[2024] UKUT 216 (LC)

By the conclusion of their evidence Mr Cottage considered that the annual rent payable under the new lease should be £1,000, while Mr Williams thought that the appropriate figure was £2,850.

The experts agreed that the Site had no alternative use value and disregarded APW’s previous suggestion that “glamping” was a viable alternative, on planning and other grounds. They also agreed that their valuations would be unaffected by planning permission for the installation of electronic communications apparatus (“ECA”). There was some uncertainty over the condition in which the Site was to be valued as both experts said that it was a matter for legal submissions whether electricity and fibre supplies at the site could be assumed under the no-network assumption. As to that uncertainty, the no-network assumption is irrelevant to the physical condition of the Site and the locality at the date of the assumed letting. On normal valuation principles the Site must be assumed to be vacant, the operator having removed its apparatus (Affinity, [17]-[28]), but, consistently with the reality principle, electricity and fibre must be assumed still to be available at the boundary of the Site (in the absence of any term in the existing agreement requiring their removal at the expiry of the lease).

Mr Cottage, on behalf of EE/H3G, initially considered that the rent should be £750 per annum, in line with the figure awarded in Stephenson for an unexceptional rural site. He found nothing in the Site or the new lease terms which required any adjustment to that figure. Nor was any adjustment required for size because the figure of £750 had first been mooted in Dale Park, which was a 67 sq m site, and the Tribunal then used the same figure for a site of 18 sq m in Stephenson. The benefits and burdens would not depend on the size of the site but would relate to the number of times access would be taken. This would not relate directly to the number of operators sharing the ECA and the Tribunal had not differentiated between rents for Dale Park where there was sharing and Stephenson, where there was not. In summary, Mr Cottage stuck firmly to the figure of £750 adopted by the Tribunal in Stephenson and considered that there was nothing new in Mr Williams’ evidence or arguments that had not already been considered by the Tribunal.

Mr Cottage nevertheless accepted that it would be appropriate to update the figure of £750 to account for inflation using the Retail Prices Index (“RPI”) since the date of the Dale Park decision. Indexation from December 2020 to the latest available figure in April 2024 produced an uplift from £750 to £977, which he rounded to £1,000.

On behalf of APW, Mr Williams assessed the rent at £2,850 using a base rent of £1,500, derived from the tone of rents agreed for a variety of non-telecommunication lettings of small compounds in rural locations, with an uplift of £1,350 for burdens arising from this particular lease. His rationale for these figures, which he set out at length in his reports, is explained below.

The starting point of Mr Williams’ assessment was his opinion that the Tribunal’s figure of £750 for an unexceptional rural site was too low. He had yet to encounter in his practice with Carter Jonas (since 2018) any letting of a small compound for non-telecommunications use, whether passive or more intensive, at a rent below £1,000. He suggested that this figure should be a minimum value in the stage 1 assessment, before assessing benefits and burdens under stages 2 and 3. In particular the determination of a rent of £750 in Stephenson, for a small site of 18 sq m with poor access, suggested that the rent for a more convenient site of 96 sq m at Vache Farm, with scope for higher burdens of activity arising from that, should be higher.

Mr Williams next proposed that the Tribunal had taken a wrong turn in Dale Park, when it first applied the three stage approach to a rural site. Before moving to Carter Jonas Mr Williams had worked for Arqiva, now On Tower UK Limited (“On Tower”) and he was therefore very familiar with the evidence of On Tower lease renewals reviewed in Dale Park. The Tribunal found at [124] that the evidence suggested a figure of £1,500 per annum was sufficient to induce site owners to agree lease renewals, when supplemented by transitional payments to step the rents down from their more generous pre-Code levels. The Tribunal disregarded those transitional payments and said at [129]:

Mr Williams then noted that incentives had been taken into account by the County Court when it determined rents for new tenancies under the Landlord and Tenant Act 1954 and suggested that, in Dale Park, the Tribunal had been wrong to exclude them from consideration when it analysed the evidence of consensual transactions. Although he accepted that the basis of assessment of rent under s.34 of the Landlord and Tenant Act 1954 was different from that under paragraph 24 of the Code, he maintained that the Tribunal in Dale Park had been in error in excluding incentives from its analysis of renewal evidence, which reflected the market at the time.

Mr Williams therefore re-analysed the evidence in Dale Park, taking into account one-off incentives and transition payments to produce an average rent of £2,099 per annum. If the Tribunal had assumed that a discount of 50% of this average rent of £2,099 was sufficient to satisfy the no-network assumption, it would have resulted in a figure of £1,050 per annum for an unexceptional site. Adjustment for RPI would result in a current figure of £1,368 per annum.

Separately from his analysis of Code transactions Mr Williams had also undertaken an extensive analysis of rental transactions for small rural sites required for non-telecommunications uses. He began by referring to 38 transactions in 2023 where Network Rail had rented small sites from owners of land adjoining their lines in order to carry out works. These were all short term licences which he acknowledged were of limited value as direct comparable evidence but said that overall they are indicative of the level at which landowners are willing to transact for an infrastructure related compound.

Mr Williams then considered 16 rental transactions for small sites identified by the Central Association of Agricultural Valuers (“CAAV”) in a letter dated 5 October 2018 to inform the Department for Digital, Culture, Media and Sport (“DDCMS”) of typical annual payments agreed for non-telecommunications sites in rural areas. Limited details were available of the individual transactions, but he selected four of them as potentially helpful: a meteorological station in Wales at a rent of £2,500, a Cuadrilla borehole compound (3m x 3m) in Lancashire at a rent of £2,000, a noise monitoring compound near East Midlands Airport at a rent of £1,250 and an airport noise monitoring compound near Gatwick Airport in Sussex (10m x 10m) at a rent of £4,500.

