New Zealand Farm - renewal of telecommunications leases under the Landlord and Tenant Act 1954

The County Court (sitting in the Upper Tribunal) has handed down judgment in On Tower UK Limited v AP Wireless (II) UK Limited (though the case will likely be known as New Zealand Farm). The Court considered the rent and other terms to be ordered in a renewal of a lease of a telecommunications site under the Landlord and Tenant Act 1954 (the 1954 Act). 

Background

The site which was the subject of the proceedings is located on a former farm close to the A1. On Tower has been in occupation of the site since 2000, latterly under the statutory continuation of its lease pursuant to section 24 of the 1954 Act. APW is On Tower's landlord under a concurrent lease of the site granted to it by the then-owner of the farm. 

APW gave On Tower notice under section 25 of the 1954 Act to terminate the tenancy, offering renewal terms. No new agreement was entered into and the matter progressed to a court hearing, despite the low rental values at stake. This apparently was because the parties had ongoing 1954 Act renewals on another 134 sites, and a court judgment in this case might facilitate early settlement in those other cases. The court was asked to determine both an appropriate rent for the site under the 1954 Act, and certain lease terms not agreed between the parties

Rent

The position under the 1954 Act as to the basis on which rent should be determined was unaltered by the fact that the property in question here was a telecommunications site, and the renewal lease would be an agreement regulated by the Telecoms Code. Section 34 of the 1954 Act requires the Court to determine the rent the site would reasonably be expected to let for in the open market between a willing lessor and willing lessee.

The Court's approach to determining rent for telecommunications leases under the 1954 Act has evolved in two previous judgments:

• Initially, in Hanover Capital, due to an absence of evidence of open market lettings the Court set out an iterative valuation methodology based on the alternative use value of the site (if it were not to be used for telecommunications purposes), with adjustments then made to allow for extra benefits to the operator and burdens on the landlord/site provider 
• Subsequently, in EE v Morriss (Pippingford), the Court considered that there was now enough comparable evidence of open market lettings of telecommunications sites to adopt the 'traditional' approach of determining the rent by reference to comparable open market lettings.

In this case the Court adopted the approach taken in EE v Morriss, relying on comparable evidence of open market lettings of telecoms sites to determine the rent. Extensive evidence of such lettings was placed before the court by the parties' respective experts:

• The Court noted that, in many of the comparable transactions, the operator preferred to keep the headline rent down to a Code rent level but was willing to pay a premium on the grant of the lease due to the substantial saving in time and money to the operator in doing a consensual deal, as opposed to proceeding through the Tribunal
• After analysing the comparables, the Court determined that the negotiated annual rent for the site between willing parties in the open market would be between £2,000 and £3,000. The Court decided that the annual rent for the site should be £2,750, rising to £3,200 once professional fees were added. This contrasted with the annual rents proposed by the parties' respective valuation experts of £675 (On Tower) and £7,000 (APW).

Other terms

APW sought the inclusion of a number of terms which were not in the previous lease of the site. The Court considered each proposed addition, in light of the principle in O'May that a party seeking a change from the terms of the current tenancy under a 1954 Act renewal must justify that proposed change.

On the basis that APW did not provide sufficiently cogent reasons for their inclusion, the Court declined to incorporate the following additional terms into the new agreement:

• A requirement for 48 hours' notice to be given before On Tower could access the site
• Obligations on On Tower to provide a description of any works to be undertaken on the site along with a risk assessment and method statement, to provide details of its contractors' safe working practices and to provide a site specific radiation protection compliance certificate
• A so-called "Jervis v Harris" clause giving APW the right to serve notice on On Tower requiring repairs to be carried out, which if not complied with, would have entitled APW to go onto the site and undertake the works itself at On Tower's cost
• A clause giving APW control of any litigation resulting in a claim by a third party arising directly or indirectly from the use of the site and the tenant's apparatus
• A clause obliging the parties to refer any disputes between them to ADR.

Conclusion

This county court decision made by Martin Rodger QC (who has presided over most of the principal telecoms code cases in the Upper Tribunal) is another in a line of decisions by both County Court and Upper Tribunal which have noticeably sought to give guidance of general application to operators and site providers as to how the code should operate to regulate rights and obligations between the parties. The clear aim of these decisions has been (and remains) to cut down on the need for parties to take cases through the Tribunal/court process, by laying out clear pointers as to how the court/tribunal will deal with various matters.

In that spirit, and in the context of rent levels, the Tribunal has already set out a tariff of guideline code rent levels for various different types of site (see the Affinity Water judgment). Whilst this county court decision does not go quite that far, the clear signpost away from the iterative valuation process set out in Hanover Capital and the greater reliance on emerging evidence of comparable open market lettings (set out and analysed extensively in the judgment) seems to be a firm steer to parties that telecoms site rents under the 1954 will be determined as being (and thus should readily be agreed by parties to be) within the ranges expressed in the judgment, and not towards the two extreme ends of the scale put forward by the parties' respective experts.

Attributed to Mark Barley and George Napier.