[2024] UKUT 216 (LC)

The Tribunal is required by paragraph 34(11) of the Code to determine the terms of the new lease of the Site in the manner described in paragraph 23. By paragraph 23(2) the new lease is to contain such terms as the Tribunal thinks appropriate subject to the minimum requirements in sub-paragraphs (3) to (8). Amongst these is the requirement that the terms imposed must ensure “that the least possible loss and damage is caused by the exercise of the code rights” to those who occupy the land or own interests in it (paragraph 23(5)).

The parties agree that APW or any successor as landlord should have the right to terminate the new lease on giving 18 months’ notice. They disagree on the circumstances in which that right should be exercisable.

APW proposes that the right of termination should be available whenever:

EE/H3G object to APW’s formulation and propose a redevelopment break clause exercisable in the following more limited circumstances:

In both of these formulations capitalised words are defined terms. Most are self-evident but, for the time being, the “Communications Site” (meaning the Site demised by the lease) and the “Landlord’s Property” refer to the same land, since APW owns no other land at Vache Farm. The word “Develop” is given a restrictive meaning in EE/H3G’s proposed lease and excludes development for the purpose of providing or operating an electronic communications network, or electronic communications services, or the provision of an infrastructure system.

The differences between the parties on redevelopment are therefore: (a) whether the opportunity to terminate the lease should be available to APW where it intends to redevelop the Site in connection with an electronic communications use; (b) whether the right should be exercisable at any time or only after five years; (c) whether APW should be required merely to “desire” to redevelop, or whether it should demonstrate a “settled intention”; (d) whether it should be required to demonstrate that it could not reasonably develop without obtaining possession of the Communications Site; and (e) whether, additionally, APW should have the right to terminate the lease because the test under paragraph 21 of the Code for the imposition of an agreement is no longer met.

The background to this dispute is that APW is the UK subsidiary of Radius Global Infrastructure Inc, an international investor in mobile mast site leases. APW is not a Code operator, but a separate Radius subsidiary, Icon Tower Infrastructure Ltd, is registered with Ofcom as an operator. Icon’s business model includes constructing telecommunications infrastructure of its own (masts or towers) to replace and upgrade the infrastructure of other operators on existing sites at which Icon or APW will have acquired intermediate leases. Operators at the existing sites will then be invited to relocate their equipment to Icon’s new mast or tower.

The key to this aspect of Icon’s business model is that the rights which Icon intends to grant to operators to mount their equipment on its masts or towers will not be code rights, and the charges it will collect for those rights will be determined by the market and not by the Code. That is because code rights are rights in relation to land (paragraph 3 of the Code) but “land” is defined in the Code as not including electronic communications apparatus (paragraph 108). Masts and towers are electronic communications apparatus so the right to install equipment on one is not a code right and the price which may be charged for it is not regulated by the Code.

In his submissions Mr Radley-Gardner KC explained that EE/H3G did not wish the break to be available to allow APW, Icon or another group company to develop a duplicate mast on the Site. He gave two reasons, namely, that the operators required a minimum term to justify the expenditure on the site after renewal to maintain service, and that they did not wish to change from being the occupiers of land under the Code to becoming the occupiers of a mast which would put them outside the Code (which they presume is APW’s intention in seeking the opportunity to redevelop). He also suggested that it was not the policy of the Code to create the opportunity for “blue on blue” disputes (by which he meant disputes between participants in the telecoms sector); instead, the policy of the Code was to facilitate the roll out of telecommunications networks, which required stability.

Mr Watkin KC pointed out (as Mr Lester had confirmed in his evidence) that EE/H3G make use of masts and towers belonging to other mast companies on whose infrastructure they do not enjoy Code rights. Other operators (Vodafone and Virgin Media O2) have apparatus on EE/H3G’s tower at the Site and will be present on terms which are unprotected by the Code. The model which APW and Icon operate is not novel and is not inconsistent with the Code. Nor was there any justification for prohibiting redevelopment where the site provider intended to replace the operator’s mast with one of its own. Mr Watkin KC referred to Fisher v. Taylors Furnishings Stores Ltd [1965] 2 QB 78, in which, at page 91, Parker LJ had said that a landlord which intended to occupy business premises itself, but which could not satisfy section 30(1)(g), Landlord and Tenant Act 1954 because it had not owned the premises for the required period of five years, could nevertheless rely on section 30(1)(f) if it also intended to carry out redevelopment. There was no reason for treating site providers under the Code any less favourably.

The parties have been over this ground before, including in Stephenson. The relevant dispute in that case was whether, on a lease renewal under the Code, it was appropriate in principle to include a landlord’s redevelopment break clause (as APW proposed and EE/H3G resisted). Although it was concerned with the issue of principle, the Tribunal’s response provides guidance on the points of detail which are now in issue. At paragraph [47], the Tribunal said this:

At paragraph [48] the Tribunal also referred to the fact that after notice had been given terminating the lease, the operator would be entitled to apply to the Tribunal for the grant of a new lease and the site provider would then be required to prove its intention to redevelop to the satisfaction of the Tribunal if it wished to resist such an application.

Although the security of tenure provided by the Code is modelled to some extent on the Landlord and Tenant Act 1954, it is important not to take that analogy too far. The grounds on which a landlord may object to the renewal of a business tenancy under section 30(1) of the 1954 Act are broader than those allowed by paragraph 31(4) of the Code. In particular, a site provider cannot rely on an intention to carry on its own business from the site as a ground of opposition. Under the Code, in the absence of some default on the part of the operator, the operator’s right of renewal will in practice be limited only by an owner’s intention to redevelop the site. Mr Watkin KC relied on observations by Vos J in Humber Oil Terminals Trustee Limited v Associated British Ports [2011] L&TR 27, Ch at paragraph [143] but those observations were made in the context of the 1954 Act and are not directly applicable.

