LC-2023-000815 - [2024] UKUT 263 (LC)

Paragraph 7 of the Grounds of Appeal contains what may be described as the high level grounds of challenge to the Judge’s conclusion that the Agreements took effect as licences rather than leases. In my view these grounds of challenge do not have merit. I say this for the following reasons.

APW says, first, that the Judge concentrated on the form of the clauses in the Agreement and the plans annexed to them, rather than on their substance and effect.

It seems to me that this was not what the Judge did in the Decision. The Judge started, at Paragraphs 11-19, by directing himself as to the law. The Judge referred to Street v Mountford and Global 100, and also to EE Ltd v Edelwind [2020] UKUT 0272 (LC), a decision of Judge Cooke, in the Tribunal, on whether a code agreement in relation to the equipment on the roof of a building took effect as a lease or a licence, and AG Securities v Vaughan [1990] 1 AC 417. As I understand APW’s arguments, it is not suggested that the Judge misdirected himself as to the law. Indeed, the extracts from these authorities which the Judge cited make it quite clear that the Judge had well in mind the need to look at the substance and effect of the provisions of the Agreements, and to ask himself the question whether the Agreements had, by their substance and effect, taken effect as leases rather than licences.

After referring to the evidence of Mr Powell and dealing with the Term Issue, the Judge began the process of working through the provisions of each of the Agreements and determining whether the provisions of each Agreement pointed to a lease or licence. The Judge then came to his conclusions at Paragraphs 75-81, ultimately concluding, at Paragraph 81, that neither of the Agreements had granted exclusive possession. In particular, in Paragraph 80, the Judge stood back and reviewed each of the Agreements as a whole. The outcome of standing back and carrying out this review was the Judge’s final conclusion in Paragraph 81.

In going through the exercise described in my previous paragraph it seems to me that the Judge was following the process described by Lewison LJ in Global 100, at [36]. I have already quoted this paragraph from the judgment of Lewison LJ, but I repeat it for ease of reference:

“36 This approach is not peculiar to the question whether an agreement creates a licence or a tenancy. In Secret Hotels2 Ltd (formerly Med Hotels Ltd) v Revenue and Customs Comrs [2014] 2 All ER 685, para 32 the Supreme Court approved an observation of mine in an earlier case:

“The court is often called upon to decide whether a written contract falls within a particular legal description. In so doing the court will identify the rights and obligations of the parties as a matter of construction of the written agreement; but it will then go on to consider whether those obligations fall within the relevant legal description. Thus the question may be whether those rights and obligations are properly characterised as a licence or tenancy (as in Street v Mountford [1985] AC 809); or as a fixed or floating charge (as in Agnew v Comr of Inland Revenue [2001] 2 AC 710), or as a consumer hire agreement (as in TRM Copy Centres (UK) Ltd v Lanwall Services Ltd [2009] 1 WLR 1375). In all these cases the starting point is to identify the legal rights and obligations of the parties as a matter of contract before going on to classify them.””

It seems to me that the Judge followed the course identified in the final sentence of the quotation from the Secret Hotels2 Ltd case. The Judge identified and considered the rights and obligations in each of the Agreements, as a matter of construction. The Judge then went on to consider the overall substance and effect of those provisions, in terms of whether they amounted to a grant of exclusive possession. I do not see how the Judge’s overall approach can be faulted.

It seems to me that there are two central flaws in this part of APW’s challenge to the Decision.

First, and as I have said, the grounds of appeal accuse the Judge of concentrating on the form of the clauses in the Agreement and the plans thereto, rather than on the substance and effect of the Agreements and their plans. I cannot see any basis for this accusation. By way of example, APW’s counsel attempt to criticise the Judge, in their skeleton argument, for his treatment of clause B in each of the Agreements, which identifies what was being granted by the respective Agreements. At Paragraphs 26 and 27, the Judge made this point on clause B in each of the Agreements:

“26.

