For a long time, telecoms infrastructure has generated good income opportunities for farmers and landowners, but recent developments in the legislation mean that valuations have plummeted while telecoms operators have been given more extensive rights.
Charlotte Brasher, solicitor at Trowers & Hamlins LLP and Declan Oddy, and surveyor at Fisher German, talks to FarmingUK about this issue.
The recent County Court decision in the Pippingford case sheds some light on this evolving area of law. The Electronic Communications Code ("the Code") was implemented on 28 December 2017 and governs the relationship between telecoms operator and site provider.
The Code's aim is to assist the rollout of electronic communications networks, in particular 5G, by giving operators certain powers to negotiate access and rights to install apparatus on sites.
The Code introduced a new valuation regime which has seen the sums payable by operators for telecoms sites under the new regime reduce significantly.
The Code is more heavily weighted in favour of operators than site providers (the idea being that the rollout of technology is in the public interest), but this often leads to friction between site provider and operator and complicated negotiation processes.
The market is ever changing with the Vodafone and EE decommissioning 3G equipment in favour of a 4G and 5G only network, as well as the proposed Shared Rural Network ("SRN") between the 4 major mobile network operators ("MNOs") in the UK.
The SRN aims to extend mobile coverage to 95% of the UK by the end of 2025, and the MNOs anticipate that an additional 280,000 premises and an extra 16,000km will gain coverage.
Legal obligations (subject to OFCOM regulations) have been imposed on the MNOs to ensure that momentum is maintained and these target goals are achieved.
Whilst the installation of new masts will have an impact on the rural landscape, the number of masts required is to an extent minimised by each mast being shared by the MNOs.
The investment in rural areas will drive productivity, give greater consumer choice and enable rural economies to thrive.
Furthermore, we have also seen a growing trend in recent months for operators and investors approaching farmers and landowners about buying the telecoms compounds in exchange for capital sums.
In the right circumstances, this can be a good opportunity to reinvest the capital into diversifying or modernising other parts of the farm or landholding.
We therefore predict that telecoms matters will become increasingly relevant for farmers and owners of rural land. Consideration may increasingly need to be given to ways of diversifying businesses and enterprises given the complex post Brexit market, environmental pressures and changes to the subsidy schemes.
Although income from telecoms sites is nominal, the key will be to ensure that sufficient protections are included in any agreement so that landowners and farmers are not restricted in what they can do with their land in the future and so that their costs can be recovered.
The telecoms operators (in this case, EE Limited and Hutchison 3G UK Ltd) applied for a new tenancy of the site they occupied on The Pippingford Estate, a private rural estate in the Ashdown Forest.
The estate, like many, has diversified and generates income with its conventional uses plus others such as sporting events, equine livery and telecoms from time to time, the estate is also used for military training.
Although the site provider did not oppose the grant of a new tenancy, the parties had not been able to agree all of the lease terms. The key terms in dispute were:
• Whether there should be a break clause (i.e. a right to terminate the lease early);
• What rights of access the operators should have to the site;
• And most importantly what rent the operators should pay.
What is the legal framework?
The question for the Court was how rents should be valued in telecoms leases which are renewed under the Landlord & Tenant Act 1954 ("the 1954 Act") and then become subject to the Code.
The valuation process under the 1954 Act (which deals with the obligations between landlord and tenant where the premises is occupied for business purposes) is less favourable to operators than the valuation process set out in the Code.
However, the Court has previously said that operators cannot cherry pick which procedure is used based on what would best suit their needs.
Instead, the Court has said that if an operator is in occupation under an existing agreement covered by the 1954 Act, it can only renew its lease under the 1954 Act.
After that renewal though, the lease will be subject to the Code and any subsequent renewals will be under the new regime.
Generally (although there are some exceptions), rent under the 1954 Act is decided based on what the open market rent would likely be.
Expert evidence, and examples of comparable case studies, are therefore crucial in helping the Court to decide what that figure should be.
What did each party say on rent?
As rent could not be agreed, each party obtained expert evidence. Their positions were:
• Operators' expert – rent of £1,200 plus costs;
• Site provider's expert – open market rent of £12,000;
The operators' expert had provided examples of 33 comparable transactions between December 2019 and December 2020 of 'typical' new sites.
