Court finds long term solution to short term problem

Vodaphone v Hanover [2020] PLSCS 162

This is the first claim for the renewal of a Landlord and Tenant Act 1954 tenancy over a telecoms site the Court has considered since the introduction of the new Code.

The tenancy was granted for a term of 5 years under the 1954 Act. Following Cornerstone v Ashloch (2019), the operator had to apply under the 1954 Act to renew the tenancy, but any subsequent tenancy would be renewable under the new Code. In such circumstances it is often in operators' interest to seek a short term renewal lease in order to accelerate their right to lower rent leases under the new Code.

Term

In this case the operator sought a 3 year term with a rolling break clause exercisable on 6 months' notice. The land owner preferred a 10 year term with a tenants' break after 5 years, conditional on the operator vacating the site.

In deciding the appropriate term, the County Court found that, although the duration of the current tenancy could be a relevant consideration, there was no presumption in favour of repeating it and no onus on either party to demonstrate that the new term should differ from the previous term. Instead the Court should balance the protection to which the tenant is entitled, with the need to be fair to the landlord.

The Court was concerned that the operator might exercise its break immediately to enter a new agreement under the new Code. This would be unfair to the land owner, given the expense and disruption of the proceedings. Instead the Court found the term of the renewal lease should be for 10 years, with a break clause exercisable on 6 months' notice, expiring on the 5th, 6th, 7th, 8th & 9th anniversaries of the term.

Rent

As well as the term of the tenancy there was also disagreement between the land owner and operator over the rent payable under the new lease. The land owner sought rent of £8,000 pa but the operator considered £1,386 - £1,715 pa to be an appropriate rent.

The operator reached this figure by focusing on the value of the site to the land owner. It argued that the most valuable alternative use, to which the land owner could put the site, was as a car park and so based its proposed rent on the rental value of parking spaces in the area. The parties agreed that the "no network" assumption at paragraph 24 of the Code did not apply to a 1954 Act renewal. However, the operator argued that because the parties in any hypothetical transaction would be aware of the terms of the Code, they would take these (including the "no network" assumption) into account when negotiating the rent of a hypothetical tenancy.

The land owner valued the rent on the basis of Old Code agreement comparables, arguing that the evidence did not demonstrate a reduction in site rents since the introduction of the new Code.

The court found that on a strict Code approach the rent should be £2,250. However, in the present case the rent should be determined on the value of the site to the operator, because there was demand for the site from several code operators. Although in reality these operators would likely agree to share the site, the court found that because the 1954 Act imposed an assumption that the letting took place in the open market, it was necessary to assume that there was competitive bidding between operators. The court therefore ordered a rent of £5,750 to be payable.

Comment

This case is a helpful indication of how the courts will determine rent and other terms in subsisting agreements in light of the new Code's "no network" assumption.

Land owners should be encouraged that the Court has shown itself willing to apply traditional principles for setting lease terms, which prevent operators from taking a quick and easy route to cheaper code rights under the new Code. 

However, the judgment did not reject the suggestion that the "no network" assumption should play a role in 1954 Act renewals and in a case where there is no possibility of competition for a site the court may be persuaded to assess rent on the basis of the value of the site to the land owner.