Telecoms: Ashloch appeal confirms lease renewal status
The Court of Appeal has just handed down judgment in the telecoms case of Cornerstone Telecommunications Infrastructure (CTIL) v Ashloch Limited (1) & AP Wireless II (UK) Limited . Over the last year or so we have seen a flurry of telecoms cases, many of which have been considering a fundamental issue; namely the cross-over in operation between the new Electronic Telecommunications Code ("Code") and the Landlord & Tenant Act 1954 ("1954 Act"). The question of whether a particular arrangement is governed by the Code or the 1954 Act can impact on several critical issues, including the level of rent which can be demanded and the type of renewal procedure.
In his Judgement Lord Justice Lewison provided useful guidance of the relevant issues regarding the renewal procedure for 1954 Act leases, which are subsisting agreements under the Code. We consider this guidance and its consequences.
Summary of findings
The first issue under appeal was whether the lessor, A P Wireless (APW)) was able to confer Code rights under Part 4 in circumstances in which they were not in occupation of the site.
The conclusion was that there should be no departure from the proposition established in Cornerstone Telecommunications Infrastructure Ltd v Compton Beauchamp Estates Ltd  EWCA Civ 1755 ("Compton Beauchamp") which found that only the occupier can confer Code rights, except for certain limited situations set out elsewhere within the Code.
The second issue was who is the occupier? This question was also considered in Compton Beauchamp and as this decision is being appealed, it will now be for the Supreme Court to decide the identity of the occupier and, if necessary, overturn the Court of Appeal's decision in Compton Beauchamp.
Finally, the Court of Appeal approved the reasoning of the Upper Tribunal in rejecting CTIL's arguments that it could use Part 4 of the Code to renew the subsisting agreement, rather than the 1954 Act procedure. This means that the rent for the renewed lease will be calculated in accordance with the 1954 Act rather than the Code.
This provides significant advantages to landowners, who will be able to rely on the open market rent provisions of the 1954 Act, as compared to the "no network" assumptions of the Code, which have a marked downward effect on rent.
The conferral of Code rights
The first issue considered whether Code rights could be imposed on a landowner in favour of an operator, occupying a site as a statutory periodic tenant under section 24 of the 1954 Act. We considered the Upper Tribunal's ("UT") decision on this point in our article "Electronic Communications Code: Interaction between the Code and the LTA 1954".
The UT had said that Part 4 was about imposing agreement on landowners, whereas subsisting agreements were equivalent to Code agreements already granted in accordance with Part 2. Therefore, CTIL argued, Part 4 did not need to be excluded, as it could never apply. Furthermore, Part 5 could not be used to obtain a new lease and so the 1954 Act procedure had to be followed.
That meant a higher 1954 Act rent would apply and ongoing uncertainty for cases in which the operator was the occupier on lease renewal sites; this led to this appeal by CTIL.
The law & facts
Paragraph 9 of the Code confirms that "a code right in respect of land may only be conferred on an operator by agreement between the occupier of the land and the operator."
This case concerned a rooftop site and APW argued that CTIL could not use Part 4 of the Code as it was already in occupation as the operator and could not contract with itself. On this issue the Compton Beauchamp appeal had already established that rights could only be conferred by the occupier. However we currently await the outcome of an appeal to the Supreme Court on that case, which looks likely to focus on who the occupier is, rather than whether they are the only party, which can confer Code rights.
On this appeal, Lord Justice Lewison, in his leading judgment, confirmed that the Government's policy on the Code was that it should not be retrospective. Subsisting agreements should be allowed to run their course as they may have been "carefully negotiated agreements made under the existing code." The interpretation argued for by CTIL would undermine that policy, as they were arguing that the Compton Beauchamp decision meant that an operator could not seek additional Code rights during the term of an agreement.
Court of Appeal decision
The Court of Appeal rejected this argument finding that such a right would amount to a unilateral weapon, wielded only by the operator. It would be contrary to Part 5 of the Code, which allows a request for additional Code rights, but only after the site provider could end the agreement in any event. If the operator could use Part 4 to circumvent this provision, what would be the point of the Part 5 limitation in the first place?
A further argument advanced by CTIL was that paragraph 40 (8) of the Code says that an operator in situ may not have an order made against it requiring the removal of apparatus at the end of the agreement, if there is a pending application under paragraph 20, which deals with how and when a Code rights agreement can be imposed.
The Court of Appeal said that this did not expand paragraph 20 and that the original agreement may well have been terminated, because of serious operator default. It would be very strange if the operator could simply start all over again by applying for a new agreement under paragraph 20.
The conclusion was that there should be no departure from the proposition established in Compton Beauchamp, which is that only the occupier can confer Code rights except for certain limited situations set out elsewhere within the Code.
Who is the occupier?
The second issue was who is the occupier? This question was also considered in Compton Beauchamp and it was not accepted in that case, that the operator can never be the occupier. Occupation primarily means physical presence on the land and control thereof. However, an operator would have management and control over the land, if it had been granted a lease, even if the land could be described as unoccupied in a physical sense.
So, even if CTIL was not the occupier in the primary sense of the word, it did not mean that APW was, particularly given their lack of physical presence and the fact that CTIL enjoyed a lease of the rooftop. It will now be for the Supreme Court to decide the identity of the occupier and, if necessary, overturn the Court of Appeal's decision in Compton Beauchamp.
The transitional provisions of the Code aim to provide continuity and clarify the circumstances in which the new law is to apply. The basic principle is that all subsisting agreements under the old code take effect as new Code agreements, but certain qualifications apply where the 1954 Act applies.
A telecoms lease excluded from security of tenure will be renewed in accordance with the Code, whereas the 1954 Act will apply to a renewal of a similar lease, whose primary purpose was not to grant Code rights.
Where the parties have not contracted out of security of tenure, then a telecoms lease must be renewed in accordance with the 1954 Act, but will thereafter be regarded as a Code agreement.
Court of Appeal view
The Court of Appeal reviewed the UT's reasons for rejecting CTIL's arguments, that it could use Part 4 of the Code to renew the subsisting agreement, rather than the 1954 Act procedure. The reasoning of the UT was approved and Lewison LJ added that a landlord under the 1954 Act regime could oppose the grant of a new lease, where it intended to occupy the site for the purposes of its own business. No such opportunity existed within the Code and to deprive a landlord of such a right in the context of an ongoing lease would be a significant and unjustified erosion of their legal rights.
The point was made that CTIL's arguments were principally a list of complaints about the way the transitional provisions worked, rather than defects in the Code itself. The issues raised in the appeal only arise in the context of subsisting agreements, as any renewed lease will be a Code agreement, which will then, itself, have to be renewed in accordance with Part 5 of the Code.
Davis LJ, in agreeing with the leading judgment, made some interesting comments as to how CTIL's attempts to reopen the arguments, aired in Compton Beauchamp, could not be allowed. It was also observed that CTIL was a commercial outfit, albeit one engaged in providing an efficient telecommunications service. There was a tension between that obvious public benefit and the need to recognise the private property rights of landowners. In attempting to find the right balance in this case the Judge described the Code as being "fiendishly complex"; there are few involved in this area of work who would disagree.