There are no words of demise in either agreement. The demise is a central part of any lease as is the express grant of exclusive possession. Both are entirely absent in both the 1997 and 2002 Agreements. Instead, clause B in both agreements grant a bundle of “rights”:

1997 Agreement

B(i) install, operate, maintain, repair and renew PCN Equipment

(ii)

connect electricity cable to the PCN Equipment

(iii)

run a communications cable from the PCN Equipment

(iv)

vehicular access to and from the Site

2002 Agreement

B(i) install, operate, maintain, repair, renew etc. Telecommunications Equipment

(ii)

connect electricity supply to the Telecommunications Equipment

(iii)

bring onto the Premises a backup generator

(iv)

run a communications link from the Telecommunications Equipment

(iv)

vehicular access to and from the Site on 24 hours notice

27.

The absence of a demise of land points strongly to both agreements being licences. Of course, the labels used or in the case of “demise” not used are not determinative. However, the operative part of both agreements is the grant of a bundle of rights in connection with PCN/Telecommunications Equipment. The 1997 and 2002 Agreements contain “Orange’s Undertakings” at paragraph 5 and “Owner’s Undertakings” at paragraph 6. Those undertakings focus on the equipment and the rights granted rather than the site. This is a further very strong indication of a licence and not a lease.”

This is one of the parts of the Decision which is relied upon by APW in order to accuse the Judge of concentrating on form rather than substance. The accusation is however without substance. It seems to me that it was perfectly legitimate for the Judge to point out that neither Agreement contains formal words of demise, of the kind which one would expect to see in a lease. In each case what is granted is expressed in terms of a bundle of rights. In the consideration of the overall substance and effect of each Agreement, the terms of clause B in each Agreement may be said to point more in the direction of a licence than a lease. The extent to which this is so depends upon analysis of all the relevant provisions in each Agreement. The Judge considered clause B, in each Agreement, to be a very strong indication of a licence and not a lease. Whether the Judge was right to give this weight to the provisions of the Agreements referred to in Paragraphs 26 and 27 is a question which falls within paragraph 8 of the Grounds of Appeal. So far as paragraph 7 of the Grounds of Appeal is concerned, I cannot see that the Judge took the wrong approach in Paragraphs 26 and 27, or in any other part of the Decision.

I can see that the position would be different if the Judge had simply concluded, without more, that the absence of formal words of demise in each Agreement had the consequence that each Agreement was a licence rather than a lease. On this hypothesis the Judge could have been accused of looking at the form of each Agreement, rather than its substance and effect. It is however clear from the Decision that the Judge did not do this. Indeed, in Paragraph 78 the Judge stated in terms that he had disregarded any labels attached by the parties to the Agreements.

Second, the arguments of APW in support of this ground of appeal seem to me to confuse the grounds of appeal in paragraphs 7 and 8 of the Grounds of Appeal. In their skeleton argument APW’s counsel sought to focus on the Judge’s treatment of various provisions in each Agreement and on the Judge’s treatment of the plans as demonstrating that the Judge had concentrated on form over substance. In each such case however the reality is that the complaint is not that the Judge preferred form over substance. The actual complaint is that the Judge went wrong in his construction and understanding of the relevant provision of each Agreement, including the plans. These complaints belong within paragraph 8 of the Grounds of Appeal, to which I shall come. I cannot see any grounds for a complaint that the Judge went wrong in his overall approach, in terms of preferring form over substance.

What I have said above applies equally to APW’s second complaint in this context, which is that the Judge reached his conclusion by balancing out the number of clauses which were, in his view, indicative of the Agreements being leases against those which were indicative of the Agreements being licences. It is said that the Judge should have concentrated on the substance and effect of each clause. I find the terms of this ground of appeal somewhat baffling. For the reasons which I have set out, I do not think that the Judge went wrong in his overall approach. As a matter of overall approach the Judge did not prefer form over substance. Beyond this, I cannot see how the Judge went wrong, in Paragraph 80, in standing back and reaching a final conclusion on the basis of his review of the provisions of each Agreement. “Balancing out” is not an accurate description of the final reasoning of the Judge in Paragraphs 75-80 but, so far as this refers to the review conducted by the Judge in this part of the Decision, in particular at Paragraph 80, it seems to me that the Judge was right to adopt the approach and methodology which he used. Whether the Judge was correct in his construction of the provisions of the Agreements, and whether the Judge was correct to place the emphases where he did are, as I have already explained, matters which belong within paragraph 8 of the Grounds of Appeal.

