[2024] UKUT 216 (LC)

Given the high rate of inflation over the last three years the experts were right to acknowledge the importance of keeping the levels of consideration paid for sites, in all situations, abreast of it. The leases that we see generally provide for rents to be reviewed in line with RPI, but we have heard from Mr Williams that the guideline figures set out in Affinity are still adopted by operators in their negotiations, so we assume that we need to spell out here the relevance of inflation to those operating in the market.

Mr Radley-Gardner KC suggested that the original Dale Park figure adjusted for inflation to £1,000 per annum was now a respectable valuation position for consideration on unremarkable green field sites, consistent with the base rent evidenced by the Station Road letting. But a figure of £1,000 per annum sits well below the bottom of the range of Mr Williams’ adjusted tonal evidence.

We are open to Mr Watkin KC’s invitation to revisit the rent of £750 for an unexceptional rural site first referred to in Dale Park and determined in Stephenson if an analysis of the evidence justifies it.

Starting with the Network Rail transactions relied on by Mr Williams, given the very short periods for which the rents were being paid, we do not consider these, even when adjusted, to be of assistance in assessing a tonal rent for a site to be let for a period of 10 years. For similar reasons, we do not find the evidence of a former mast compound letting at Berwick Lodge Farm helpful because, with rent paid monthly and a three month break for both parties, it has the appearance of a short term agreement.

We have also considered Mr William’s critique of the way in which evidence of lease renewals was discounted in Dale Park and his alternative analysis in which he rentalised the transition payments which the Tribunal ignored. We do not accept that critique, because it is inconsistent with the no-network assumption. Additionally, as he acknowledged, the Tribunal did not derive its figure in Dale Park from the renewal evidence and its reference to On Tower transactions was as a sense check.

This is not the first occasion on which the Tribunal has seen the non-telecommunications transactions on which Mr Williams mainly relied; in particular, we have been shown the CAAV’s schedule of open market agreements for small sites before. They were relied on in Cornerstone Telecommunications Infrastructure Ltd v Compton Beauchamp Estates Limited [2019] UKUT 107 (LC), but that claim failed (at this level) on jurisdictional grounds and no valuation was required. They did not reappear in Dale Park, and in Stephenson although reliance was placed on small rural lettings, and their relevance was noted, the evidence was limited and lacking in detail. This is therefore the first time that transactions such as these have been analysed in any detail or with a view, if possible, to establishing a tonal value for small rural sites in non-telecommunications use which may then be used to arrive at a no-network value.

The Tribunal has previously expressed interest in considering evidence of this type. In Compton Beauchamp at [115], we said that:

It was not suggested on behalf of APW that the Site was realistically of interest to any other type of user, and the alternative use value was agreed to be minimal. Of course, the fact that the Site may have no alternative use value, and only a nominal value for its former agricultural use (because of its small size), does not mean that in the arm’s length transaction which paragraph 24 requires us to assume, the willing landlord, acting prudently and with full knowledge, would be prepared to let the Site for a nominal rent. In Stephenson, at [69], the Tribunal agreed with the site provider’s valuer, Mr Peat, that even where planning permission for an alternative use was not available, “a site provider would look at examples of different uses to gauge what might realistically be charged for a one-off letting of a small parcel of land” although it added that it did “not think great weight would be given to it”. Additionally, and quite irrespective of planning or other restrictions, the negotiation must be taken to be conducted on the basis that the rights which are granted to the willing tenant will be exercised, and that they will have consequences for the landlord. As the Tribunal explained in London & Quadrant at [97] and [145] the no-network assumption is concerned with the purpose for which the rights are to be exercised, and not with the nature of the rights themselves, and the burdens, or adverse consequences, which will fall on the hypothetical landlord as a result of the assumed letting must be taken to be the same as those which will be experienced in reality by the site provider.

The adverse consequences of letting a small parcel of land for a modest return will often be sufficient to dissuade a landowner from letting at all. As the CAAV explained, in its letter of 5 October 2018 to DDCMS:

Each of the lettings of which we have received evidence was of course entered into for a specific purpose. In every case the land was wanted in connection with railway works, meteorology, noise monitoring or whatever, and the rent which the tenant was prepared to offer will have been influenced by the value of the proposed use to it. When determining the rent under the new lease the no-network assumption requires that the real purpose of the transaction must be ignored; thus, rights which are to be conferred on the tenant must be taken not to relate to the provision or use of an electronic communications network. In making the no-network assumption care must be taken not to fill the gap which has been left in the assumed purpose of the hypothetical transaction by assuming an alternative use which has no basis in reality. There is no justification for having regard to the economic value capable of being created by some alternative use of the Site unless that use is one for which the Site could in fact be used.

