In the recent decision of Cornerstone Telecommunications Infrastructure Limited (“CTIL”) v London & Quadrant Housing Trust (“L&Q”), the Upper Tribunal was given a further opportunity to consider the terms to be imposed in an agreement under Part 4 of the Electronic Communications Code (‘the Code’). With a particular focus on questions relating to sharing and upgrade rights, and the level of consideration to be paid under the agreement, the decision provides further clarity on the parameters for negotiation under the Code.
Background
CTIL, a provider of mobile network infrastructure, sought rights to install its electronic communications apparatus on the roof of an inner-city residential building for use by its shareholders, Vodafone Ltd and Telefonica UK Ltd.
Many of the terms of the proposed agreement had been agreed consensually with the site provider, L&Q, in advance of the hearing, including (amongst others) those relating to termination, insurance and rights to repair. The Upper Tribunal was asked to determine the following key issues:
- whether to impose an equipment cap, as sought by L&Q;
- whether to limit CTIL’s upgrading and sharing rights by reference to paragraph 17 of the Code; and
- the levels of consideration and compensation payable under paragraphs 24 and 25.
A preliminary point – the Tribunal’s approach to disputed terms
First, the Tribunal required to consider an argument about how it ought to determine the terms of the agreement to be imposed.
Paragraph 23(1) of the Code provides that a court may impose an agreement ‘which gives effect to the code right sought by the operator with such modifications as the court thinks appropriate’. In terms of paragraph 23(5), that agreement must include ‘terms the court thinks appropriate for ensuring that the least possible loss and damage is caused by the exercise of the code rights’ to occupiers of the land (amongst others) whether or not they are parties to the agreement.
CTIL argued that the effect of paragraph 23(1) was to create a presumption in favour of the terms proposed by the operator, and an onus on the site provider to justify any departure from them. The Tribunal did not accept that argument, although it accepted that, in practice, the terms proposed by the operator are likely to be the starting point for negotiation, and that the Tribunal will usually be concerned only with the terms the parties cannot agree.
L&Q argued that the effect of paragraph 23(5) was that, where the Tribunal was faced with a choice of terms, each of which was potentially “appropriate”, it should favour the term that would cause least loss and damage to the owner and occupiers of the building. The Tribunal did not accept that argument either. It commented that paragraph 23(5) does not prohibit the imposition of Code rights which may cause loss and damage – it directs the Tribunal to incorporate terms intended to minimise loss and damage as part of an agreement which will also compensate the site provider and others for loss and damage.
The disputed terms
Was L&Q justified in seeking an equipment cap?
Paragraph 17 of the Code provides that an operator may upgrade or share its electronic communications apparatus provided (1) that any resulting changes to the apparatus have no, or no more than a minimal, adverse impact on its appearance; and (2) that the upgrading or sharing imposes no additional burden on the site provider.
CTIL sought an unrestricted right to install equipment at the site, whilst L&Q wished to impose an equipment cap (explaining in evidence that they were concerned about the structural integrity of the building, and possible overloading). L&Q argued that the proposed equipment cap would serve as a reliable baseline from which to measure any adverse ‘impact’ or ‘burden’ caused by any future changes to the apparatus carried out by CTIL, by reference to paragraph 17.
The Tribunal rejected L&Q’s argument. It was satisfied that the existing plans, and a photographic record of what had been installed upon completion of the initial works, would be sufficient for the purposes of applying the paragraph 17 conditions. It also viewed L&Q’s apparent concerns over the structural integrity of the building as ‘fanciful’ in circumstances where the agreement already contained various provisions that would protect its interests in this regard, including provisions for maintaining the safety of the building, plant and machinery, and a prohibition on overloading.
The practical disadvantages of L&Q’s proposed equipment cap were also considered by the Tribunal, by reference to the recent case of Cornerstone Telecommunications Infrastructure Limited v University of the Arts, London [2020] UKUT 248 (LC). As in this case, the Tribunal in University of the Arts was asked to impose an equipment cap and declined to do so. It concluded, first, that the imposition of an equipment cap would invite further, future disputes between the parties as to whether a future installation of equipment was permitted or not and, second, that it would hamper CTIL’s ability to respond to operational problems and developments throughout the duration of the agreement.
The Tribunal took a similar view in this case, commenting that L&Q’s proposed equipment cap would jeopardise CTIL’s ability to provide a service to network providers and risk stifling the use of the site. Such an effect would be contrary to the policy objectives of the Code.
To what extent does paragraph 17 limit upgrading and sharing?
In addressing this question, the Tribunal required to consider the extent to which paragraph 17 of the Code limits an operator’s rights to upgrade and share its apparatus. L&Q sought to limit CTIL’s right to upgrade by reference to paragraph 17, so that CTIL would have no right to effect any upgrade which had more than a minimal ‘adverse impact’ on the appearance of the apparatus, or which imposed any ‘additional burden’ on L&Q.
