Cracking the Electronic Communications Code

Cracking the Electronic Communications Code

Wednesday, 20 February 2019

With the reform of the Electronic Communications Code (ECC), the Government has updated existing legislation to pave the way for faster mobile and broadband services at lower cost. While network operators have welcomed the changes that came into effect on 28 December 2017, they have had a more lukewarm reception from some landowners and their agents. Here I take a brief look at the key changes.

Why the change?

We are all now reliant on our mobile phones and used to having access to broadband, but the truth is that the UK lags behind Europe when it comes to connectivity. Digital technology and the demand for digital services is developing fast, and we need to be able to move quickly with it. And with 5G around the corner, the industry needs a more straightforward framework under which to operate.

The Government has reformed the previous ECC with the intention of promoting more significant investment in digital infrastructure and encouraging greater network sharing turning connectivity from a luxury for a few to a basic need for all.

What hasn’t changed?

Code agreements must still be in writing, signed by both parties and will continue to bind successors in title and other parties.

Network operators can impose agreements on landowners through the courts where the parties cannot agree on a consensual deal, and operators can retain equipment on land even after the fixed term of an agreement ends.

Code Right

The Code introduces a new framework for agreements between network operators and landowners by giving operators enhanced statutory powers to install, keep, maintain and upgrade equipment as a ‘Code Right’. It also allows operators to assign and share freely. While some of these rights existed under previous legislation, the Code envisages a landowner granting to an operator a much more comprehensive package of rights in return for a payment to the landowner for that agreement and compensating the landowner for its loss – more of that below. In this way, the operator gets what it needs, and the landowner is not out of pocket. Seems to make sense. All ok so far…?

Valuation

This is where it gets a little tricky. In exchange for granting the Code Right, a landowner will receive a payment based on two elements expressly set out in the code: Consideration and Compensation. These two elements seek to bring the payments that operators pay into line with other statutory bodies using compulsory purchase type principles – for example, electricity, gas and water – by imposing a ‘no scheme’ method of valuation.

The Code sets out how consideration – or the price payable for the agreement – is calculated by ignoring the value of the agreement to the operator and how compensation is assessed – that is, the loss to the landowner of the use of that land. These two elements combined, seek to regularise the payment made on each site.

These calculations use established methods of land valuation which are very familiar to the property industry in the UK and are well understood in both compulsory purchase circles and the utility sector. In the telecoms world, however, they are causing some concern to landowners, who are experiencing a reduction in payments. It appears that this is where the battle lines are being drawn.

‘Fair’ sum?

It’s clear that the Government intended operators to pay a ‘fair’ sum to a landowner, but they also recognised that rents would fall considerably. With landowners and their agents now being offered far less than previous rent levels, assessing what that sum might be, and agreeing a figure, is proving a challenge. This is where a dialogue between a landowner and an operator must take place to try and agree on a consensual deal between them. Otherwise, the parties will find themselves in the Lands Tribunal who will ultimately decide for them.

We’re convinced that a constructive dialogue between the parties will help them arrive at a consensual agreement based on a Code calculation of consideration and compensation.

One thing is for sure though; the market needs a stable mechanism for valuing these types of agreements. In nearly everything that we do, we know what a ‘fair price’ is, and digital infrastructure shouldn’t be any different. The sooner we get there, the better!

Sharing, upgrading and assigning

Another hot topic. To encourage greater coverage and network sharing as digital technology evolves, operators now have the right to share, upgrade and assign without consent. This will facilitate advancements in technology and the changing face of connectivity, but it does, however, remove the opportunity for landowners to impose conditions on operators and to earn extra income perhaps. This might be another reason why some landowners and their agents might be feeling a little aggrieved by the Code.

Termination

Code agreements continue until terminated. However, a landowner bound by a new Code agreement will now need to serve a minimum of 18 months’ notice to terminate a Code agreement specifying at least one of four specific grounds – the 18 months cannot expire until after the expiry of the contractual term.

One principal ground for termination is where the landowner intends to redevelop the property. While the same principles are anticipated to apply as those established for ‘Ground (f)’ (Section 30(1)(f) of the Landlord and Tenant Act 1954 after a landlord has served a Section 25 Notice), landowners are nervous about its applicability under the Code. However, if faced with such genuine notice, operators would be well advised to work with the landowner taking into account the redevelopment plans and be prepared to remove their equipment.

Other changes

The Landlord and Tenant Act 1954 does not apply to Code agreements – Code agreements effectively have their own form of security of tenure;

The ability to go to court to have an agreement imposed is not a new concept; only this has now moved from the County Court to the Lands Tribunal.

The Code expressly states that the parties cannot contract out of the Code; and

Broadly speaking, the key changes are not retrospective (there are 'transitional provisions' that attempt to govern agreements that fall between the Old Code world and the new Code world).

While operators and landowners might view the Code differently, the Government is expecting its introduction to deliver lower site payments and lead to more significant investment in networks, network sharing and improved connectivity for all of us.

It's in everyone's interest to work together for a better connected tomorrow.

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