The challenge posed by the evidence of small sites let for non-telecommunications purposes (where it is not suggested that the site to be valued is suitable for any of those uses) is therefore to adjust the agreed rents to remove so much as is attributable to the financial benefit accruing to the tenant from the intended use of the land. If that can be done, then what is left, because it is based on real transactions, is likely to provide a better measure for a paragraph 24 valuation than a figure built up solely by attributing values to benefits and burdens in the abstract. Of course, that is necessarily a theoretical exercise since, in reality, someone with no reason for entering into a transaction would not do so. It therefore depends on valuation judgment. But the three stage Hanover approach is no less abstract or theoretical and depends largely on the valuer’s judgment in assigning a value to factors which cannot be observed or measured in isolation from a transaction with a specific purpose.

It is agreed that the Site has no alternative valuable use, so if, as Mr Williams acknowledged, the transactional evidence reflects not only the need to compensate the landlord for loss of the land and the adverse consequences of the letting but also the value to the tenant of the activity which it intends to carry out on that land, some adjustment of the transactional rents is required. But where the figures involved are modest, and the same activity could be carried on in a number of different locations and does not generate an income stream related to the site itself, it is credible, as Mr Watkin KC argued, that at least at the lower end the rents agreed for the non-telecommunications transactions are getting close to the level below which no letting would take place. Mr Williams attempted to use his experience and judgment to make adjustments of up to 50% for “special value” within the CAAV transaction evidence. He also adjusted the Station Road evidence down from £1,500 to £1,000 in order to exclude the special value to the airport. This exercise provides material, rooted in real transactions, but adjusted to discount the value to the tenant of the particular activity being conducted from the land, which we are satisfied is a useful corrective to the Tribunal’s figure of £750 in Stephenson and Dale Park.

The CAAV transactions, after adjustment by Mr Williams for special value, size and inflation, ranged from £1,674 to £3,348 per annum. The lowest figure was derived from £1,250 per annum agreed in 2018 for a small noise monitoring compound at East Midlands Airport. The 2023 letting of the small Station Road site for noise monitoring at the same airport is a useful piece of recent evidence because the lease terms are available to us and are similar to those agreed or determined for the new lease of the Site.

We are satisfied that, after Mr Williams’ subjective but significant adjustments for special value, applied to modest starting figures, nothing of what is left is attributable to any sharing of the economic value created by the demand for the services that the tenant provides in each case. But we are not satisfied that his upward adjustment of the rents for very small sites is justified when it was common ground that there is no direct correlation between size and rent. However, Mr Williams’ view that the burdens likely to arise under the new lease at the Site will exceed those arising on a 6 sq m noise monitoring site, and even those arising on the 18 sq m site in Stephenson,is a reasonable one. The greater frequency and intensity of use of the Site is partly a reflection of its size, when compared to the passive use of a small site from which Mr Williams derived his valuation, and it is the additional burdens, such as the extent of access required to maintain and upgrade a greater amount of equipment, which would feature in the mind of a landowner entering into a letting. When we reconsider the CAAV transaction evidence for small sites, adjusted by Mr Williams for inflation and special value but not for size, the figures cluster above £3,000 and around £1,000.

The more onerous burdens accepted by a landlord entering into a lease of the Site on the new terms, by comparison with an agreement for a noise monitoring or similar low intensity or passive site, are: the potential difficulty of regaining possession for redevelopment at a site which enjoys statutory security of tenure; greater regular access by multiple operators and the anticipation of significant additional access and activity involved with future upgrade work; the rights to use adjacent land for set-down and to undertake tree lopping. We agree with Mr Williams that a landlord would take a high level view of them, rather than make a detailed assessment. However, we consider that he has been over generous in his assessment of a high level adjustment of £1,350, on top of £500 for size, especially having accepted that his base level of rent would already account for some benefits and burdens.

We nevertheless give weight to Mr Williams’ opinion because of his extensive and relevant experience in the rural market, and we use our own experience of that market in making this determination. We are persuaded that the Tribunal’s earlier figure of £750 was too low and should be reconsidered, not only because of inflation but in the light of the evidence of non-telecommunications transactions for unexceptional rural sites. That material, heavily adjusted though it necessarily is having regard to the artificial paragraph 24 hypothesis under which the valuation must be carried out, enables us to conclude that the appropriate annual consideration for a rural mast site is £1,750.

We do not consider it necessary to update the table of figures in Affinity in January 2022, nor to identify any particular relativity between consideration for rural sites and those in other situations, other than to reiterate the impact of inflation on figures determined in previous years.