On the Second Day of Christmas...

…Today Thomas Freeman from Irwin Mitchell’s Real Estate team examines the Electronic Communications Code and analyses the recent decision in the case of Vodafone Limited v Gencomp (No 7) Limited (1) and AP Wireless II (UK) Limited (2). 

The new Electronic Communications Code (“the Code”) came into force in December 2017. The Code is policy driven, designed to make it easier and cheaper for telecoms operators to acquire and maintain rights over land. The purpose is to facilitate the development of the UK’s telecommunications infrastructure. The implementation of the Code has brought with it a raft of litigation, as operators seek to flex their new muscles and the Courts interpret and implement the Code.

2022 has been a very significant year for the Code, with the Supreme Court handing down its major decision in Cornerstone v Compton Beauchamp. This decision follows on from Compton. It acknowledges a major flaw in the current drafting of the Code and has serious implications for landowners with a reversionary or intermediate lease.

Factual Background

Vodafone used “The Old Fire Station” in Bingley as site for its telecommunications apparatus. Vodafone was originally granted a lease of part of the Old Fire Station by the then freehold owner in 2003. The freehold is now vested in Gencomp.

In 2018 Gencomp granted a reversionary or intermediate lease to AP Wireless (APW) subject to and with the benefit of the lease to Vodafone. APW therefore became Vodafone’s immediate landlord.

Vodafone’s lease expired and it sought to terminate its existing lease and acquire a new “Code Agreement” under Part 5 of the Code.

The primary question was who could grant Vodafone those new rights under the Code, was it Gencomp or APW?

The Code

To understand why this question posed so much difficulty, it is necessary to look briefly at some of the key provisions of the Code.

Paragraph 9 of the Code provides that “a code right in respect of land may only be conferred on an operator by an agreement between the occupier of the land and the operator.”

In addition to the original occupier, Paragraph 10 of the Code provides that the following people are also bound by a Code Agreement:

1. any successor in title to the original occupier’s interest;

2. anyone with an interest which is derived directly or indirectly out of the original occupier’s interest after the Code Right has been conferred;

3. anyone else whose right to occupy was granted by the original occupier after the Code Right had been conferred.

However, Paragraph 10 also provides that only a direct “successor in title” to the original occupier’s interest is to be treated as being a “party to the agreement” by which the original occupier conferred the Code Right.

The concept of being a “party to the agreement” is important. It is only those who are regarded as being a “party to the agreement” that have the right to give notice to terminate or modify an existing Code Agreement under Part 5 of the Code.

Prior to Compton there had been a series of cases in which operators who had been in occupation of sites under pre-Code leases or licences sought new Code Agreements under the Code. In those cases the operators had been refused new Code Agreements on the basis that the operators were the “occupiers” of those sites and it would be absurd for them to be able to grant themselves Code Rights. 

In Compton the Supreme Court held that this interpretation of “occupier” frustrated the obvious purpose and policy of the Code. It held that “occupier” had no fixed meaning in law, and its meaning should be construed by reference to the purpose of the Code and not the other way around. As a result, for the purposes of the Code, the presence of any telecoms operator should be ignored and the “occupier” was the party who but for the operator would be in occupation.

The Issues and the Decision

The first issue was whether, following Compton, it was necessary for Vodafone to prove that the freeholder which originally granted it the lease in 2003 was the “occupier” at the time in order for the Code to apply.

The Tribunal held it would infer that the freeholder was the “occupier” for purposes of the Code and that the burden of proof would be on any party wanting to argue that this was not the case and that the Code should not apply.

This will come as considerable relief for telecoms operators, as attempting to prove who was in occupation (apart from them) 10, 15 or 20 years ago is likely to be exceptionally difficult in practice.

The second and most important issue was who could grant Vodafone a new Code Agreement. The problem was that:

1. applying Compton APW was the “occupier” and the only person who could confer the grant of new Code Rights;

2. however, APW was not a successor in title to Gencomp’s interest and was not a “party” to the original agreement;

3. therefore, Vodafone could not give a valid notice to APW to terminate its existing Code Agreement or seek a renewal of that agreement from APW under Part 5 of the Code – only Gencomp could be the correct party to an application under Part 5;

4. however, Gencomp could not grant Vodafone new rights in practice, because it divested its rights to APW and any rights it could grant to Vodafone would necessarily be subject to APW’s interest. Gencomp could not grant to Vodafone what it no longer had.

The Tribunal suggested it could get around this problem by using Part 4 of the Code. Part 4 is about the imposition of new agreements rather than the termination or modification of existing agreements. The Tribunal has previously held that once the parties have reached an existing agreement, they should be bound by it and not permitted to cast it aside and seek a new one. Therefore, telecoms operators should rely on Part 5 if they want to terminate or modify an existing agreement.

Here though, the Tribunal decided that because on the facts of this case Part 5 did not work, Part 4 could be used instead. Under Part 4, the Tribunal would have the capacity to impose a new Code Agreement between Vodafone and APW (as occupier) and order that Gencomp is separately bound by such an agreement.

However, the Tribunal noted that the Code appeared to “break down” when it encountered an intermediate lease. Martin Rodger QC, the Tribunal Judge, noted that the Part 4 work-around did not solve the problem of an occupier who might want to develop, but was unable to serve notice to terminate on re-development grounds under Part 5 because they were not a “party” to the Code Agreement.

The Judge stated:

. . . a concurrent lessee who wishes to redevelop a building over which code rights have been granted by a superior landlord will find themselves in difficulty, and with no obvious means of bringing the code rights to an end. A person contemplating taking a concurrent lease with a view to redevelopment would therefore be well advised either to adopt a different structure or to ensure that any code agreement which may interfere with their proposals has been terminated before they acquire their interest.

This consideration should therefore be at the forefront of the mind of any leaseholder considering a re-development of a telecoms site, as well as the lawyers who advise them.