Boost for network operators as Tribunal issues first decision on the valuation of consideration and compensation payable under the Electronics Communications Code

The new Code, which came into force in December 2017, is intended to provide modern regulation to fully support the cost effective rollout of digital communications infrastructure. Prior to this decision, the consideration and compensation payable under a Code Agreement had been a widely debated topic, leading to discord between electronic communications network operators and landowners.

What was the dispute about?

In EE Limited and Hutchison 3G Limited v The Mayor and Burgesses of the London Borough of Islington, EE and Hutchison 3G, as network operators, sought rights under the Code to install and operate electronic communications apparatus on the rooftop of a block of flats in Islington, owned by the London Borough of Islington (“LBI”). LBI objected to the grant of Code rights. EE and Hutchison 3G (“Operators”) applied to the Tribunal for the grant of interim Code rights and a Code Agreement for the installation of apparatus on the rooftop.

During the interim hearing, the Tribunal granted the Operators interim Code rights over the rooftop space and ordered both parties to seek to agree the terms of a Code Agreement, with a view to narrowing the issues between them on the terms of the proposed Code Agreement, prior to the substantive hearing.

In the substantive hearing, the Tribunal was asked to address the following points:-

• Whether the Operators were entitled to a Code Agreement in the form of a lease;
• the terms of the Code Agreement to be imposed; and
• the consideration and compensation payable under the Code Agreement to be imposed.

The Tribunal's decision

Prior to the substantive hearing, LBI had in the view of the Tribunal deliberately disregarded the terms of an interim order. The Tribunal, as a consequence, made a procedural ruling that LBI would not be permitted to pursue any arguments relating to the terms of the Code Agreement proposed. LBI would be limited to addressing whether the Tribunal had jurisdiction to order a Code Agreement in the form of a lease and the consideration and compensation payable under the Code Agreement.

On the remaining issues, the Tribunal found, in favour of the Operators, that:

• The Tribunal had the power to impose a Code Agreement in the form of a lease.
• When assessing the consideration payable under a Code Agreement:
  • It must be assumed that the rights are being granted for a purpose or use unconnected to an electronic communications network (the "no-network assumption").
  • Historic rental values set under the old Electronic Communications Code are not relevant or useful comparable evidence for assessing consideration under the new Code, particularly because old Electronic Communications Code valuations did not apply and are contrary to the no-network assumption.
  • If, on applying the no-network assumption, there is no commercial demand for the use of the relevant site, nominal consideration under a Code Agreement may be payable, but it does not mean that nominal consideration will always be payable.
  • Even if there is no commercial demand for a site, it would be wrong to approach the assessment of consideration either on the basis that the absence of competition for a site will result in only a nominal value for the site or, conversely, that it would drive up the value of the site to more than merely nominal. The value of the land will depend in every case on its characteristics and potential uses for the site, and not on the number of potential bidders for the site in the market.
  • Where the inconvenience of having apparatus at a site is not offset by any countervailing benefits to the landowner, the Tribunal can properly consider a contribution from the operator towards the site provider's expenses of running the site and in complying with the benefits and restrictions imposed on it under a Code Agreement, as part of the consideration sum payable. These factors were not only relevant to the assessment of compensation under the Code.
  • The market would expect, for sites similar to the rooftop site, an inclusive rent to be agreed, which took into account sums ordinarily paid in services charges.
• When assessing the compensation payable under a Code Agreement, the following principles need to be taken into account:
  • Compensation is only payable where a landowner has sustained loss and damage; the sums claimed must be more than speculative.
  • The imposition of a Code Agreement does not amount to an event, in itself, which causes loss or damage to the landowner, nor is the loss by a landowner of income historically received as a result of the operator sharing the site, an appropriate head of claim for compensation;
  • The right to compensation is not a 'once and for all' right. The landowner can bring a claim at any time whilst the Code Agreement is in place, where they have suffered loss or damage.

The Tribunal determined that the rights under the Code Agreement were of nominal value (£50.00). However, when applying the principles set out above, the Tribunal determined the consideration payable under the Code Agreement would be £1,000.00 per annum, after incorporating a contribution towards the site provider's expenses of running the site and in complying with the benefits and restrictions imposed on it under a Code Agreement. As the Operators had indicated a willingness to honour the consideration offered to LBI of £2,551.77 per annum, however, the Tribunal set consideration at this level. When compared to the annual consideration of £21,000 being discussed between the parties prior to the commencement of the Code, this marks a significant reduction in the level of consideration now payable for Code Agreements, under the Code.

The Tribunal did not make an award for compensation, but did note that LBI was entitled to its reasonable legal and surveying costs of the Code Agreement and to compensation for any loss or damage caused by the installation of the apparatus.

Osborne Clarke comment

This case provides welcomed clarification for network operators on the form that a Code Agreement can take and how consideration and compensation should be assessed and valued under the Code. It is hoped that the decision will assist with reducing the issues between landowners and network operators under the Code and supporting the objectives of the Code: the cost effective rollout of digital communications infrastructure throughout the UK. As we explore in our recent report on next-generation connectivity, the realisation of the transformative opportunities offered by next-generation connectivity depends on the ability of network operators to be able to build out the necessary supporting infrastructure.

The Tribunal's early procedural decision not to allow LBI to pursue any arguments relating to the proposed terms of the Code Agreement also acts as a stark warning to parties to a Tribunal reference; that the Tribunal will not tolerate the deliberate disregard for a Tribunal order and will utilise its powers to impose sanctions on parties that do not comply.

This article was written by Emily Van Schalkwk, Associate Director, with the assistance of Adam Collins, trainee solicitor, at Osborne Clarke LLP.