The Mishcon Academy Digital Sessions. Conversations on the legal topics affecting businesses and individuals today.
Emma Macintyre
Hello my name is Emma Macintyre, I’m a Partner in the Property Litigation team at Mishcon de Reya. I’m joined today by Isabel Lich, an Associate in the Team and David Boyne, a telecoms surveyor for the second of two podcasts relating to the Electronic Communications Code. Together we are going to discuss the steps that need to be taken if a landowner wishes to terminate a telecom’s operator’s rights over the land and have equipment removed. In the previous podcast we talked about what landowners should be aware of when operators want to install kit on a new site. In this podcast we will deal with what steps the landowner would take if it wants to redevelop a site on which telecoms equipment is located. The Code imposes a form of security of tenure; simply terminating the contractual agreement is not enough. If the Code applies, a landowner also needs to terminate the Code rights. To do this the site provider needs to reply on one of the four grounds of termination; these are where there have been substantial breaches by the operator, a persistent delay by the operator in making payments under the Code agreement, the grounds that would prevent the imposition of an agreement in the first place are made out i.e. the landowner can show that the prejudice caused is not compensatable in money and that the landowner’s interest in terminating the agreement outweighs the public interest as having it in place or there is an intention on the part of the landowner to redevelop. The site provider has no control over the first two grounds and we’ve already touched upon the third ground in our first podcast. We will therefore be assuming in this podcast that the site provider wishes to redevelop. The steps that need to be taken will depend on when the parties entered into the agreement, it will either be the new provisions set out in the Code or if the agreement was entered into before the new Code came into effect, there are transitional provisions which will apply. As with the previous podcast, a site provider is the occupier of land. It could therefore be the landlord or the tenant who can grant the Code rights.
So Isabel, what procedure do landowners need to follow to terminate a Code agreement or remove the kit?
Isabel Lich
So for the purpose of this podcast we need to assume that the agreement we are talking about is still in place, we won’t be covering agreements that contractually expired prior to the introduction of the new Code but the example that we are basing this on that the Code agreement is due to come to an end in December 2022, so if that agreement was entered into after the 28 December 2017 i.e. after the introduction of the new Code then it will be dealt with entirely under the provisions of the new Code. What landowners particularly need to be aware of is that the time periods under the new Code are extremely long; you have to give 18 months’ notice to the operator that you want to terminate the agreement and you have to specify one of the grounds of termination so we are obviously going to be talking about redevelopment in this instance.
Emma Macintyre
If a contract comes to an end within 18 months, 18 months is still needed? So if you have a contract as in this case where the agreement terminates in December 2022, if you serve an 18 month notice even now, that would terminate in February 2023. Is that right?
Isabel Lich
That’s correct so because we need to terminate the agreement and the Code right, it doesn’t matter if the agreement actually terminates before the 18 month period, you still have to give 18 months to terminate the Code right.
Emma Macintyre
And what about if the agreement comes to an end after the 18 months?
Isabel Lich
So the minimum, you cannot terminate the Code right prior to the end of the contractual term.
Emma Macintyre
Okay. So what happens after you’ve served your 18 months’ notice?
Isabel Lich
So the operator has three months after service of the initial notice to serve a counter notice. By serving the counter notice they preserve their right to rely on the Code and from that point where they serve their counter notice, they then have a further 3 months to apply to the Tribunal. Once it reaches the Tribunal it is important to consider that the Tribunal will hear cases within 6 months so it’s quite speedy in comparison for example, to County Court proceedings but it is the Tribunal has only limited scope because if the ground is satisfied they have to Order termination. It is only if the landowner doesn’t satisfy the ground then the Tribunal can chose to either continue, renew or modify the agreement in question.
Emma Macintyre
This means that if you have an 18 month notice that you’ve served the Tribunal is very quick at getting things through. You could have a decision on termination before expiry of that 18 month notice?