APW’s third and final complaint in paragraph 7 of the Grounds of Appeal is that the Judge went wrong in the distinction which he drew in Paragraph 77. For ease of reference, I repeat what the Judge said in Paragraph 77:

“77.

In the case of the 1997 and 2002 Agreements I am not concerned with residential accommodation where there is, for the very good reason of providing protection for a person occupying property as their home, often a bright line between lease and licence. In the context of this reference, I am concerned with “a legal relationship other than a tenancy”. That does not mean that that other legal relationship must be a purely personal contractual right. The 1997 and 2002 Agreements are long term arrangements for the installation and operation of electronic communications apparatus. Bearing in mind the rapid speed of development of electronic communications it is entirely understandable that the parties intended that those long term agreements should be assignable and bind successors in title. Indeed, that is exactly what has happened to both agreements. The provisions allowing for sharing and upgrading are standard terms in telecommunications agreements. They are vital to enable the parties to meet the challenges of a rapidly developing technology. To seek to use the lease/licence distinction, to say that an agreement is either one or the other is simply inappropriate in the modern world of electronic communications. Lord Templeman speaking in 1985 could not possibly have anticipated the technological changes that have taken place since that time. He did however leave the door open to legal relationships other than a tenancy. As the Upper Tribunal observed in Islington there is a diverse spectrum of telecommunications rights which can be granted. Sometimes a lease is the most convenient way forward equally there are situations where there is no grant of exclusive possession.”

In Street v Mountford Lord Templeman gave examples of legal relationships to which the grant of exclusive possession might be referable and which would or might negate the grant of an estate or interest in the relevant land. The examples given by Lord Templeman were occupancy under a contract for the sale of land, occupancy pursuant to a contract of employment or occupancy referable to the holding of an office. These examples were not intended to be exhaustive. As Lloyd J (as he then was, but sitting in the Court of Appeal) explained in Leadenhall Residential 2 Limited v Stirling [2001] EWCA Civ 1011 [2002] 1 WLR 499, at [23]:

“23

Thus, there is no defined list of special cases in which a person who is let into, or allowed to remain in, another's property, with exclusive possession and paying for his occupation may be a licensee rather than a tenant. There are certain recognised categories, such as service occupiers and lodgers, but otherwise it depends on finding either that there is no intention to contract at all or that the circumstances are such as to justify attributing the possession to something quite distinct from a tenancy. The question is whether either of those findings is correct in the present circumstances.”

It is clear that a code agreement does not constitute an example of a legal relationship of this kind. Under both the Old Code and the Code a code agreement may take effect as a lease or a licence, by reference to the principles of common law which govern the distinction between a lease and a licence. This is clear from the analysis of Nugee LJ in the Potting Shed case, at [78] – [80]. I have already set out [78], but I repeat this paragraph, with [79] and [80], for ease of reference:

“78.

Mr Read said that the Code created “a sui generis form of statutory rights” (Compton Beauchamp at [117] per Lady Rose), and was “designed to be, so far as possible, a self-contained Code” (Cornerstone Telecommunications Infrastructure Ltd v University of London [2019] EWCA 2075 at [34] per Sir Terence Etherton MR, Lewison and Arnold LJJ). It was intended to be a unified set of rules that covered all situations from a one-off licence in relation to tree lopping to a long-term full-blown lease. That I accept. The Code has to be applied both to contractual arrangements such as licences or wayleaves and to the grants of property rights such as leases. But I do not accept that this means that one jettisons the ordinary law of landlord and tenant, or, as Lewison LJ put it in argument, that the Code exists in a legal vacuum.

79.

