Telecommunications

New Zealand Farm – renewing telecommunications leases under the Landlords and Tenants Act 1954

The County Court (sitting on the higher court) gave judgment in On Tower UK Limited v AP Wireless (II) UK Limited (although the case is probably known as New Zealand Farm). The Court considered the rent and other terms to be ordered in connection with the renewal of a lease of a telecommunications site under the Landlords and Tenants Act 1954 (the 1954 Act).

Background

The site subject to the procedure is located on an old farm near the A1. On Tower has occupied the site since 2000, most recently under a statutory extension of its lease under Section 24 of the 1954 Act. APW is the owner of On Tower under a concurrent lease of the site to it. was granted by the owner of the farm at the time.

APW gave On Tower notice under Section 25 of the 1954 Act to terminate the lease, offering terms for renewal. No new agreement was reached and the matter went to court, despite the low rental values ​​at stake. This was apparently due to the parties having pending renewals of the 1954 Act at 134 other sites , and a court judgment in this case could facilitate a speedy resolution in these other cases. The court was asked to determine both an appropriate rent for the site under the 1954 Act and certain rental terms not agreed between the parties.

Lease

The position of the 1954 Act as to the basis on which the rent was to be fixed was not affected by the fact that the property in question here was a telecommunications site and that the renewal lease would be an agreement governed by the code telecommunications. Section 34 of the 1954 Act requires the court to determine the rent that the site would reasonably be expected to rent on the open market between a willing lessor and a willing tenant.

The Court’s approach to determining the rent for telecommunications leases under the 1954 Act has evolved in two previous judgments:

  • As a first step, in the Hanover Capital case, due to the absence of proof of rental on the open market, the Court defined an iterative evaluation methodology based on the alternative use value of the site (s’ it was not to be used for telecommunications purposes), with subsequent adjustments made to allow for additional benefits to the operator and charges to the site owner/provider
  • Subsequently, in EE v Morriss (Pippingford), the Court held that there was now sufficient comparable evidence of open market leases of telecommunications sites to adopt the ‘traditional’ approach of determining the rent by reference to comparable rentals on the open market.

In that case, the Court adopted the approach taken in EE v Morriss, relying on comparable evidence of open market rentals of telecommunications sites to determine the rent. Many proofs of these rentals were presented to the court by the respective experts of the parties:

  • The Court noted that, in many comparable transactions, the operator preferred to keep the face rent at a level of rent provided for by the Code, but was prepared to pay a premium at the granting of the lease because of the significant time savings and money made by the operator to reach a consensual agreement, instead of going through the Court
  • After analyzing the comparables, the Court determined that the annual rent negotiated for the site between the consenting parties on the open market would be between £2,000 and £3,000. The Court ruled that the site’s annual rent should be £2,750, rising to £3,200 once professional fees are added. This contrasted with the annual rents offered by the parties’ respective valuers of £675 (On Tower) and £7,000 (APW).

Other terms

APW requested the inclusion of a number of terms that were not in the site’s previous lease. The Court considered each proposed addition, in light of the principle in O’May that a party seeking a change to the terms of the current tenancy under a renewal of the 1954 Act must justify that proposed change. .

On the grounds that APW had not provided sufficiently compelling reasons for their inclusion, the Court declined to incorporate the following additional terms into the new agreement:

  • 48 hours notice must be given before On Tower can access the site
  • Obligations for On Tower to provide a description of all work to be undertaken on site together with a risk assessment and method statement, to provide details of the safe working practices of its sub-contractors and to provide a certificate site-specific radiation protection compliance
  • A so-called “Jervis v Harris” clause giving APW the right to serve On Tower with a notice requiring repairs to be carried out, which, if not complied with, would have allowed APW to come to the site and undertake it -even works at On Tower Cost
  • A clause giving APW control of any dispute giving rise to a claim by a third party resulting directly or indirectly from the use of the site and the tenant’s devices
  • A clause obliging the parties to submit any dispute between them to ADR.

Conclusion

This County Court ruling by Martin Rodger QC (who has presided over most of the major telecommunications code cases in the High Court) is another in a series of County Court and High Court rulings that have obviously sought to provide generally applicable guidance to site operators and providers as to how the code should operate to regulate rights and obligations between parties. The clear objective of these rulings has been (and remains) to reduce the need for parties to bring cases to court/court proceedings, by establishing clear guidance on how the court/tribunal will deal with various issues.

In this spirit, and in the context of rent levels, the Court has already established a tariff of indicative rent levels for different types of sites (see the Affinity Water judgment). While this county court decision does not go that far, the clear departure from the iterative valuation process set out in Hanover Capital and the greater reliance on the emerging evidence of comparable open market rentals (stated and analyzed in a detailed in the judgment) appear to be a firm indication to the parties that the rents for telecommunications sites under the 1954 Act will be determined to be (and should therefore be readily accepted by the parties) within the ranges expressed in the judgment, and not towards both ends of the scale proposed by the parties’ respective experts.


Attributed to Mark Barley and George Napier.