a code agreement, particularly where they are planning a redevelopment of the site. If an operator has any grounds to argue that the termination notices are invalid, it can have significant implications on the development timescale.

If On Tower does not appeal, focus will turn to whether BT has met the termination grounds that it specified in its paragraph 31 notice, which include redevelopment. We have had little judicial authority on the operation of this part of the Code to date, so this case will be one to watch closely.

(This article was first published by EG on 11 March 2024)