On the contrary, the Law Commission in their Report very much took the view that leases that confer code rights should, as they put it, “look after themselves” and that the general law should apply (§2.123). Thus they said that the primary purpose of the old code provisions which are the equivalent of paragraph 10 in the Code “is to ensure that the sort of priority rules that work automatically (subject to registration) for leases will also apply to personal rights” (§2.87); and again that where code rights are contained in a lease “we take the view that the lease itself must govern priority” (§2.107).

80.

It is true that the Government did not entirely accept the Law Commission’s recommendations, but the point on which they differed was whether any special provision should be made in respect of registration of code rights when they were contained in leases. The Law Commission had recommended that the Code make no special provision in this respect, with the result that leases conferring code rights, but not mere contractual arrangements, would need to be registered at HM Land Registry. The Government however disagreed, considering that code rights should be binding on successors without any requirement to register: see the Government’s consultation response, A New Electronic Communications Code (May 2016), at [40]-[47]. The Government’s view was duly given effect to in paragraph 14 of the Code. Subject to that point, however, there is no suggestion in the Government response that they disagreed with the Law Commission’s recommendation that leases should look after themselves in accordance with the general law.”

Returning to Paragraph 77, APW’s case is that the Judge wrongly classified the Agreements as falling into a category of agreement, namely code agreements, which qualified as a legal relationship other than a lease. In other words, the complaint is that the Judge wrongly treated code agreements as being examples of legal relationships which do not qualify as leases, even where exclusive possession is granted by the relevant code agreement.

If this is what the Judge was saying in Paragraph 77, then I would agree with APW that the Judge was wrong to draw this distinction. As I have explained, code agreements may be leases or licences or, for that matter, legal arrangements such as wayleaves. Code agreements do not belong in a special category of their own, in terms of identifying what rights of use and/or occupation of land they may grant. The rights are to be identified by the application of the same principles which apply to the classification of any other agreements relating to land.

I do not think however that the Judge did go this far in Paragraph 77. I say this for two reasons.

First, in the Paragraphs which follow Paragraph 77, which contain the core of the Judge’s reasoning on whether the Agreements took effect as leases or licences, the Judge was clearly applying the legal principles which derive from the authorities which the Judge cited in Paragraphs 11-19, and by reference to which the Judge directed himself as to the law. In other words, if the Judge did go wrong in Paragraph 77, it does not seem to me that the Judge perpetuated this error into his final reasoning, in Paragraphs 78-81.

Second, and on a careful reading of Paragraph 77 itself, I do not think that the Judge was saying that code agreements fall into a category of legal relationship of the type referred to by Lord Templeman. This seems to me to be clear, at least, from the language of the last two sentences of Paragraph 77. Rather, it seems to me that what the Judge was saying in Paragraph 77 was that the Agreements were long term agreements for the installation and operation of electronic communications apparatus, in an area of rapidly developing technology. As such, so the Judge considered, provisions which might otherwise be thought to point to the Agreements being leases, such as the provisions for the Agreements to be assignable and to bind successors in title, did not compel the conclusion, as they might do in other cases, that the Agreements were leases rather than licences. Putting the matter more simply it seems to me that the Judge was, in Paragraph 77, stressing the context of the Agreements as long term arrangements for the installation and operation of electronic communications.

The Judge clearly saw this context as important to his conclusion that the Agreements took effect as licences rather than leases. Whether the Judge was right in this reasoning seems to me to belong in paragraph 8 of the Grounds of Appeal. So far as paragraph 7 of the Grounds of Appeal is concerned, and on a careful reading of Paragraph 77, I do not think that the Judge did commit the error of treating the Agreements as falling into a category of legal relationships, of the kind identified by Lord Templeman in Street v Mountford; that is to say legal relationships which are not leases even though they involve the grant of exclusive possession.

In summary, and drawing together all of the above analysis, I do not think that the Judge did go wrong in any of the ways asserted in paragraph 7 of the Grounds of Appeal. I therefore conclude that the Appeal fails, so far as it is based upon paragraph 7 of the Grounds of Appeal.

This leaves the arguments in paragraphs 8-10 of the Grounds of Appeal, to which I now turn.