A Paper for the PLA Northern Training Day - 6 June 2018
1. This paper singles out 10 possible problems that may be encountered in working with the new Electronic Communications Code (“the New Code”), which came into force on 28 December 2017.
2. I first set the historical scene; then describe the two previous versions of the Code; list the chief problems associated with the operation of the Old Code; summarise the impact of the New Code; and then review my hit list of the ten top potential problems.
The recent history of telephony - briefly
3. Those of us who were around in the 1980s were amazed by advances in telephone technology. In a very short space of time, we went from:
- The Hardwired (AT&T/Bell System /Western Electric) Telephone; to
- The Digitel touch-tone telephone; and then to
- The Garfield phone, with buttons in the receiver.
4. All of these telephones employed fixed-line technology, the nature of which had been largely static for decades, with telecommunications being controlled successively by a Government Department (the GPO) and a public corporation (the Post Office Corporation, and subsequently British Telecom).
5. All this was set to change when the Government enacted the Telecommunications Act 1981, which gave the Secretary of State for Industry power to license alternative telephone network operators, in order to introduce competition into the UK telecommunications industry, and thus break the monopoly over the telecommunications network.
6. The Telecommunications Act 1984 came next, establishing Oftel as a non-ministerial Government department, charged with promoting competition in the telecommunications industry (with an eye on advances in digital technology).
7. Section 10 of the 1984 Act provided for the telecommunications code set out in Schedule 2 to have effect. This first version of the Code essentially regulated landline telephone provision – because that is more or less all there was.
8. That too was all set to change over the ensuing decade.
… but in 1989, in came the Motorola MicroTAC 9800x - although, “Only really important people and early adopters had one of these cell phones” (Wikimedia Commons).
9. Against the background of this technological change, by the 1990s, the Telecommunications Code 1984, with its fixed landline provision, had become hopelessly unfit for purpose. In 2003, the Electronic Communications Act brought in a revised Code – still named the Telecommunications Code – in a bid to regulate matters in a wireless environment. I refer to the 2003-amended code as “the Old Code”.
The Old Code
10. For the purposes of this brief paper, the chief shortcomings of the Old Code, from a property perspective, stemmed from the unsatisfactory interface between three types of law applicable to the siting of electronic communications apparatus: real property law; the statutory protection afforded to operators by the Old Code itself; and the protection afforded to business tenants (as operators commonly are) by Part II of the Landlord and Tenant Act 1954. In practice, because with rare exceptions nobody was sure how the Old Code would be interpreted if tested in court, landowners and operators maintained an uneasy modus operandi, with neither being willing to push disagreements to the door of the court.
11. A particular point of tension concerned arrangements into which operators were keen to enter as the market consolidated this century, with operators willing to share sites and apparatus. This desired flexibility did not sit well with traditional landlord and tenant relationships. Landowners were not prejudiced by sharing – but wished to take their own slice of the savings which operators achieved.
12. From the point of view of operators, the Old Code was also seen to be too generous in its operation to landowners, whose otherwise worthless and miscellaneous bits of property (rooftops, woods and corners of fields) were turned to productive account by operators, who often had to pay handsomely for the privilege.
The New Code
13. The problems briefly aired above were all too apparent when first the Law Commission and then the Government came to consult in the 2010s on the shape and content of a new Electronic Communications Code. The problems were rendered more difficult to resolve by the diametrically opposed views of the two main industry groupings – the landowners and the operators.
14. Ultimately, the New Code achieves much that is good, but at the expense of a series of unsatisfactory compromises that were perhaps inevitable. It should be borne in mind, however, that a shortcoming to a landowner is quite often perceived by an operator to be a benefit – and vice versa.
15. First and foremost, the confusing blend of property and statutory regimes that characterised the Old Code has been – albeit with some wrinkles – resolved in the New Code, by the device of compartmentalising agreements between landowners and operators either as business tenancies or as Code Agreements – but not both.
16. Secondly, operators are provided with the rights both to share and to upgrade their apparatus, within certain constraints. This will be regretted by landowners, because of the loss of their ability to extract increased consideration, but welcomed by operators. However, operators who share apparatus with those who have Code Rights will not themselves acquire Code Rights. It will be interesting to see to what extent this has a dampening effect upon the new found sharing freedom.
