On the Eleventh Day of Christmas...Calculating Rents Under The Electronic Communications Code – Where Are We Now?

Undoubtedly the telecommunications industry remains a vital sector for the future of the British economy. The new Labour government pledged £500 million to Project Gigabit in this year’s Autumn budget to help meet the goal of delivering full gigabit coverage providing fast reliable broadband to at least 99% of premises by 2030 which is forecast to grow the economy by £413 billion!  

The Electronic Communications Code introduced in December 2017 (“Code”) was intended to enhance the deployment and maintenance of the necessary infrastructure to support the governments’ goals and the rollout of 5G. It is now almost 7 years to the day since the Code came into force and in that time, there has been much heated debate and indeed extensive litigation between operators and landowners on the application of the Code. That debate has often centered around the level of rent (known under the Code as consideration) payable to landowners on the grant or imposition of a new agreement.

How is consideration valued under the Code? 

The starting point is paragraph 20 of the Code which provides that the consideration payable by the operator must be equivalent to the “market value of the relevant person’s agreement to confer or be bound by the Code right”. The market value is the amount that a willing buyer would pay a willing seller for the agreement at the date of assessment taking account of various assumptions. 

In particular, the valuation is conducted on a “no-network” basis which does not consider the proposed use of the site in connection with a telecoms network thereby stripping out the value associated with very high public demand for telecoms coverage and resulting in a substantial decrease in valuations compared to the previous Code.

What did the early case law decide under the Code?  

Early cases such as EE Ltd v Islington LBC [2019] affirmed that the “no scheme” basis of valuation will likely result in lower valuations than under the previous Code. It was held necessary to ignore the presence of operators who wish to use the site to provide a telecoms network and the price which they would offer. In principle, it was possible to have regard to rental values for other potential uses of the site but transactions under the old Code would not be useful comparables as they did not adopt the no-network assumption.  

Subsequent cases, namely Vodafone Ltd v Hanover Capital Ltd [2020], On Tower UK Ltd v J H and F W Green Ltd [2020] and CTIL v London & Quadrant Housing Trust [2020] applied what came to be a 3-stage test to the calculation of consideration:

1. Assess the alternative use of the site. 

If the evidence shows that the site could be turned to some alternative use, its value for that use must be taken into account. In Hanover Capital, this was said to be “the rental value of its current use or most valuable non-network use”.  Possible alternative land uses that have been referred to include parking spaces, solar panels, railway works and noise monitoring. 

2. Add any sums to reflect any additional benefit which could be conferred on the operator by the letting.

This takes account of any additional benefits which would be conferred on the operator by the letting (e.g. a manned security gate, insurance and maintenance of the building).

3. Add sums to reflect any additional adverse effect or burden which the activities on the site would impose on the site provider when compared to the existing/alternative use. 

This takes account of additional burdens that would not be placed on the site provider if the site was used for its alternative use e.g. arranging access or having someone present for inspections and upgrade works and keeping a record of work done. 

In On Tower UK Ltd v J H and F W Green Ltd for example, applying the 3-stage test above, the Tribunal derived at a figure of £1,200 per annum. This comprised £100 for the alternative use value of the site. The sum of £600 was added to reflect the additional benefits conferred on the operator (including the right to connect to an electricity supply, to carry out works on neighbouring land, to install an emergency generator and to carry out pruning or trimming of trees). The sum of £500 was then added to compensate the site provider for the burdens of the agreement (in view of the fact that the site was very close to residential houses on a private estate in a National Park). The Tribunal made clear that in the absence of these special features, the consideration for rural greenfield sites should be around £750 per annum. 

What have recent cases under the Code decided? 

Given the number of cases coming before the Tribunal with lengthy expert evidence, the Tribunal will now apply (where it can), the Affinity Water Table which stems from the case of EE Ltd & H3G Ltd v Affinity Water Ltd [2020]. This provides important guidance to help calculate the level of consideration depending on the type of site in question and based on previous valuation cases decided by the Tribunal as follows:

In the recent case of EE Ltd and H3G Ltd v AP Wireless II (UK) Ltd [2024] (the “Vache Farm” decision), the Tribunal summarised its previous thinking on site valuation leading up to the Affinity Water decision and considered whether the figures quoted in the table should be updated. The Tribunal was persuaded that the rural valuation of £750 fixed by the On Tower UK Ltd v J H and F W Green Ltd case, discussed above, was too low taking account of non-telecoms transactions for unexceptional rural sites. It revised this to £1,750. It also agreed that an inflationary increase should be applied (although it did not commit to amending its figures). This highlights the importance of agreeing rent review provisions in lengthier leases so landowners may capitalise on increased market rent during the term of the lease.  

In the recent Scottish case of On Tower UK Ltd v David McLean and Monica Anne McLean [2024] (the “McLean” decision) the Tribunal endorsed the Vache Farm decision to negotiations for rural telecoms sites in Scotland but agreeing that the rent of £1,750 per annum should act as a “floor” rent for rural mast sites. Uplifts were then applied to the “floor rent” for factors such as an allowance for unlimited sharing rights, the absence of advance notice for routine visits and an annual break option.

What is the current position? 

While Affinity Water represents a useful starting point for those calculating rents for new agreements under the Code, it should not be applied rigidly in all cases. The Table does not take account of special features or sensitivities of a particular location which entitle the parties to depart from the guideline figures. The Table is underpinned by the 3-stage test. It represents valuations that should be expected for particular sites applying the 3-stage test. It’s therefore conceivable that a particular site may have a substantial alternative use which lifts the value significantly outside the range set by Affinity Water.  

While neither landowners nor operators may be entirely happy with the approach to calculating consideration following the outcome of recent case law, the position may enable parties to reach agreement on the terms of new agreements much quicker. Ultimately, this should foster greater collaboration between the parties and enable the roll out of new infrastructure by negotiation rather than litigation.