The recent decision of EE Limited and Hutchinson 3G UK Limited v Affinity Water has signposted the way telecoms lease renewals might be decided in the years to come, writes Peter Humpherson, Principal Associate in our property litigation team.
In this case, the parties were unable to agree on the terms of a new lease, primarily the rent. Though the figures involved were not huge - EE’s position was that the rent should be £2,787 per annum, while Affinity’s position was it should be £6,560.84 per annum - both parties were concerned with the ramifications of the decision not just on this site, but for other telecoms leases across their portfolios.
A 20-year telecommunications lease had been granted back in 1998 to install apparatus on top of a water tower. The lease was excluded from the security of tenure provisions in the Landlord and Tenant Act 1954. Since it expired after the introduction of the Electronic Communications Code, it became classified as a “subsisting agreement” until a new lease could be entered into.
One of the major findings of the hearing was that as the site provider Affinity would not receive any of the economic benefits from the site, they should not share the risks arising from the exercise of the Electronic Communications Code (2017) rights by EE Limited and Hutchinson 3G Limited.
In addition, the rent was decided following the structured approach of the Hanover Capital [2020] decision. This involved first assessing the alternative use value of the site, depending on the location of the property. Here, as the site was on top of a water tower, this was assessed nominally at £50 per annum. When considering all other fees, costs, and expert evidence on the burdens on both landlord and tenant, however, the Tribunal arrived at a fair market rent of £3,300 per year.
The Tribunal made this decision based on the ‘no-network assumption’, that consideration cannot be assessed on the basis that the site will be used as part of a network.
However, the Tribunal also held that this no-network assumption did not mean that a user restriction within the head lease had to be ignored, or vice versa, although the restriction limited use of the site to ‘any communications use’. This is a valuable finding for other sites which may have similar restrictions in their leases.
The Tribunal also allowed the claimants a right to share occupation of the site, rather than the mere right to share equipment as the Code provides, and further provided rights for the unrestricted upgrading of equipment.
In the court’s view, a hypothetical lease for a water tower would cost somewhere between the value of a greenfield site and a commercial building. A rental valuation of £3,300 for a 10-year term was determined, with an annual break option in favour of EE.