17. Thirdly, the financial provisions underpinning the calculation of Code consideration have changed from their generous Old Code basis to one based upon the market value of the relevant person’s agreement to confer or be bound by the Code Right, disregarding the fact that the site has a telecommunications use. Current industry commentary suggests that this new basis of assessing consideration is likely to result in reduction, possibly a substantial reduction, in the fee or rent required to be paid by operators for the Code Rights conferred.
18. Fourthly, the New Code has introduced a minimum 18 month notice requirement for termination under Part 5. Developers may well consider that this is too long to contemplate acquiring land subject to Code Rights, given that there remains the need to effect removal in accordance with Part 6 thereafter.
19. Fifthly, wholesale infrastructure providers can now number themselves amongst the ranks of operators who can benefit from Code Rights. There is however some lack of clarity associated with the division between land, on the one hand, and apparatus, on the other, which may take some time (and the expertise of the Lands Chamber) to work through.
20. Sixthly, the Lands Chamber, and cognate tribunals in Scotland and Northern Ireland, with their unique blend of concentrated specialist legal knowledge and surveying expertise, have now become the tribunals to which New Code disputes must primarily be referred, replacing the more diffuse, overworked, unspecialised and unfavoured county courts, which should result in problems arising being worked out and adjudicated upon rather than endured.
Ten problems with the New Code
21. The gestation of the New Code was laborious, involving prodigious input from stakeholders such as OFCOM, landowners and operators. Although it might be thought that all the obvious problems would have been ironed out – and many were – much of what remains shows the uneasy compromises that had to be made to engage one stakeholder or another.
22. Here are some of the problems
Problem 1: Wayleaves
23. The problems that can arise with regard to wayleaves can be best understood by reference to the stylised typical electronic communications apparatus installation in this diagram on page 34 [Footnote 1], showing the layout of a block of flats with a telecoms fibre supply:
Points to note:
- Fibre entry from highway into building (typically in risers)shown as red lines
- Fibre entry from risers into individual flats shown as blue lines.
24. Take the case of a typical flat owner (similar considerations apply in the case of a tenant in an office block in multiple occupation) who wishes to have broadband installed. The cabling in question will typically go through property occupied under different titles: freeholder; other leaseholders; and the user itself. There will usually be rights granted under the user’s lease to connect into cabling – but those are only rights as between user and freeholder. Rights will also have to be negotiated between the operator and the owners of the various legal interests through whose domains the cabling is to run.
25. The practice for many years has been for the operator to negotiate wayleave agreements – simple licences – with the owners of such interests. The New Code has triggered some difficulties with this practice which may need addressing.
26. One problem is generated by the fact that many wayleave agreements contained rudimentary or even no termination provisions. Under the New Code, however, a Code Agreement must state:
- for how long the code right is exercisable, and
- the period of notice (if any) required to terminate the agreement.
27. A wayleave (or other agreement such as a lease, although here it is routine to include both ingredients) which fails to comply will not be a Code Agreement at all.
28. But even if this problem is overcome by competent drafting, a more subtle point lies buried beneath, stemming from those wayleave agreements which require more than 18 months notice to be given to terminate for redevelopment.
29. Under paragraph 31 of the New Code, a notice terminating a Code Agreement must specify the date on which the site provider proposes the code agreement should come to an end. That date, according to paragraph 31(3), must fall:
(a) after the end of the period of 18 months beginning with the day on which the notice is given, and
(b) 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.
30. The expression “could have been brought to an end by the site provider” should be interpreted to mean the date upon which the site provider could terminate the agreement contractually. A break clause might, for example, specify a two year period for exercise – in which case, the termination notice will have to give 24 months rather than 18 months as the termination period. In practice, this problem is likely to disappear with greater collaboration with operators – but in the meantime caution will have to be exercised.
31. The next few problems can best be understood by reference to this picture showing a typical rooftop arrangement involving antennae, various other bits of electronic communications apparatus, equipment cabinet and cabling.
Problem 2: Code Rights granted over a mixture of apparatus and land
32. Under the new Code, the principal “Code Right”, which attracts Code protection, is a right to install electronic communications apparatus (masts, antennae, cabinets, lines and so forth) on, under or over land.
