A code fit for the digital age or fit for the bin?

Posted: 14/12/2012

The Law Commission’s consultation on the Electronic Communications Code (the Code) closed on 28 October 2012. Property owners, occupiers and their advisers should be aware of the proposals put forward; the rights of landowners and network operators could be altered. This article examines the issues raised by the consultation:

‘We now live in an age where the internet and mobile devices are considered essential both for business and pleasure. Indeed, there is a much quoted statistic that more people on the planet own a mobile phone than own a toothbrush! In 2010, the Department for Business, Innovation and Skills estimated that the electronic communications market in the United Kingdom was valued at about £35 billion. It is no surprise, therefore, that the Government is undertaking a wide-ranging review of the regulatory regime for the UK communications sector. As part of this review, the Law Commission has been tasked with reviewing the Code, which is generally regarded as confusing and unduly complicated.

By 2015, the Government wants a communications framework that is fit for the digital age. Broadband is to be available to everyone in the UK by that date (with 90 per cent of homes and businesses having access to superfast broadband) and ultrafast 4G is now being rolled out earlier than expected. If Government targets are to be achieved, existing infrastructure (cables, masts, servers, routers, exchanges, telephone cabinets etc often located on land not belonging to the network operators) will need to be upgraded and new infrastructure will be required. Presently, it is the Code that governs the rights of landowners and network operators in relation to such infrastructure.

What are the key elements of the existing Code?

Code rights

The Code is contained in Sch 2 to the Telecommunications Act 1984 (as amended by the Communications Act 2003). It gives certain network operators (those who have had the Code applied to them by Ofcom under s 106(3)(a) of the Communications Act 2003) rights as against landowners to:

• install, keep and use their electronic communication apparatus on that land; and
• enter that land to inspect such apparatus.

The above rights can be conferred in two ways:

• by written agreement between the network operator and the occupier of the land (that could be the freehold owner, a tenant or even a licensee); or
• the operator can use para 5 of the Code and obtain a court order dispensing with the need for agreement and conferring the proposed rights.

Where a court order is made, the court can make a financial award in favour of the landowner (made up of a fair and reasonable consideration (in effect a price for the rights) and compensation for any loss or damage caused as a result of the exercise of the rights by the operator Act).

Paragraph 20: lift and shift provisions

The Code enables anyone with an interest in land on which communications apparatus is installed (or adjacent land), to require the moving, removal or replacement of the apparatus where necessary in order for proposed improvements to be carried out to the property. ‘Improvements’ could include redevelopment or change of use. A prescribed procedure set out in para 20 must be adopted (involving the service of notices, counter-notices and an application to the court). The operator’s costs normally have to be paid but it is currently possible to contract out of para 20.

Paragraph 21: removal of apparatus

Any person who ‘is for the time being entitled to require the removal of any of the operator’s electronic communications apparatus from any land’ is not able to enforce that right without going through the procedure prescribed by para 21 of the Code . The procedure involves the service of a notice on the network operator asking them to remove the apparatus followed by an application to the court if the network operator does not wish to remove the apparatus and serves a counter-notice to that effect. It is not possible to contract out of this paragraph and in contrast to para 20, the person requiring removal under para 21 does not need to reimburse the operator for the costs of removing the apparatus.

What is the problem with the existing Code?

The Code, now nearly 30 years old, has been little used in practice. Lewison J in Bridgewater Canal Company v Geo Networks Ltd [2010] EWHC 548 (Ch); [2010] 1 W.L.R. 2576 stated that the Code was ‘one of the least coherent and thought-through pieces of legislation on the statute book’. Should it be scrapped, leaving landowners and operators to negotiate their own commercial arrangements? The Law Commission concludes that dispensing with the Code is unrealistic. It says that ‘without any legal means to compel landowners (at least as a last resort) to grant access to their land, there will be landowners who either refuse to grant access to their land or, more likely, hold out for payment at a ransom level’.

What proposals are of interest to landowners?

Equipment upgrades

The Law Commission asks whether network operators should benefit from ancillary rights to upgrade their apparatus. Presently, Code rights conferred by agreement must be exercised in accordance with the terms of that agreement. It is common practice for such agreements to restrict the network operator’s ability to alter their apparatus. Such restrictions are often included in agreements for valid reasons including:

• to preserve the aesthetic look of the property;
• to ensure the apparatus does not become too obtrusive; and
• to prevent overloading of the roof, mast or structure.

More controversially, landowners use such restrictions as an opportunity to obtain additional income from the network operator. The RICS points out in its response to the consultation (click here) that Code operators believe that ‘there should be a general presumption in favour of upgrades with adequate protection afforded to site providers in connection with loading and safe working on rooftop sites’. Operators believe that it is in the public interest that they are able to deliver service improvements without being held to ransom by landowners. Landowners may disagree; if the revised Code were to incorporate such a right, landowners would have less control over the equipment placed on their land and may find that existing income generating opportunities are curtailed.

