The recent judgment in EE Limited (1) and Hutchison 3G UK Limited (2) v AP Wireless II (UK) Limited has seen a significant shift in the baseline valuation of a rural greenfield site pursuant to the Electronic Communications Code, where there is no other viable alternative use value.
The decision means that a consideration value (i.e. the annual payment made by operators to site providers under a Code agreement to use land for installation and operation of electronic communications apparatus) for a rural unremarkable greenfield site has shifted from £750 (determined in the earlier case of Affinity Water[1]) to £1,750.
This does not mean that Affinity Water no longer stands on its own two feet however, with the Tribunal commenting: "We do not consider it necessary to update the table of figures in Affinity in January 2022, nor to identify any particular relativity between consideration for rural sites and those in other situations…". It does, though seem clear that operators must now account for inflation (from the date on which the judgment was handed down in Affinity Water) when valuing any site, new or existing.
Broadly, there are two reasons why the Tribunal came to this decision:
An inflationary uplift
This is not a surprise and something hinted at in other recent valuation cases. The Tribunal stated: Given the high rate of inflation over the last three years the experts were right to acknowledge the importance of keeping the levels of consideration paid for sites, in all situations, abreast of it. The leases that we see generally provide for rents to be reviewed in line with RPI, but…we assume that we need to spell out here the relevance of inflation to those operating in the market.
Engagement Value
Although agreed that the site has no alternative valuable use, the Tribunal also said that where the figures involved are modest, the same activity could be carried on in a number of different locations and does not generate an income stream related to the site itself, it is credible, that the rents agreed for the non-telecommunications transactions are getting close to the level below which no letting would take place. In taking account of the general evidence of alternative use, the Tribunal referenced evidence given of 16 small rental transactions identified by the Central Association of Agricultural Valuers (CAAV).
In other words, the Tribunal is open to, and will consider, alternative uses for small parcel lettings and (reading between the lines) operators/their agents should not be dismissive of that evidence presented by land agents, even if a site is thoroughly unremarkable. The Tribunal explained:
"The adverse consequences of letting a small parcel of land for a modest return will often be sufficient to dissuade a landowner from letting at all. As the CAAV explained, …to DDCMS:
"...If asked, many landowners would prefer to have no third parties on their land at all; it inevitably disrupts their own use and quiet enjoyment of the property for their own purposes, whether that is business, recreation or residential use. If a third party is to be given access, the terms agreed need to be sufficient to make it worth the hassle of dealing with them.
"Paragraph 24 [of the Code] requires that the landlord must be assumed to be willing, but that does not mean that they will be immune to the practical concerns which cause others to be unwilling, and their willingness is to let the land at its market value. In negotiating to arrive at that market value both parties would be aware of the lettings of other small rural sites for a whole range of different uses and, we consider, would take them into account. In Stephenson it was suggested that such transactions would not be given "great weight", but they would be relevant, and the weight to be given to them would depend on how closely they resembled the subject transaction (in Stephenson reliance was being placed on a letting for use as an advertising hoarding)."
A final point, which is easily missed, is that the Tribunal was evidently correcting what it considered to be a mistake in its valuation of greenfield sites in Affinity Water. Whether the Tribunal has perhaps overcorrected remains to be seen.
[1] EE Ltd and Hutchison 3G UK Ltd v Affinity Water Ltd [2022] UKUT 8 (LC)