Nevertheless, as Stephenson shows, it is not the policy of the Code to stand in the way of the redevelopment of sites. Provided the intention is genuine, we can see no reason why a different approach should be taken where the intended redevelopment is for a telecommunications use, even if the net result is that a particular operator may in future enjoy less favourable terms at that site than if its previous lease of the land had continued. That is consistent with the approach taken in the 1954 Act cases to which we were referred. If, at the end of the full ten year term of the new lease, APW opposed a renewal because it intended to redevelop the Site with a new mast, EE/H3G would not be entitled to complain that the new mast would be owned and managed by APW or an associated company. All that would matter would be whether APW could prove the necessary intention.

The real issue is therefore whether APW should have the right to terminate the new lease for redevelopment sooner than at the end of the term in ten years’ time. The answer involves balancing the need of the operator for a reasonable period of security, with the entitlement of the site provider to have the opportunity to redevelop the site if it can obtain the necessary consents and can persuade the Tribunal at the appropriate time that its intention to do so is genuine. In answering the question we must also have regard to the direction in paragraph 23(5) of the Code that the terms of the new lease should ensure the least possible loss and damage is caused by the exercise of the Code rights conferred by the new lease to those who own interests in the Site.

As to the need for a period of secure occupation, the Site has been in operation for well over 15 years and we assume the initial investment in establishing it has long since been recouped. Although a general ambition to upgrade to 5G was referred to by Mr Lester, we were not presented with evidence of any particular intention to invest in the Site in the short term and the only costs which he referred to were those of EE/H3G decommissioning their own apparatus and relocating to an APW mast if the break became exercisable. Mr Radley-Gardner KC referred in his written argument to maintaining the service rather than extending or improving it (although no doubt occasional upgrading will occur). Whether the unquantified costs of decommissioning the current site are incurred in five years rather than ten years does not seem to us to be a matter of particular significance.

We also infer from EE/H3G’s own proposal for a five year break clause that a minimum term of that duration would satisfy its own business requirements.

Taking these matters into account we can see no good reason to limit the break clause agreed in principle so that it is exercisable only if the intended redevelopment is for some purpose other than for a telecommunications use. On the other hand, perpetual dispute should not be encouraged, and a reasonable period should be allowed before any redevelopment opportunity can be exploited. There was no evidence that APW, or Icon, will be in a position to implement a redevelopment scheme at this Site in the short term. Termination should therefore not be permitted earlier than the fifth anniversary of the term and to provide a degree of certainty for both parties it should be exercisable by not less than 18 months’ notice expiring on that date or on any subsequent anniversary (rather than at any time, as proposed by APW).

The debate over whether APW should be required merely to “desire” to redevelop, or whether it should demonstrate a “settled intention” is a hangover from a previous version of EE/H3G’s proposal which would have required proof of the relevant intention when notice was given to terminate the lease, as well as at the time any dispute was heard by the Tribunal. There is no reason why a site provider should be required to demonstrate the appropriate resolve by reference to more than one date and, as the relevant date for the purpose of a determination under paragraph 31(4)(c)) will be the date of hearing of the application, that is the date which should be selected. Given that choice, there is no reason why the contractual language should not mirror the language of the Code by referring to intention rather than desire, which would be required to be proved at the date of the hearing to satisfy both the statutory and the contractual requirement; the only other qualification which we consider appropriate is that the intended redevelopment must be one which could not reasonably be undertaken while the new lease continues.

We are very much less attracted to the second limb of APW’s suggested break clause, which would give it the right to terminate the new lease if “the test under paragraph 21 of the Code for the imposition of the agreement on the Landlord is no longer met”. That test (so far as it is applicable to the imposition or renewal of agreements) requires two conditions to be met: first, the prejudice caused to the relevant person (the site provider) by the order must be capable of being adequately compensated by money, and, secondly, the public benefit likely to result from the making of the order must outweigh the prejudice to the relevant person. We appreciate that a site provider has the right to bring an expired code agreement to an end on that ground under paragraph 31(4), but no evidence or explanation was offered of the circumstances in which, at this or any other site, APW might satisfy this condition during the contractual term of the lease. Opportunities for dispute should not be made available without good reason. The better course in our judgment is to limit the right of early termination to the familiar redevelopment ground.

The break clause will therefore provide that the Landlord may terminate the new lease on giving 18 months’ notice expiring on the fifth or any subsequent anniversary of the term commencement date if it intends to redevelop all or part of the Site and could not reasonably do so while the new lease continues.

By the end of the hearing the only other term which had not been agreed (clause 7.7.5) concerned a pretty obscure indemnity in favour of the site provider requiring the operator to reimburse sums which the landlord might have to pay to the superior landlord under a specific clause of the superior lease. The relevant term of the superior lease is not well drafted and the circumstances in which sums might have to be paid under it are unclear. Reference is made in it to paragraph 20 of the old Code, which is no longer in force, and to the exercise of a right under that paragraph which it does not appear to confer. As we do not understand the proposed clause, and neither Mr Radley-Gardner KC nor Mr Watkin KC succeeded in explaining it to us, and as the agreed terms already include a wide indemnity which would appear to cover the ground which we were told the additional clause was aimed at, the better course is to omit it.