28 of the 33 transactions had rental figures equivalent to £1,750 - £2,500 per annum, including capital payments.
As the parties' experts were so far apart on rent, it fell to the Court to ultimately determine the correct rental figure.
What did the Court decide?
The Court preferred the site provider's expert's valuation process, but ultimately was more persuaded by the operator's expert evidence, deeming the site provider's expert valuation to be excessive.
The site provider's expert had made adjustments to the comparable evidence which the Court said resulted in his valuation being more than double the average of the comparable rents and 60% higher than the highest of the nine most comparable transactions.
As a result, rent was determined at £3,500 per annum, which included an annual contribution to the site provider's professional costs of £500.
The Court also took into account factors relating to how the Estate was run, including the interference with other more profitable activities on the Estate, general inconvenience and greater than average management time. This consideration justified the increase over and above the 'typical' rural site value.
Overall though, whilst the decision on rent was over 3 times what the operator had proposed, it was almost 3 times less than the site provider had asked for, and gave greater rights to the operator.
Early Incentive Payments
Another key question for the Court to decide was how incentive payments should be treated.
Early Completion Incentive Payments ("ECIPs") are increasingly being used by operators as a tactic to 'sweeten the deal' and bring landowners to the table where negotiations have otherwise stalled.
Generally, operators are keen for ECIPs to remain secret, and often try and introduce confidentiality clauses so that ECIPs cannot be disclosed.
Here though, the Court decided that when determining the rent, ECIPs should be taken into account. The best way to do this, it said, was for an annual equivalent of the ECIP to be added to the valuation figure.
What does this decision mean for you?
The legislation is extremely complex and decisions coming from the Courts provide guidance on the various principles which have been in dispute since the Code was introduced on 28 December 2017.
From the Pippingford case, we’ve discussed the guidance given by the Court on rent, but there are also wider issues to consider, such as how any access rights are documented and whether indemnity clauses are required, allowing a party to recover its costs and losses from the other in certain specified circumstances. T
his is important so that landowners and farmers are not restricted in what they can do with their land in the future and so that costs can be recovered in the event of, for example, damage being caused.
Current and future site-specific circumstances and requirements, as well as terms previously agreed by the parties, should form part of the discussion as to terms at renewal.
These requirements will need to be taken into account when rent is being negotiated. Generally, an operator is likely to suggest terms which will provide them with the most flexibility, and there can often be a conflict between the proposed terms and a site provider's property rights.
Negotiations will therefore likely come down to balancing each party's competing interests and trying to reach an outcome which attempts to balance both parties' needs.
It has been widely reported that operators are referring to their statutory powers during negotiations as a way of increasing pressure on farmers and landowners to agree to terms that they otherwise would not consider.
Therefore, with rents typically reducing on renewal and operators requesting far more extensive property rights, it is more important than ever to take professional advice.
The reasonable cost of taking advice from a surveyor and solicitor should be paid by the Operator, although in reality this is often resisted by operators and becomes a negotiation point. Ultimately though, the Court has made clear that the idea that a site provider is left out of pocket is flawed.
Think about how any adjoining land is currently used (and any practical implications of those uses) so that this can be taken into account when terms are negotiated;
Consider how the site and/or any adjoining land fits within any wider business plan. If flexibility may be required because plans are yet to be decided or diversification may be on the horizon, it would be sensible to try and include a break clause (i.e. an option to terminate) in any agreement;
Always question the terms being offered by an operator and think about whether a better deal could be secured;
Think about taking professional advice at an early stage. Professional advisers can add value by, for example, giving strategic advice, dealing with negotiations and advising on how any proposed terms fit within recent Court decisions;
Do not be unduly pressured into agreeing anything which you are not comfortable with. Again, professional advice may be appropriate in these circumstances and it is likely that some, if not all of these reasonable costs could be recovered from the operator.
If any statutory notices are served on you by the operator (i.e. a notice which says it relates to a specific piece of law), professional advice should be obtained ASAP so that Court deadlines are not missed