Isabel Lich
That’s correct and landowners need to be alert to the fact that an operator whose really on it can push them into having to prove their redevelopment intentions before they are necessarily ready.
Emma Macintyre
But they wouldn’t I think it’s important just to check that even if an Order for termination is made before the end of the 18 month period, a landowner would still have to wait until the end of the 18 month period before being able to take any further action?
Isabel Lich
Yes that’s right.
Emma Macintyre
And what does a landowner, occupier need to show to satisfy the redevelopment ground?
Isabel Lich
So redevelopment under the Code is akin to Ground F under the Landlord and Tenant Act 1954 i.e. the redevelopment ground of opposition that a landlord would rely on to oppose the grant of a business lease which means that they have to show that it has its funding in place, that it either has planning or is likely to be granted planning shortly. Basically all the practical elements of doing the development are taken care of and that will be used as evidence to show that it has a genuine intention to develop.
Emma Macintyre
And the reason for that is that it’s, it’s got to be able to show that it’s got that intention to develop on termination or soon after the termination date?
Isabel Lich
Yes that’s correct.
Emma Macintyre
So is this the same for an agreement that was entered into before the new Code came into effect?
Isabel Lich
The position in relation to pre-new Code agreement is slightly different. Again we are assuming here that this agreement was still in place when the new Code came into force in which case you are looking at the transitional provisions of the Code. For 54 Act protected tenancies the 18 month notice process does not apply so in those cases it should be dealt with under the 54 Act. For agreements where the 54 Act doesn’t apply, so they are contracted out, a landowner potentially has more scope before they can follow the 18 months’ notice process or if the equipment was installed prior to the 28 December 2017 the landowner can also rely on paragraph 20 of the old Code which entitles the landlord to serve a notice requiring the alteration of the apparatus which would probably give the landowner the option to terminate the agreement much quicker. There is one question mark over this; there was a County Court decision that suggested that alteration of the equipment would not include complete removal. It was only a County Court decision so it stands to be overruled but so far that question hasn’t been dealt with again.
Emma Macintyre
Once an Order’s been obtained or the operator fails to serve a counter notice or issue proceedings within the required time limits, is that the end of it? Or can a landowner then simply move the equipment at the end of the 18 months’ notice period?
Isabel Lich
Unfortunately the answer to that is no. So terminating the agreement is the first step. If the landlord successfully terminates the agreement they can’t just waltz on to the site and remove the kit, they need to ask the operator to remove it and if the operator refuses then the landlord has to serve a further notice and if within 28 days of that notice the parties can’t agree on how and when this equipment is going to be removed and the land restored then the landlord has to make a further application to the Tribunal which will probably take another 3 to 6 months and the Tribunal can then make an Order requiring the operator to remove the kit or a separate Order enabling the landlord to sell it.
Emma Macintyre
David, so what’s the role of the telecoms surveyor in this process and how do you go about doing that?
David Boyne
Well the role of the telecoms surveyor is to support the building owner in his redevelopment process. At a high level it is to fast track the removal of the operator’s equipment from the development site. In the first instance it is a question of standing back and looking at the bigger picture. We look at the review of the building development strategy. We understand the timings, we understand as to what is anticipated. The circumstances surrounding for arguments sake, a complete demolition of a building with operator’s gear on the roof that property which has to go is different to the consideration of a partial refurbishment or the addition of floor decks which may entail a lift and shift of the equipment from that side. We look at… we review the agreements that are in place between the operators and the landlord, we look at the radio plans, we look at how the operator is utilising a particular building to understand the strengths and weaknesses that they have, the building may not be suitable for them. With regards to service of notices it might be that they have an anticipation to out plan or to lose that building and therefore there is a dialogue that’s entered into outside the legal process with regards to understanding how they are using the property. As we said before, it depends upon the building owner’s development plans, the timescales. We look at the wider estate of what they have, do they have nearby buildings that might be suitable for an operator to remove to because to work with an operator is a lot, can be a lot easier than working litigiously against them to remove them or unpick them from a building. So you look at the wider strategy and how that puts together.
