The Government introduced the new Electronic Communications Code within the Digital Economy Act 2017 and it came into force on the 28th December 2017. The “new Code” will apply to both new agreements and agreement renewals going forward. The new Code provides some significant reforms generally in favour of operators compared to the previous regime.
In this blog we take a look at what the Code might actually mean to landowners both with existing equipment in place and for those landowners who are approached for new sites. Additionally we are aware that there appears to be a wide range of interpretation of the Code and how it applies and this blog is hopefully designed to set out exactly how the Code is meant to work and what rights each party has.
Who are the parties involved?
Firstly it might be helpful to understand who the parties are who will involved in any Code agreement:
“Operator” – Operators with Code powers are companies licenced by OFCOM and who will most likely be the tenants of the site. They could include companies running the mobile phone mast network (eg CTIL, EE, Arqiva) or broadband and telecoms network providers for overhead or underground cables (eg. BT Openreach and Gigaclear).
“Infrastructure Provider” – Infrastructure Providers who provide items such as masts, cables and conduits to a site will benefit from Code powers. Therefore a connection of a site to a power supply will most likely mean that the District Network Operators will benefit from code powers (eg. Western Power, SSE, etc) for the electricity connection.
“Site Provider” – These will be landowners and property owners (where rooftop mounted apparatus may be sited). The site provider will be the landlord.
In order to be an agreement covered by Code powers the Operator has to be OFCOM approved and any infrastructure provided has to be used for the benefit of any communications apparatus and for communcations purposes. The apparatus has to be installed on land (including buildings) and there has to be a written agreement in place. The agreement could take the form of a lease, easement or a licence (eg. a wayleave).
What agreements are affected by the new Code?
The additional rights granted by the Code will not generally apply to agreements currently in place. However where a current agreement contains an exercisable break or termination clause then it will be possible for the Operator to terminate the old agreement and enter into a new agreement with the benefit of the new code powers.
What is changing?
Principally the new Code allows Operators to apply to the courts to enforce a site provider to enter into an agreement. Importantly, it is expected that every effort will be taken by the Operator and Site Provider to come to a private agreement before this step is taken. In referring the matter to the court, the Operator will have to prove that both the harm caused to the site provider is capable of being compensated for by money and that the public benefit of the site outweighs that harm in order to get an agreement.
In addition to the ability to go to the courts, the new Code allows operators to have the right to share and make minor upgrade to sites without the site provider’s consent (regardless of any written agreement). “Payaways”, where the landowner takes a share of the income generated from site sharing, are no longer permitted. Operators will also have the right to assign agreements to other Operators without the site provider’s consent. Finally, new agreements will not be protected by the Landlord and Tenant Act 1954 in addition to the Code powers.
What is staying the same?
Early drafts of the new Code inferred that site rents would be based on “compensation” and not “market value” as with previous agreements. Following intense lobbying by the CAAV, this was amended to effectively stay as “Market Value” but with certain other factors to be disregarded. We are aware that many of the Operators have advised their acquiring agents that the rental values to be offered are to be based on compensation values despite what the Code says. As you can imagine, compensation for a 50m2 corner of a field is not likely to amount to much money – and certainly not the £4,000 – £5,000 rents currently being seen in the market.
In addition the rent matters, operators will keep the right to use code powers to keep an agreement and equipment in place under the new powers.
Existing agreements under the old regime will still continue to be governed by the “old code” and the Landlord and Tenant Act 1954 as before.
There are approximately 30,000 – 40,000 mobile phone masts in the UK and it is estimated that approximately 60% of site providers are unrepresented. This means that there are currently 18,000 – 24,000 sites unrepresented at the moment. Looking to the future, it has been reported that an additional 400,000 new masts will be required in the UK to roll out the 5G network as a result of the much shorter range required between masts to deliver services using the technology. This suggests that there could be significant activity in the market in the short to medium term – and the potential for a further 240,000 unrepresented site providers going on the current rates! There is a very real risk that unrepresented site providers will accept significantly reduced rents as a result of misinformation presented by the Operators leading to the creation of a large amount of comparable evidence available to the Operator’s with which to use to argue lower “market rents”. It is therefore imperative that site providers seek professional representation from someone who understands the code valuation principles in order to make sure they get a fair deal.
Whilst the new code offers operators more powers once they are in occupation, the making of the agreement between parties is still the most important part of any new site acquisition. Only if parties can’t come to an agreement can the Code powers be used to refer the matter to the court. In agreeing terms, a thorough understanding of the principles of the valuation of the rent is imperative if rent levels are to remain attractive to site providers going forward. I therefore recommend that professional advice is taken to ensure that as a landowner you are able to get the market value for the site and to ensure that the Operator is playing fairly. The 2017 code is new to all sides and therefore what happens in the next few months with agreements is likely to shape the market for some time to come.