33. Suppose operator A installs electronic communications apparatus on L’s land. Suppose another operator, B, wishes to club together with A, sharing A’s apparatus, rather than erecting its own. L is content with this. Does B get a Code Right as a result? Answer – not necessarily, because if B has not installed its apparatus on land, but rather upon A’s apparatus, then the new Code does not allow B its own Code Right, since “apparatus” cannot itself be “land” for these purposes.
34. The result is that B may of course carry on with its business as operator using A’s apparatus – but in the event that A decides to move elsewhere, B is left without any Code Rights as against L. However, if (as is often the case), B requires access not just to A’s kit, but also to L’s land to get there, and to run its power and fibre optics, and to keep its own secure equipment cabin, then B’s rights will be exercised over a mixture of (Code Right-excluded) kit and (Code Right-included) land.
35. The drafting that leads to this conclusion is clear – but the outcome will not necessarily be obvious to landowners and operators. It was clearly the policy of the new Code to prevent operators imposing themselves upon each other’s apparatus and securing Code Rights against each other, but the consequence of the example considered – that the second operator does not have any rights under the Code against the landowner either – is not widely appreciated.
36. So far so good – but the drafting of Part 1 of the Code, which regulates these matters, conceals within it a host of fact-sensitive problems. Three examples suffice. First, paragraph 5(1) defines electronic communications apparatus to include apparatus “designed or adapted for a use in connection with the provision of an electronic communications network”. It is therefore plain that, even if a structure was not originally conceived of and built as electronic communications apparatus, it can yet become electronic communications apparatus if it is subsequently adapted for use as such.
37. But how is this to be applied? Take the example of a large water tower, which has been fitted by an operator with cabling, a cabinet and a small antenna. At first sight, it may be obvious that an operator who negotiates for the Code Rights to install such items would be in difficulties if it sought to argue that it had thereby adapted the whole tower for use as apparatus, and could therefore prevent Code Rights being granted to any other. After all, an operator who has been granted Code Rights to install antennae on the roof of a building can hardly be said to have adapted the whole building for use for its network. But if so, then what is the difference in principle between this example and others where the structure is a lattice tower? If the answer is that the tower is not really being “adapted”, then at what point does adaptation occur?
38. Secondly, leading on from the first point, exactly what work done upon land by an operator who intends to install electronic communications apparatus turns the land into apparatus? Imagine the sequence of operations for Operator A to install a lattice tower: (1) make concrete footings; (2) build lattice tower; (3) attach kit to tower. At what point does the “land” become “apparatus” – (3) clearly, but what about (1) and/or (2)? This is not a purely philosophical problem: Operator B may seek to negotiate the installation of its own electronic communications apparatus at stage (1) or (2), and it will be critical to establish whether it is installing its kit on land or on apparatus.
39. Thirdly, consider the definition of “structure”, which includes: “a building only if the sole purpose of that building is to enclose other electronic communications apparatus.” Thus, a building will not constitute “apparatus” to which Code Rights might be capable of applying, unless it is a room housing equipment or an equipment cabin, and used for no other purpose. Similarly, a field or a rooftop upon which a telecommunications mast is stationed will not be a “structure”, although the mast itself may be.
40. It must be acknowledged that this drafting too conceals possible complexity in its application. The following questions arise, and more are likely to be prompted in the early years of operation of the New Code:
(a) Suppose a building is designed to house a large piece of electronics equipment for the statutory purpose: it will clearly be “apparatus”. However, if the operator’s plans change, and it uses part of the building for another purpose, will the building lose its status as “apparatus”?
(b) Conversely, if a building is used for other purposes, and is then converted to house electronic communications apparatus, will it then become “apparatus”?
41. The definition of “structure” in paragraph 5(3) of the New Code would suggest that the test is to be applied from time to time, rather than at the point the use commenced. It might however be thought incongruous that apparatus should change its special character (and the Code Rights attaching to it) in this way. Time, and possibly the expertise of the judges and members of the Lands Chamber, will no doubt supply the answer in due course.