Emma Macintyre
And so the agreement, I mean you can therefore although the Tribunal is there in the background, you can reach an agreement with the operator as to circumstances in which their occupation is going to come to an end. Do you still need to involve the Court in that process, Isabel?
Isabel Lich
So if the parties can come to an agreement quickly in that no referral needs to be made to the Tribunal then it is possible to go down that route however what’s usual is that the parties negotiate, the operator will serve their counter notice and go off to the Tribunal to protect their position and during this time negotiations are ongoing and the parties will then file a Consent Order with the Tribunal settling the proceedings on the term, whatever term they have agreed. It’s also possible sometimes just for the security that the parties will reach agreement then issue and immediately settle just so that it has that stamp of the Tribunal on it.
Emma Macintyre
That is presumably the reason why it’s useful to have the telecoms surveyor there talking, discussing with the operators, as you say, to, to almost, it’s to move it up their list. The operators have got presumably numerous sites that they are having to deal with and the aim must therefore be to try and get yourself into a situation where if an agreement can be reached, it can be reached relatively quickly without incurring the time and expense of having to deal with Court proceedings.
David Boyne
In addition to that Emma, the… currently within the UK there are about 50,000 telecommunication installations, about 60% are rooftops, 40% are greenfield or brownfield sites. The operators have limited resource, they have managing agents, the MBNL’s, the Cornerstone’s infrastructure companies who then set down to agents, telecommunications agents actually on their behalf so within the 50,000 sites across the UK there are normally about 1,000 to 2,000 sites which are at risk. They have a traffic light model which is green, amber, red and the red sites are those that are under stress of the operator’s losing them. Because of the changes within new Code and the reduction in value or rental or consideration or compensation, a large number of landowners are saying ‘we don’t want to play this game anymore therefore we’ll serve a notice to get rid of them because it costs us more to facilitate their occupation than we are actually receiving under this new regime of no market or no scheme market’. Within a redevelopment scenario it’s really, really essential and important that a landowner’s position is represented correctly and it’s getting to the top of the list of that 1,000 to 1,500 sites that the operators are looking at because potentially a number of those aren’t under risk of redevelopment but the landlords say they are because they are not very happy with the, with the operators. So the engagement is with the agents to the operators to seek to provide potentially a solution for them to understand that it’s a serious redevelopment to provide the detail of the timings, provide the details of the planning’s or the negotiations that may still be not providing planning permission but a landowner will spend millions of pounds on doing big, big development schemes in the background before they obtain their Section 106 or their finalised planning permission from that side. So it’s getting to the top of the tree and ensuring that a landowner doesn’t just sit back, ‘we’ve served a notice, I’m sure they’ll go in 18 months’ time’. There needs to be that dial.
Emma Macintyre
Thank you. So just going now sort of almost full circle back to where we started in our first podcast, what should landowners be considering at the time of entering into an agreement to give them the broadest possible scope to be able to redevelop when they want to?
Isabel Lich
So it is essential that landowners consider their any potential redevelopments plans early i.e. before they enter into the agreements because the… there is a major issue if the site provider wants to redevelop during the term because you can’t terminate before the end of the contractual termination day. So you need to give yourself the ability to break the agreement in circumstances where you redevelop and often we see the landowners don’t think about these things earlier enough, enter into these agreements and then they are stuck because they can’t do anything until that agreement comes to an end.
Emma Macintyre
And is there anything else David from your point of view that needs to be considered or that could be considered?
