Contributors
The Product Security and Telecommunications Infrastructure Act 2022 (the Act) came into force on 6 December 2022, though many of its provisions will not come into effect until secondary legislation has been passed. The Act makes a number of changes to the Telecommunications Code (the Code) including potentially significant changes to the rent payable under a 1954 Act telecommunications lease renewal.
The judgment in Cornerstone Telecommunications Infrastructure Ltd v Ashloch Ltd [2022] UKSC 18 confined Code operators wishing to renew their subsisting agreements protected by the Landlord and Tenant Act 1954 (the 1954 Act) to the procedures in the 1954 Act, as opposed to part 4 of the Code. The effect of this is that the ‘no network’ valuation assumption within the Code is not applicable and so a Court is able to award a landlord a higher renewal rent (under section 34 of the 1954 Act) than had that rent been assessed under the Code.
Section 61
Section 61 of the Act will make an addition to section 34 of the 1954 Act, which addition will provide for an alternative rent valuation mechanism on 1954 Act telecommunications lease renewals. This addition will have the effect of nullifying the rental disadvantage for operators caused by the decision in Ashloch.
Specifically, the Tribunal (to which 1954 Act telecommunications renewals will now be referred) will now be required to apply the ‘no network’ assumption when assessing rent on a 1954 Act renewal, in the same way as if the operator's agreement was being renewed under the Code. Rent is to be determined by the Tribunal as an amount that represents the market value of the landlord's agreement to confer the renewed code rights. The market value of the agreement is the amount that, at the date the market value is assessed, a willing buyer would pay a willing seller for the agreement (a similar valuation basis to a 1954 Act renewal), but on the key assumption that "the rights to which the transaction relates do not relate to the provision or use of an electronic communications network" i.e. the standard "no network" assumption used for rent valuations under the Code
The application of these new provisions will be limited to 1954 Act protected leases, which are also so-called "subsisting agreements" i.e. agreements for the purposes of paragraphs 2 or 3 of the old Code in force as at 28 December 2017. The provisions will not actually come into force until further transitional provisions under section 76 of the Act have been passed, presumably later in 2023.
Comments
The anomalous rental position on telecoms lease renewals arising from Ashloch will be eliminated by this new provision and will be welcomed by Code operators, but doubtless seen by site providers and landlords as a further unwelcome/unjustified erosion of the value of telecoms leases (see for instance the submissions of the site provider in the recent Scottish code renewal case of EE v Service). The Tribunal’s determination of rents on 1954 Act renewals should in due course align more closely with the table of indicative Code valuations set out in EE Ltd & Another v Affinity Water Ltd. This will incentivise code operators actively to seek to renew 1954 Act agreements continuing by virtue of S.24 of the 1954 Act with the prospect of having renewal rent assessed under the 1954 Act on the "no network" assumption.
There would appear to be a potential lacuna in the application of the new provisions to periodic telecoms tenancies that may have arisen upon the expiry of historic contracted out leases by the ongoing demand and acceptance of rent over a protracted period. These tenancies would appear not to be "subsisting agreements" for the purposes of the old code as at December 2017 as they would not be in writing, but would still be 1954 Act tenancies which otherwise would fall to be valued on any renewal under the new valuation methodology. In practice, however, this lacuna is not likely to have widespread effect, as only landlords are able to institute a renewal of protected periodic tenancies under the 1954 Act, and there is likely to be little incentive on landlords to renew such tenancies at all, as the passing rents will inevitably be higher than any renewal rent, whatever regime it is assessed under.
It remains to be seen what the position will be in respect of 1954 Act renewal proceedings already issued prior to section 61 (or indeed the Act) coming into force. It may thus be advisable for operators to 'wait and see' how the transitional provisions will implement the change in valuation methodology before embarking on a 1954 Act renewal at this point.
However, landlords under 1954 Act telecoms leases would seem to have a current incentive to progress current renewals as quickly as possible to avoid the possibility of the forthcoming change in valuation methodology applying to the renewal.