Sharing apparatus and assigning rights

The Law Commission also questions whether operators should have a general right to share their apparatus with others and a general right to assign Code rights to other Code operators (so that contractual terms restricting such sharing/assignment would be void). Current practice is for agreements to contain some form of restriction on site sharing/assignment; landowners want control over who has rights over their land and can seek additional payment for the right to share/assign. Operators are, however, encouraged to site share by planning and Government policy and are hindered by such contractual restrictions. Again, if sharing/assignment restrictions are made void, landowners will lose a degree of control and their ability to charge for site sharing/assignment.

Paragraph 20: lift and shift

It is proposed that any revised Code retains the procedure for landowners to require the alteration, relocation or removal of equipment subject to the landowner paying the operator’s costs. The Law Commission believes that para 20 of the existing Code is ‘an important feature of the Code and balances the Code Operator’s right to install apparatus against the landowner’s wishes’. They further take the view that it should not be possible to contract out of this paragraph (reversing the current position). From a landowner perspective, it would be better if:

• the parties were free to contract out of para 20 and agree their own lift and shift provisions; and
• para.20 only applied where there is no contractual agreement between the parties, for example, where a reversioner who did not consent (and was not party) to the original contract needs to remove apparatus from its property.

 Paragraph 21: removal procedure

It is proposed that the parties be able to contract out of the security provisions contained in para 21 of the Code. Such a change would benefit landowners. Paragraph 21 of the Code is often the primary reason why landowners refuse to allow telecoms apparatus on their property. Allowing contracting out would provide more certainty; landowners would know where they stand when seeking to redevelop their properties.

Relationship with the 1954 Act

The Law Commission acknowledges that problems arise as a result of two security regimes applying at the same time (that is the regime under the Code and the security of tenure regime under Pt II of the Landlord and Tenant Act 1954). The two regimes have not been compatibly drafted; there are different notice requirements and the grounds on which the landowner can recover possession differ.

Furthermore, the dual regimes potentially create a vicious circle and make it much harder to obtain possession against a Code operator. In order to serve a notice under para 21 of the Code, a person must be ‘entitled’ to do so. It has been argued that a landlord of a 1954 Act protected lease is not so ‘entitled’ where the operator has a renewal right under the 1954 Act and that right has not yet been disposed of. In addition, the fact that a notice has not been served under para 21 of the Code may prevent the landlord from making out an intention to redevelop (as they may not be able to gain vacant possession of the site to enable such redevelopment to proceed). As a result, the landlord may never become ‘entitled’ under para 21 of the Code!

The Commission, therefore, proposes that where an operator has a lease of land for the installation and/or use of apparatus and the security provisions in the revised Code apply, Pt II of the 1954 Act should not also apply. If enacted, landowners will only need to deal with one security regime.

Relationship with land registration regime

The Law Commission points out that the Code (in particular para 2(7) ) makes the requirements and effect of the Land Registration Act 2002 unclear. Currently, para 2(7) of the Code is interpreted differently by different operators; some register their legal agreements whilst others do not. The Commission proposes that registrable telecoms leases and easements should remain registrable, but that the Code provisions prevail even if the agreement is not protected (ie there will be no sanctions for non-registration). This is not ideal; it is not always possible to identify the presence of electronic communications equipment by inspection (for example underground equipment will not be obvious). It is in the interests of all that the Land Register gives a complete and accurate record of matters affecting land. It is hoped that if registration at the Land Registry is not made compulsory, there will be other methods by which future landowners can easily identify the existence of Code rights.

Basis for calculating consideration/price for Code rights

The consultation points out that there is considerable controversy over the meaning of ‘consideration’ and how it is to be valued under the Code. In fact, the Law Commission has been told that ‘at present it is almost impossible for an operator or landowner to come to a view on what a court may decide constitutes a fair and reasonable consideration’.

It is proposed that consideration for Code rights should be assessed on the basis of their market value between a willing seller and willing buyer, such assessment being based on the principles set out in s 5 of the Land Compensation Act 1961. This would disregard the importance of a site to the national network and potentially reduce the amount of rent payable. These proposals favour operators and if implemented, landlords (unwilling to accept a reduced rent) may decide not to enter into (or renew existing) agreements with Code operators. Instead landowners may prefer to do business with non-Code operators; a higher rent could be agreed with such operators as they will not be bound by the new procedure for calculating consideration.

What’s next?

The consultation closed at the end of October 2012 and the Law Commission is now considering the responses. A report with recommendations to Government (but no draft Bill) is expected to be published in Spring 2013, with legislative changes being made in 2015 as part of a UK-wide communications review.

It is clear that the rights of landowners and operators need to be carefully balanced. However, given that the communications sector forms a significant part of the UK economy (and studies show that it positively contributes to economic growth) it is unlikely that the Government will take forward measures that weaken operators’ ability to deliver the improved communications network promised by the Government. Landowners hoping that the balance under a revised Code will be in their favour should not hold their breath.

Further information

To download the full consultation (all 136 pages), see the Law Commission website.

This article appeared in the Landlord and Tenant Review 2012 issue 16(6), published by Sweet and Maxwell. 

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