David Boyne
Yes in the background the operators are predominantly engineering companies, they are not surveyors, they are not property owners, they don’t really sort of look at that stuff in connection with what building owners want to do with their own particular buildings and this is one of the issues that new Code and the breakdown of relationships between landlords and the operators with regards to existing sites. Again from an engineering point of view it is a cellular system. 50,000 sites all linked together, they all talk to each other to provide this coverage over a large part of the UK. The operators have generally spent in excess of £200,000 in building a rooftop site and in excess of £100 to £150,000 in building a mast or a tower on a brownfield or a greenfield site. For their side, once they’ve built it it’s linked in to all those other different sites and they are strategically located to work in synchronicity. It’s expensive, time consuming and difficult for them to move a site. Losing one site might mean that they have to build a complete area. Replacement build costs could be in excess of 1 million pounds so that’s one of the reasons why they will push back on rebuilding a site or having to spend large amounts of money on rebuilding a site in the short-term. Timescales to remove under the old Code were historically 18 months plus, that’s the reason for the new Code requiring an 18 months’ notice period. Due to the freezing of the market under the new Code, this time can be extended to 3 years plus, it’s becoming much more difficult for the operators to engage with happier landlords to site their new equipment on it. In the background the operators are seeking under the new Code agreements for the site provided to be responsible for lift and shift costs and these could be for a small move, £30,000. For a large relocation on a building upwards of £400,000. So it’s really, really important that if the time horizon is to consider a redevelopment that a site provider has that ability within their contractual arrangement with an operator and therefore for break clauses to be built in or for lift and shift clauses to be clearly included within the agreements.
Emma Macintyre
Presumably the advantage with a lift and shift is that it gives a bit more flexibility and it doesn’t require that 18 months’ notice period?
David Boyne
That’s correct. It is a lift and shift under a redevelopment, it might be and this is part of this general strategy, it might be that a building owner doesn’t necessarily need to get rid of the operators, there may be a plan B whereby their equipment can be temporarily moved into a location, then… and then moved back onto a higher floor deck if a floor deck is being used and we are involved with a number of these sites where this has occurred and we’ve worked together with the operator however as we said before, the costs can be pretty substantial, it’s not that straight forward to actually move this stuff and therefore the landlord, building owner should include or seek to include within his agreement, that the operator will be responsible for these costs as opposed to him having to put into his pocket.
Isabel Lich
Just to jump in there, the one thing that landowners do need to bear in mind about lift and shift clauses i.e. the clauses allowing them to relocate the equipment to another site, or a different part of the site, is that it is at the end of the day a contractual agreement so if the operator doesn’t do it then they would be looking at going to Court and seeking specific performance of that contractual obligation. In the majority of cases operators have done it, it’s just something to bear in mind.
Emma Macintyre
And Isabel, is there anything else that sort of the negotiations stage that a landowner, occupier might want to consider or see if it can agree with an operator?
Isabel Lich
So there is something under the new Code called ‘Interim Rights’. The 18 month notice process does not apply to interim rights which are rights that are granted for a particular period or until the occurrence of a particular event. An example that we talked about in the first podcast was the right to survey, could be an interim right but equally the right to install equipment could be an interim right. Again a case that we mentioned in the first podcast with the University of the Arts case where the landowner successfully resisted imposition of a permanent agreement because it had entered into contractual obligations with a developer to give vacant possession. The landowner actually confirmed in that case it would have accepted a 5 year interim Code agreement to install kit but a permanent agreement which would come automatically with this 18 month notice period caused too much of a prejudice to them so it’s possible that there might be some negotiation in over whether the rights should be permanent or interim as well.
Emma Macintyre
Therefore I think that the, the moral of the tale is that if you are a landowner, occupier you need to be thinking at the time you are negotiating the agreement to give you what scope you may need in order to bring that agreement to an end at the time that you want if there is going to be scope for redevelopment, what things need to go into the agreement and bear in mind that it’s going to take time and you could easily have a minimum period of 18 months before you are going to be able to get back possession of the premises and to factor that in in relation any development plans that you have. I think that that brings an end to our discussion, thank you both very much for your time.
If you have any queries or would like advice you will be able to find our details on our website at www.mishcon.com. Please do join us for our next podcast in which we will cover another topic of current interest in the property sphere. Meanwhile, thank you for listening.
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