Problem 3: Primary and non-primary purpose
42. Paragraph 29 of the New Code provides that an agreement conferring Code Rights will not be a Code Agreement if:
(a) it is a lease; and
(b) its primary purpose is not to create Code Rights; and
(c) the lease is one to which Part 2 of the Landlord and Tenant Act 1954 applies.
43. This drafting creates a trap for the unwary. Although the operator and the owner may have entered into an arrangement conferring Code Rights which is fully compliant with Part 2 of the New Code, and looks and smells like a Code Agreement, it may not in fact be a Code Agreement at all – and if it is not a Code Agreement, then the Code termination procedures in Part 5 cannot be used. It is possible, therefore, that parties will waste a great deal of time and money pursuing the wrong termination procedure.
44. In their 2013 Report on the Electronic Communications Code (Law Com 336), the Law Commission commented, in relation to the “primary purpose” expression:
“6.86 There is of course room for doubt and for dispute as to the primary purpose of a lease. But we think that difficulties will arise in only a few cases; the lease of a mast site falls clearly on one side of the line, the lease to a Code Operator of a retail unit, where the lease incidentally permits the tenant to install a cell site on the roof, falls on the other.
6.87 It follows that in a mixed use lease where Code Rights are not the primary purpose of the letting, which is contracted out of the 1954 Act, the Code Operator will have no security. Where security is important, therefore, the Code Operator will want a separate lease for the apparatus.”
45. It remains to be seen whether the confidence of the Law Commission will have been misplaced. Mixed use sites – particularly in inner city areas – are common, and there may well be considerable uncertainty as to whether the primary purpose test is met in any given case.
46. Note that, while the 1954 Act will not apply at all to primary purpose agreements, where the only statutory protection will be under the New Code (para 29), it does not follow that if a Code Agreement is a non primary purpose agreement, then the 1954 Act will apply. There are two possibilities:
- if the NPP agreement is 1954 Act protected, then Part 5 of the New Code will not apply; and
- If NPP is not 1954 Act protected, but is a Code Agreement, then it will be caught by Parts 5 (termination and modification of agreements) and 6 (rights to require removal of electronic communications apparatus).
47. So, it is essential for practitioners to be familiar both with the primary purpose test, and with the subtlety concerning the 1954 Act interplay even where the Code Agreement is non-primary purpose.
Problem 4: When to apply the primary purpose test
48. Is this test is a once and for all test to be considered at the date of grant of the lease? That would appear to be the natural and ordinary meaning of the reference in paragraph 29(2)(a) to the primary purpose of the lease being “not to grant code rights”. Even though a lease is, for these purposes, a living, breathing document, with rights and obligations that may alter during its term, there was only ever one time at which the Code Rights under it were granted. Any other interpretation would have the consequence that a lease could move in and out of different forms of statutory protection, which would be unsatisfactory. But the point is clearly arguable: a similar point arose often in the context of residential/business leases, where either the Rent Acts/Housing Act or the 1954 Act might apply.
Problem 5: The right to upgrade equipment
49. Suppose that the large grey equipment cabinet shown in the image above needs cooling: can the operator install a condenser outside the cabinet, or does it first need to procure a new Code Right (f)?
50. This problem will not arise if the operator has been granted, or had imposed, a full Code Right to upgrade in the first place (see paragraph 3(c) of the New Code). If no such Code Right has been granted, then the operator will need either to have recourse to paragraph 17 of the New Code, or seek an entirely new Code Right.
51. Paragraph 17 allows upgrading even in the absence of the relevant Code Right, provided that the two specified conditions are met:
(a) The first condition is that any changes as a result of the upgrading … to the electronic communications apparatus to which the agreement relates have no adverse impact, or no more than a minimal adverse impact, on its appearance.
(3) The second condition is that the upgrading … imposes no additional burden on the other party to the agreement.
52. The first condition, which deals with external appearance, is subject to a de minimis exception (“no more than a minimal adverse impact”). By contrast, the second condition has no such exception, prompting the conclusion that any additional adverse effect or loss, damage or expense, no matter how small, will have the consequence that this condition will not be met, and thus that the upgrading may not be carried out. It remains to be seen whether the Tribunal will adopt that view. It is worth adding that the point deepens in complexity when the change is minor in itself, but when taken together with previous changes imposes a considerable burden.
