Telecoms Leases

This blog explores how telecoms leases are renewed under the Landlord and Tenant Act 1954 (“1954 Act”) and how the 1954 Act interacts with the Electronic Communications Code (the “Code”).

Legislative background and process for renewal

The 1954 Act provides statutory protection for business tenants, giving them a right to renew their lease at the end of the term, unless the landlord can oppose renewal on specific grounds (e.g., redevelopment or persistent breaches).

This protection applies automatically, unless it has been expressly excluded through a process known as “contracting out.”

Telecommunications leases can, but do not always, fall under the 1954 Act if the lease grants exclusive possession of land or premises to an operator for business use. The date that the lease was entered into is of key importance.

In December 2017 the Code came into force as Schedule 3A to the Communications Act 2003 and introduced a framework for telecoms operators to gain rights to and over land. But crucially, if an operator’s occupation was protected under the 1954 Act at the relevant time, then renewal of the lease must be pursued under Part 2 of the 1954 Act, not the Code.

This was confirmed in the case of Cornerstone Telecommunications Infrastructure Ltd v Ashloch Ltd (2021) – where the Court of Appeal held that renewal of leases protected under the 1954 Act must be dealt with exclusively under the 1954 Act.

Once renewed, a lease can be one to which the Code applies fully.

The valuation of rent for telecoms equipment under the 1954 Act

In Vodafone Ltd v Hanover Capital Ltd (2021) the court determined the rent in a lease renewal of an electronic communications site under section 34 of the 1954 Act. The existing lease was protected by Part 2 of the 1954 Act and so Part 5 of the Code did not apply.

Rent was considered in the open market, disregarding existing trading connections and any effect on rent by virtue of the existing occupation, goodwill attributable to the operator’s business or improvements. Key assumptions are:

• Willing landlord and tenant
• Fair and friendly negotiations with parties acting prudently without duress
• The same premises and same terms (except for rent) are proposed
• the site is in the condition it was in before the lease was granted (with the removal of fixtures and assuming compliance with obligations)

The case set out a structured approach to assessing rent, however this may be unnecessary when there is sufficient comparative evidence of new lettings of bare sites. EE Ltd and another v Morriss and others (2022). There is currently no reason to assume the site will not be used for the purpose of an electronic communications network, unlike determinations under paragraph 24 of the Code.

However, in December 2022 the Product and Telecommunications Infrastructure Act 2022 (“2022 Act”) was passed introducing some significant changes to the Code and the 1954 Act (subject to commencement of the Acts’ provisions) including the introduction of a new section 34A of the 1954 Act which provides that the following assumptions will apply:

• A “no network” assumption that the transaction does not relate to the provision of an electronic communications network
• An assumption that all code rights apply other than those relating to assignment, upgrading and sharing and
• That the operator has an alternative site which could be used for the rights sought.

Only limited parts of the 2022 Act are in force but the commencement date of many of its provisions, including the new s34A, is still unknown.

Summary

Where subsisting leases, protected by Part 2 of the 1954 Act, are being renewed the renewal process and rental determination will be assessed under the principles of the 1954 Act, not the Code, whether the lease is granted to an operator or will later become a Code agreement. However, the passing of the 2022 Act including the introduction of a new s34A governing the valuation of rent on a 1954 Act renewal will on commencement (date unknown) closely align the process with that followed under the Code.

This blog has been written jointly by David Eminton, Dispute Resolution Partner, and Lisa Busby, Commercial Property Partner – both specialising in advice to landowners and operators in connection with telecommunications property matters.

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