The highly anticipated decision marks the first judgement issued on modification of code agreements under Part 5 of the Electronic Communications Code (ECC).
The Tribunal’s latest decision follows a debate in EE Limited and Hutchison 3G Limited v Duncan and Others (LTS/ECC/2019/12 to 16 and 2020/01, 02, 03 & 13) on the relevancy of nine conjoined applications under Paragraph 33(5), Part 5, of the ECC.
Paragraph 33 of Part 5 deals with the ability of parties to modify the terms of existing code agreements that have expired, or are about to expire (which have either been originally granted under the ECC or, most often, are subsisting agreements under the transitional provisions). Various orders may be granted, ranging from a simple addition or amendment through to termination and substitution of the existing agreement with an entirely new one.
The ECC itself is widely regarded as more operator-friendly than its predecessor under the Telecommunications Act 1984. Rental values under the ECC are considerably lower, and ECC agreements carry more extensive statutory rights and protections such as wider sharing and alienation provisions.
Many operators have as a result been looking at ways of renewing their existing code agreements under the ECC to enjoy the benefit of these new Code terms.
Up until now, the bulk of ECC litigation has focused on Part 4 (specifically Paragraphs 20 and 26) of the ECC, which deals with the grant of new Code rights over land. One of the key patterns that has emerged, however, is a limitation on the ability to use Part 4 in circumstances where existing code agreements are already in place.
Operators are therefore being encouraged to change the direction of their renewal strategy and to look to the alternative modification process under Part 5, specifically Paragraph 33.
This Opinion is the first decision issued on applications made under Paragraph 33, as well as the first clear divide between Scottish and English approaches to the ECC. It provides some essential clarification on both the effect of tacit relocation in Scottish leasing law and on the interpretation of Paragraph 33.
1. The Legal Context
a. ECC Litigation in England and Wales
To understand the importance of this decision, it is helpful to recap what we have learned so far from the courts and tribunals south of the border on the application of the ECC:
- Part 4 of the ECC, specifically Paragraphs 20 and 26, entitles an operator among other things to seek conferral of Code rights from an occupier of land, assuming the relevant tests are met.
- Cornerstone v Compton Beauchamp [2019] EWCA Civ 1755 (currently subject to appeal in the Supreme Court) has told us that an operator cannot use Paragraphs 20 and 26 to seek Code rights from a landowner where there is already a third party occupier in situ. Occupation in terms of the ECC is a “question of fact rather than legal status”, meaning “physical presence on and control of the land”.
- Cornerstone v Ashloch [2019] UKUT 0338 (LC) later confirmed that Paragraph 20 cannot apply to English leases that are protected by the Landlord and Tenant Act 1954. Instead, they can only be renewed under the 1954 Act. Only when the renewed tenancy is close enough to its contractual termination can the operator seek Code renewal, which would be under Paragraph 33.
- Arqiva Services Limited –v- AP Wireless II (UK) Limited [2020] UKUT 195 (LC) also confirmed that an operator occupying under an English Tenancy at Will following expiry of its original Code agreement is not 1954 Act protected. If the Tenancy at Will is not in writing, it is not a subsisting agreement to which the ECC can be applied, either. All an operator can do in these circumstances is hold the position, pending removal under paragraph 40, as no follow up Paragraph 20 or 33 application can be granted.
- Several decisions have referred to the modification procedure under Part 5 as a potentially viable alternative to seeking fresh Code rights under Part 4 in situations where existing Code agreements are in place (See Compton Beauchamp and Ashloch above). Up until now, however, there has been no judicial determination specifically on the application of Part 5.
b. Legal background to Scottish leasing law
It is also worth touching on some of the key legal differences between Scottish and English commercial leases, given that these underpin the reasoning in this decision.
Unlike the position in England and Wales, there is no legislative framework that underpins commercial leases in Scotland.
Instead of the security of tenure and renewal provisions under the 1954 Act, Scottish leases simply automatically continue from year to year after their initial contractual expiry date unless and until either party gives notice to the contrary. This is known as tacit relocation and is rooted in the presumption that parties have by implication consented to the continuation of the lease.
Importantly, the effect of tacit relocation is to continue an existing lease on the same terms (except as to duration) for another year, and from year to year thereafter. Tacit relocation does not amount to a renewal as such, nor does it create a new implied lease between the parties (as in England and Wales).
2. The Decision
The practical effect of this has now been confirmed EE and H3G v Duncan and Others. The two key points to take from this decision are:
a. The Tribunal has confirmed that Scottish leases continuing by tacit relocation are subsisting agreements under the New Code.
This quite rightly distinguishes the Scottish position from the likes of 1954 Act protected tenancies per Ashloch and unwritten Tenancies at Will per AP Wireless, neither of which are a feature of Scottish leasing law and have very different characteristics.
The lines have now been very clearly drawn as to the underlying differences in Scottish and English leasing, and how this impacts the application of the ECC in different jurisdictions.
b. The Tribunal has also clarified that an operator can only use the modification procedure under Part 5 where there is a specific need for the agreement to be replaced or modified in the first place.
Here, the Tribunal was not satisfied that this had been done. The operators had cited general policy considerations for promoting electronic communications networks as the reason for renewal. However the Tribunal said that “more requires to be pled in the way of particular agreements being unduly onerous or restrictive” in order to justify orders being granted under paragraph 33.
Some examples of what the Tribunal was looking for are peppered throughout the decision, including the following:
- A third party wants to install apparatus at the site but is prevented from doing so given the current agreement.
- An operator wants to assign a particular agreement but cannot do so because of restrictive alienation terms.
- A particular change to the agreement is needed to give it technical efficacy in the specific circumstances.
- Replacement or modification of an agreement would result in a particular direct improvement to telecoms services for consumers which can’t be achieved otherwise.
3. What does this mean for Operators?
The fate of Scottish code agreements continuing by tacit relocation was potentially up in arms following the recent decision in AP Wireless.
This latest decision has importantly drawn the lines on the key differences in Scottish and English leasing law by clarifying that such agreements are subsisting agreements under the ECC.
This will be welcome news for operators. It confirms their existing sites in Scotland held by agreements on tacit still enjoy the protection of (transitional) Code rights under the ECC. They are not therefore locked into a potentially redundant position in the same way as the Upper Tribunal was bound to determine in AP Wireless.
What will be less welcome news for operators, however, is that the decision has also limited the use of Paragraph 33 to circumstances where there is a specific need to replace or modify an agreement. This will likely impact renewal strategy on sites across whole of the UK, at least until the Upper Tribunal is given a similar opportunity to scrutinise Paragraph 33.
Operators can no longer therefore rollout expansive renewal strategies without examining the characteristics of each particular site and identifying a particular need for the renewal. If what they are looking to achieve can still be done under their existing agreements, albeit on less favourable terms, it will not be enough to justify modification under Paragraph 33.
The decision is yet another example of the many uncertainties and tensions created by the introduction of the ECC. It is worth remembering that the ECC itself was introduced to make it cheaper and easier for operators to expand infrastructure and to rollout digital technologies such as 5G to existing sites. The rocky road of litigation since then has been anything but that, and it is not set to slow down any time soon.
A full copy of the Tribunal’s Opinion can be found on its website, accessible here.