Problem 6: Lift and shift
53. Landowners may from time to time need to carry out works to the land upon which telecommunications apparatus is situated – for example roofing works in the case of a rooftop site. Paragraph 20 of the Old Code (which will carry forward to some extent under the transitional arrangements) sought to provide a mechanism to facilitate this (over and above any separate contractual arrangements made between the parties).
54. There is no equivalent to paragraph 20 of the Old Code in the New Code. Paragraph 23(8) of the New Code envisages that there can be rights for landowners to temporarily remove apparatus to facilitate repair works to their property (colloquially known as “lift and shift” provisions). The OFCOM guidance does not develop this, OFCOM taking the view that such provisions are a matter for negotiation between the parties.
55. There is much to be said for the inclusion of a detailed lift and shift clause in the agreement, to cover the possibility of repair works being required. Such a provision potentially benefits not merely the landowner but also the operator, since each may need to relocate apparatus to another part of the site while works are carried out.
56. Note, however, that it is not at all clear whether a lift and shift clause in fact contravenes the anti-avoidance measures at paragraph 100 of the New Code, and in particular the removal provisions set out at Part 6 of the Code. Given that paragraph 23(8) of the Code itself envisages that a lift and shift mechanism can form part of a New Code agreement, one would expect that this is not the case – but the point remains arguable.
Problem 7: Who can give a Part 5 termination notice?
57. Paragraph 31(1) of the New Code provides that “A site provider who is a party to a code agreement may bring the agreement to an end by giving a notice …”. It will be critical to understand whether the proposed giver of the notice can be described as a “party” to the Code Agreement. A person may be treated as a party to a Code Agreement where bound by it, albeit he may not be a signatory to the Code Agreement: see paragraph 10(3)(a) of the New Code (which concerns successors in title, and deems them to be bound by as if they were parties to the conferring agreement).
58. Less clear is whether a person is “party” to a Code Agreement simply because he is bound by it (by virtue of paragraph 10(2), or by reason of an agreement to be bound under paragraph 10(4), or by reason of being deemed to be bound under paragraph 10(6)). Although paragraph 10 does say that such persons are “bound”, they are not (unlike under paragraph 10(3)(a)) expressly made or treated as a party to the conferring agreement creating the Code Right.
59. The practical ramifications of this are that it will, for instance, not be possible for a mortgagee seeking possession to give such a notice in its own name in relation to an agreement between the mortgagor and an operator, unless it is a real or deemed party.
Problem 8: Reasonable time in Part 6 for removal
60. Paragraph 40 of the New Code sets out a procedure, in summary, for the landowner or occupier to serve a notice containing requirements as to removal and restoration of the land within a “reasonable time”.
61. This drafting may well cause significant problems for the landowner or occupier, who may have little idea of the time involved in such works. In such circumstances, the draftsman of the notice might like to adopt the expedient used for notices under s.146 of the Law of Property Act 1925, which frequently require remedy of a breach of covenant “within a reasonable time”. The letter enclosing the paragraph 40 notice could go on to suggest a reasonable time, and ask for the operator’s comments. Such a course would at least avoid the notice being held to be void from its outset for failure to specify a time which was reasonable, so long as this device of referring to, rather than specifying, a reasonable time, is valid (which may be said to be open to doubt). Alternatively, incorporate a recital which provides that the parties agree that a reasonable time for removal of the equipment at the end of the term would be x weeks/months. Yes, the operator may have different equipment at the end of the term but at least it can be said there is some guidance provided by the agreement.
Problem 9: Contracting out
62. Although expressed obliquely, paragraph 100 of the New Code has the effect that it is not possible to contract out of Parts 3 to 6 (governing assignment, upgrading and sharing, imposition, termination and removal). Accordingly, by way of example the parties cannot, it is considered:
(a) agree that the operator shall not serve a counter notice in accordance with paragraph 32 of the New Code in response to a paragraph 31 termination notice; or
(b) agree an entitlement on the part of the landowner to be entitled to seek removal by reference to one of the conditions contained within paragraph 37, but with some form of dispensation of all variation or any of those conditions; or
(c) agree to some form of penal payment to be paid by the operator to the landowner where the operator exercises rights conferred on the operator by Parts 5 or 6.