Seeking an unrestricted right to upgrade, CTIL argued that these conditions represented a ‘highly restrictive’ minimum threshold that could not be crossed. L&Q took a less restrictive view, arguing that an ‘adverse impact’ must represent something ‘significant’ or ‘damaging’ and that, to fall foul of paragraph 17, the proposed change would have to make matters ‘considerably worse’ for the site provider.
Again the Tribunal rejected L&Q’s argument, finding that its interpretation of paragraph 17 was inconsistent with the language of the Code. The Tribunal concluded that paragraph 17 represents an ‘irreducible minimum’, in terms of upgrading and sharing rights, which an operator is entitled to under a Code agreement. It is open to the operator to seek unqualified rights, or for a site provider to seek to impose conditions as stringent, but not more stringent, than those in paragraph 17. The Tribunal must then determine what is appropriate.
In this case, the Tribunal imposed terms that permitted upgrading without limit, whilst seeking to limit any possible loss and damage to L&Q by restricting CTIL’s sharing rights to not more than two operators (initially, those would be CTIL’s shareholders, Vodafone and Telefonica). Any additional sharing would be permissible only within the limits imposed by paragraph 17. The Tribunal noted that facilitation of new technology is one of the key objectives of the Code, and its decision to permit upgrading without limit reflects that objective.
How are consideration and compensation to be assessed?
In determining the level of consideration payable to L&Q under paragraph 24 of the Code, the Tribunal considered the following:
- The existing or alternative ‘no-network’ value of the rooftop site. It did this by reference to evidence of three new rooftop lettings negotiated after the commencement of the Code. A nominal value of £62.50 per annum was agreed.
- The additional benefits conferred on CTIL by the letting. These included, amongst others, L&Q’s responsibilities for maintaining and insuring the building, and were valued at £1,456.17 per annum, taking the agreed total after the first two steps to a rounded figure of £1,500.
- Any additional burden imposed on L&Q arising from the exercise of Code rights by CTIL. This included L&Q’s responsibility to provide and manage access across the common parts of the building, as well as the roof area, which the Tribunal valued at £1,000 per annum.
- An additional allowance to reflect the additional costs to L&Q of CTIL’s rights to share the benefits of the agreement with up to two other operators, and to upgrade without restriction.
The Tribunal concluded that the consideration under paragraph 24 would be agreed between willing parties at £5,000 per annum. On the question of compensation under paragraph 25 of the Code, the Tribunal awarded £3,068 to reflect L&Q’s reasonable legal expenses in advising on, and completing, the agreement.
In considering the evidence presented by the parties in this case, the Tribunal was critical of L&Q’s ‘exhaustive approach’, and in particular its inclusion of numerous pieces of transaction evidence, most of which were based on negotiations entered into before the “new” Code took effect. Evidence of the terms agreed for “old Code” sites was held to be of no value to the Tribunal. Instead, it concluded that only consideration negotiated after the commencement of the new Code could be taken as a reliable guide to the value of sites on the ‘no network’ assumption required by paragraph 24.
Perhaps significantly, whilst the Tribunal observed that consideration must be determined on a case-by-case basis, and by reference to the evidence presented by the parties to each case, the evidence it considered in this case, albeit limited, gave it no reason to expect that the market value of a Code agreement over a rooftop site on any different residential building would be much more or less than the sum of £5,000.
Comment
This judgment provides operators and site providers with a useful insight into the Tribunal’s approach to the application of paragraphs 17 and 23 of the Code, along with further guidance on the proper approach to the assessment of consideration and compensation under paragraphs 24 and 25.
In particular, the Tribunal’s decision is likely to be a helpful precedent for operators in confirming that equipment caps, once a common feature of old Code agreements, are now unlikely to be appropriate. Further, this decision serves as a helpful reminder that the Tribunal’s jurisdiction enables it to impose terms regarding upgrading and sharing that are less restrictive than paragraph 17 allows, provided sufficient justification is provided.
As regards consideration, given the limited evidence considered by the Tribunal in this case, it is perhaps surprising that it could see no reason why the market value of a Code agreement over a rooftop site on any different residential building would be much more or less than £5,000. As consideration must be determined on a case-by-case basis and by reference to the evidence presented by the parties, it remains to be seen whether that comment will be borne out in future cases. Either way, it is clear that, following this decision, evidence of agreements imposed on comparable sites will be all the more crucial in guiding the Tribunal towards an appropriate level of consideration in each individual case.
If you would like more information about this or a related matter, please contact Daniel Bain, of our Property and Infrastructure Disputes Group, or your usual Shepherd and Wedderburn contact.