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Code complexity puts the brakes on breaks

Posted: 15/07/2019


Senior associate Laura West offers practical advice to landlords caught by subsisting agreements under the Electronic Communications Code.

Landlords include break clauses in leases for good reasons: they may have future development plans and require certainty that they can gain vacant possession at the appropriate time.

Historically, where the lease was contracted out of the Landlord and Tenant Act 1954, there was a relative degree of comfort. Now, things are more complicated – developers need to consider the impact of the new Electronic Communications Code, which has been in force since December 2017 (the Code).

A landlord might find that a telecoms operator has obtained security of tenure under the Code as a sub-tenant. Worse, his immediate tenant might be completely unwilling to take any steps, or incur any costs, in order to remove the operator prior to the termination date.

The possibility of the tenant leaving promptly and in accordance with the yielding up clause of the lease, but leaving an operator in situ, is now very real.

This article looks at how landlords may be caught by “subsisting agreements” made under the old Telecommunications Code and the scheduling of steps to be taken to achieve vacant possession in a timely fashion.

How might the situation arise?

Long-term agreements that pre-date the Code would have been significantly ahead of their time had they anticipated Code rights. Most do not. Landlords will either have been obliged to give consent, or may have been happy to do so where the underletting would have a significant effect on any upwards rent review.

However, on operating the break, a landlord may find himself saddled with an operator to which he needs to allocate both time and money to remove.

Is the landlord bound by the agreement?

Getting rid of an operator with Code rights can be both a lengthy and potentially expensive process, owing to the two-stage process of termination (Part 5 of the Code) and removal (Part 6).

However, there is a shortcut for the lucky few. A landlord who is not bound by the agreement may go straight to removal under Part 6 of the Code. He must also be the site provider as at the date the removal notice is given; that is, any mesne tenancies between his interest and the operator’s interest must have fallen away.

Where a landlord is not the “site provider” – because his mesne tenant is still in occupation – he is unable to do anything at all to remove the operator. At best, he can try to persuade the mesne tenant to begin the process prior to lease expiry. As the site provider, the mesne tenant holds all the cards, since the right to begin termination procedures is conferred exclusively on him (paragraph 30 of the new Code). As such, a landlord may well find himself in the invidious position of simply having to wait until the mesne tenant’s lease has come to an end before he can take any steps to remove the operator.

In any event, even if the mesne tenant agrees to co‑operate, arrangements need to be made sufficiently far enough in advance of lease expiry to give time for termination and removal proceedings to be completed around the time that the mesne tenant is due to vacate; this is unlikely to sit well with the timings around the service of the break notice itself.

Where a landowner agrees in writing to be bound by a Code agreement, any successor in title to that landowner, or person deriving title from the interest, will be bound by the Code agreement. As such, the landlord, and his successors in title, will be required to terminate the agreement before he may insist on the removal of the equipment.

A way around?

The most pertinent question for any landlord will be whether he is bound by the agreement. The new Code incorporates the test contained in the old Code – a person who is a freehold owner of land or is a lessee of any land shall not be bound by a right conferred in accordance with the Code unless:

■ he conferred the right himself; or

■ he has agreed in writing to be bound by the right.

Landlords are obliged to consider and respond to requests for consent within a reasonable time (section 1(3) of the Landlord and Tenant Act 1988). However, a landlord who has failed to respond might be in a better position than a landlord who expeditiously dealt with a request for consent to an underletting to an operator.

The conscientious landlord has probably signed a licence agreement permitting the underletting and, as such, might be bound by the agreement. Whether the landlord is bound will turn on the wording of the licence, depending on how exactly the arrangement is expressed as against rights reserved to the landlord.

It is unsatisfactory that a landlord who has ignored his statutory duty to give consent may find himself in a better position than one who has given consent but failed to express in clear words that he is not bound by the agreement.

What are the consequences if the landlord is bound?

First, the agreement must be terminated by the site provider (Part 5) with notice pursuant to paragraph 31 of the Code. Where the fixed term has expired, a three-month notice is necessary; where there are 18 months or more left on the term, the notice period is 18 months; and in all other cases the period of notice is equal to the unexpired term.

The notice must cite the ground. There are four grounds that can be relied on. The most likely ground is that contained in paragraph 31(4)(c) of the Code, “that the site provider intends to redevelop all or part of the land to which the code agreement relates, or neighbouring land, and could not reasonably do so unless the code agreement comes to an end”. Note that this would exclude development by an onward purchaser.

Where the operator fails to serve a counter-notice, or where the landlord is successful in obtaining an order from the court terminating the agreement, the landowner must then serve a second notice putting the operator on notice that he must now remove the equipment (Part 6). After a reasonable period has elapsed, if the equipment is still in situ the landlord may then issue a second set of proceedings and obtain a date from the court as to when the equipment must be removed by.

The box sets out the likely period of time from service of notice to vacant possession. In short, a landlord bound by an agreement should allow at least 21 months to obtain vacant possession after his mesne tenant vacates, and would be well advised to leave longer.

Where a landlord is bound by an agreement and wants to redevelop, but retain his ownership, a final option might be to agree a temporary removal with the operator – for instance, suggesting that the equipment be temporarily relocated to scaffolding.

Even where the costs of temporary removal and return must be met by the landlord, it is still likely to pose a considerable saving compared with proceedings where it permits the intended development.

However, the Code does not provide a mechanism for such a temporary arrangement, meaning that the landlord would have to negotiate and agree the same with the operator and has no recourse to the tribunal should an agreement not be reached.

Can landlords protect themselves from Code agreements?

Savvy landlords will now incorporate into new commercial leases an absolute prohibition on tenants installing electronic communications apparatus on premises, save where the equipment solely relates to the lawful occupier’s business at the premises. The Model Commercial Lease contains a clause which provides for this (and only then on the landlord giving consent in any event).

However, the likelihood is that there are a good number of arrangements in place where this level of foresight wasn’t exercised. As such, where an operator is on a building in circumstances where a lease break is likely to be relied on, developers would be well advised to get early advice.

From notice to vacant possession

The period from service of the notice to vacant possession might be roughly as follows:

■ between three and 18 months’ notice;

■ between six and 12 months (possibly longer) for termination proceedings to be determined by the tribunal;

■ service of termination notice followed by a 28-day period for arrangements to be made, or, in the event that no agreement can be reached;

■ between six and 12 months (possibly shorter) for removal proceedings to be determined by the tribunal;

■ TOTAL: minimum 16 months, maximum 43 months (ie three years and seven months!)

 

This article was published in Estates Gazette in July 2019.


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