63. So much for the examples of what cannot be done. What can be done, consistently with paragraph 100? The inclusion of a lift and shift provision has already been discussed. Secondly, there would appear to be nothing within the terms of the New Code to prevent a landowner and an operator agreeing terms within the Code Agreement for surrender of the Code Agreement. Part 5 makes provision for termination by the “site provider”. Part 5 contains restrictions on the ability of the site provider to “bring the agreement to an end”. It can do so only by serving notice and establishing one of the relevant conditions referred to in paragraph 37 of the New Code. However, “surrender” is a consensual transaction between the landlord and the tenant, and therefore dependent for its effectiveness on the consent of both parties. If the parties are unable to effect a surrender it seems difficult, logically, to see why, therefore, any compromise of court proceedings, which are commonplace, whereby the operator agrees to vacate on a specified date should not equally fall foul of the anti-avoidance provisions. Having said that, given the terms of paragraph 30(1)(b), all the surrender will do is to accelerate the determination of the contractual term. It would seem the site provider will still need to serve notice in accordance with paragraph 31.
64. One way round this difficulty springs from the fact that paragraph 30 refers to termination “under the terms of the agreement….” etc. A surrender can of course be agreed outside the terms of the agreement. In such a case, there is a strong argument to the effect that such a surrender will be effective and will not trigger paragraph 30(1), with the result that the landowner can go straight to Part 6.
65. It is also worth noting that paragraph 100 does not apply to Part 2. Presumably, a statement in an agreement that the agreement is not a Code Agreement would be ineffective – but there would appear to be nothing preventing the parties ensuring that the agreement will lack the required formality for a Code Agreement (writing, for example), and therefore escape the Code in that way.
Problem 10: Valuation
66. The agreement or imposition of a Code Agreement upon a site provider may involve significant interference with the provider’s land rights. Unlike installations by other utilities, which usually result in conduits that are then out of sight and may largely be ignored, electronic communications apparatus requires a degree of nurture (site visits, upgrading, tree lopping, clear sight lines) that results in a quite different burden upon landowners.
67. Under the Old Code, the consideration for this level of use and disruption was substantial, and many landowners were content to allow an otherwise useless corner of a field or rooftop to be used in this way. Under the New Code, however, the comparable provisions have changed significantly. Paragraph 24(3) provides that the level of consideration must be assessed on the assumptions:
(a) that the right that the transaction relates to does not relate to the provision or use of an electronic communications network;
(b) that paragraphs 16 and 17 (assignment, and upgrading and sharing) do not apply to the right or any apparatus to which it could apply;
(c) that the right in all other respects corresponds to the code right;
(d) that there is more than one site which the buyer could use for the purpose for which the buyer seeks the right.
68. These statutory assumptions favour operators considerably – to the extent that many landowners will be reluctant voluntarily to enter into a Code Agreement, particularly given the difficulties that many be associated with termination and removal.
69. In those circumstances, it may be expected that operators will seek to have Code Agreements imposed by the Lands Chamber, which may find its expertise in this field increasingly rapidly.
What’s in it for the PLA?
70. The Old Code was infrequently resorted to, largely because its drafting was so opaque that few wished to take their chances in the County Court. The drafting of the New Code is clear – but the problems to which it gives rise are anything but. I sense a willingness by operators to have points decided by the Upper Tribunal – because that will become the specialist tribunal for such disputes, and may be depended upon to act swiftly and efficiently.
71. There is therefore a lot to be said for lawyers becoming familiar with how the New Code operates, and what are the pitfalls in its operation. Quite apart from anything else, the Government’s digital strategy combined with the advent of 5G in a year or too, will be likely to make the hunger for new sites by operators all the more intense. We should all know what advice to give to them and to landowners.
Want to know more?
Read Falcon Chambers' book The Electronic Communications Code and Property Law. Practice and Procedure.
Footnote 1: Borrowed, with gratitude, from page 34 of the BT Openreach Developers’ Guide - https://www.london.gov.uk/moderngov/documents/s33921/Appendix%201%20-%20BT%20developers_guide.pdf.