Mr Williams acknowledged that these rents for small compound transactions would need to be adjusted to remove any “special value” to the tenant arising from location and business need. The more alternative options that were available to the prospective tenant, the lower the effect of any factor which might generate special value. Using his experience and judgment he therefore made downward adjustments of up to 50% to account for special value. Mr Williams then adjusted rents for the very small compounds upward by 50% for size, by comparison with the Site, and adjusted all rents for inflation since October 2018. This produced a range of rents from £1,674 - £3,348 per annum.

Mr Williams subsequently obtained details of three more lettings of small sites at significantly higher rents but as he drew no further conclusions from these, we need not refer to them.

More recent evidence was also available of the letting of an airport noise monitoring site at Station Road, Melbourne near East Midlands Airport, in which £1,500 per annum was agreed for a 3m x 2m site immediately adjoining a public highway, for a period of 10 years from April 2023. RPI rent reviews were provided for every three years. The lease was contracted out of the security of tenure provisions under the 1954 Act and included a break after five years for either landlord or tenant. The rights included installation of a 4m mast or column on a concrete footing, installation of cables for connection to electricity and telecommunications supplies, and unlimited access rights to and from the public highway by any reasonable route designated by the landlord. The agent who negotiated the lease on behalf of the tenant had told Mr Williams that a more usual level of rent would be £1,000 per annum for such a small compound site, but a higher figure was agreed because the landlord understood that there were limited alternative options for the tenant.

In his analysis Mr Williams drew the inference that, when special value was excluded, a rent of £1,000 per annum would be a minimum for a very small compound with a limited set of rights, let for a passive use. He defined a passive use as one which exerts only a nominal burden on the landlord and where rights of access are exercised infrequently. He adjusted this figure upwards for size by 50%, in line with adjustments he made to rents for very small compounds in the CAAV transactions, to reach a figure of £1,500.

The final piece of evidence relied on by Mr Williams was a one year letting in June 2021 of a 128 sq m former telecommunications mast site at Berwick Lodge Farm, Bristol to a business requiring storage for tree surgery equipment, carpentry and furniture restoration. The rent was £3,000 per annum, payable monthly at £250. The rights included connection to existing electricity and water supplies, rights of access during defined working hours and the right to use toilet facilities in an adjacent yard. The lease was contracted out of security of tenure provisions of the 1954 Act and either party could exercise a break on three months’ notice. The landlord was responsible for insurance, without reimbursement. Mr Williams adjusted the rent up to £3,760 for inflation since the rent commencement date.

Reviewing the adjusted rents derived from these market transactions, Mr Williams commented that the upper end of the range for compounds in passive use was £3,350 and the higher figure at Berwick Lodge was not surprising given the more intensive use and access.

Mr Williams concluded that the “floor” value of £1,000 per annum for a very small site, adjusted upwards by 50% for size, represented the rental value of the Site assuming a passive use requiring limited access. He then suggested that this figure required further adjustment for the greater burdens which would be imposed at the Site, by the exercise of the rights under the new lease compared to a compound let for a passive use. Using his experience over many years of representing landowners of different types with ECA on their property, Mr Williams identified four issues arising from use under a Code agreement that would be of concern to a landlord entering into a transaction on a green field site.

The first issue was security of tenure. The difficulty of achieving vacant possession of a site occupied for ECA is well known and would be particularly relevant for a landlord who might wish to regain occupation for development, as at Vache Farm (which is subject to an option agreement in favour of a developer, exercisable for a period of 10 years from 10 March 2023). The second issue concerned the regular access for maintenance and also the intensive access which would be required at unknown intervals during the term by each separate operator for works to upgrade their apparatus to 5G. The third was rights over adjacent land, especially to install cables, to have temporary set down areas and to carry out tree lopping. The final issue was loss of control and management.

Mr Williams attributed broad figures to each category: £500 for security of tenure, £400 for access and works, £250 for rights over adjacent land, and £200 for loss of control and management, to arrive at a total adjustment of £1,350 for the more intensive burdens which would be imposed by the new lease at the Site, when compared to the consequences of a low level passive use. Adding this to his base figure of £1,500 produced an annual rent for the Site of £2,850.

Mr Williams felt that the adjustment of £1,350 sat well with the adjustments for benefits and burdens of £1,250 - £1,300 that he had agreed with Mr Cottage for three sites in On Tower UK Limited v AP Wireless II (UK) Limited [2022] UKUT 152 (LC) (“Audley House”). He felt that it also sat well with the total of £1,100 awarded by the Tribunal in Dale Park for benefits and burdens.

Mr Williams reiterated his view that a rent of £750 per annum for an unexceptional rural site does not allow for differences between sites and the burdens imposed on their site owners. Although the Site was an unexceptional rural site, it was very different from the site in Stephenson which was 18 sq m, and housed a simple 17 m high monopole, had no sharing operators, and no realistic prospect of development, so that the outlook of its landlord would be very different. He nevertheless acknowledged that a site of 96 sq m was not uncommonly large for a telecommunications site and that there was no evidence that size affected the level of rent agreed. Nor was there a discernible relationship between size and rent in the evidence of lettings for uses associated with airports.

Mr Williams agreed that his proposed base rent of £1,000 - £1,500 may already reflect benefits to the tenant and some burdens imposed on the landlord. The letting of the Station Road noise monitoring site, which underpinned his baseline rent, resulted in a loss of control for the landlord, unlimited access, and rights to lay cables over adjacent land. But Mr Williams maintained that the extent of regular access required at the Site by multiple operators, and the intensive access they will each require for upgrade of ECA, would be more onerous than at the Station Road site. That site is also located close to the highway, so the impact of access issues is low compared with the Site.