Concurrent leases and the Electronic Communications Code – the Court of Appeal resolves a problem

Summary

The Court of Appeal in a recent judgment has closed a serious gap in Schedule 3A of the Communications Act 2003, the Electronic Communications Code (the “Code”), which had raised legitimate concerns for property owners, investors and developers when dealing with operators with a Code agreement where a “concurrent or intermediate lease” had been granted. These are leases that are granted to sit between, for example, the freehold and an existing lease so that the tenant under the concurrent lease becomes the landlord of the existing tenant, in this case the Code operator. The effect of the Court of Appeal’s decision is that the tenant who was granted the concurrent lease is now regarded as a party to the relevant Code agreement that existed before the concurrent lease and, therefore, the tenant has the right to use the Code to end that agreement. In turn, the Code operator is also now able to rely on Code powers to renew a Code agreement against a concurrent tenant. 

Context

The freeholder had granted Vodafone Limited (“Vodafone”) a lease of part of the roof of the Old Fire Station in London, which contractually expired in 2018. Subsequently, the freeholder granted to AP Wireless II UK Ltd (“APW”) a concurrent lease, subject to and with the benefit of the existing Vodafone lease. The effect of this was that APW was now the landlord of Vodafone under the Vodafone lease and Vodafone had been paying rent to APW since. At the time of the first decision Gencomp (No.7) Limited (“Gencomp”) was the freeholder – on the date of the appeal the freeholder had changed its name to Potting Shed Bar and Gardens Ltd but it remained the same legal entity.

Vodafone wished to renew its lease under the Code, but it was unclear whether it should renew with the freeholder (Gencomp) or the tenant (APW, Vodafone’s immediate landlord) under the concurrent lease.

The Upper Tribunal decided that Vodafone’s lease was a “subsisting agreement” for the purposes of the Code, which meant that it continued, essentially governed by the statutory security of tenure provisions of the Code.

The key issue for the Upper Tribunal was whether Gencomp or APW was the appropriate party to deal with Vodafone and grant them a new agreement under the Code and whether in fact either of them could do so as a matter of law.

Decision at first instance

The Upper Tribunal decided that there was a gap in coverage of the Code where a concurrent lease was granted of property already subject to a Code agreement. The effect of such a gap was potentially a problem for all concerned, but, in particular, it could inhibit the plans and intentions of the tenant under the concurrent lease.

As a result of the Tribunal’s decision, part 5 of the Code (relating to continuation, renewal and termination rights) was not available to renew subsisting Code rights. This was because a successor to the party who granted the original Code agreement could no longer grant a new Code agreement, because of the concurrent lease, which made the tenant the landlord of the operator. However, equally problematic was the fact that the tenant under the concurrent lease could not deal with the operator, because it was not a successor to the party who granted the original Code agreement. Part 4 of the Code (relating to the power of the Tribunal to impose a Code agreement) could not fix this gap, but an operator could use it to obtain renewal or modification of Code rights. However, this did not help the tenant under the concurrent lease.

The Upper Tribunal decision was very problematic for a tenant that had been granted a concurrent lease for development purposes, since it would not be in a position to terminate the Code agreement with the operator (as it was not a party to the original Code agreement and therefore could not use Paragraph 31 of the Code entitling a site provider to initiate termination of a Code agreement). 

Following the Upper Tribunal decision, many in the property and electronic communications industries considered that legislative change or a wider interpretation of the Code might be necessary to fix the uncertainty for both operators and site providers. The Upper Tribunal’s decision was appealed to the Court of Appeal.

Appeal

The Court of Appeal’s decision now provides certainty and clarity for both operators and site providers.

The Court did not regard the tenant under the concurrent lease as a successor in title to the original grantor of the Code agreement. However, the Court considered that the tenant should be regarded as a party to the Code agreement for the purposes of the Code, including the right to initiate termination under Part 5 of the Code. 

This was because the Code regime is intended to work in such a way that the person currently entitled to the benefit and burden of the relevant Code agreement as operator, and the person currently entitled to the benefit and burden of that Code agreement as site provider, are parties to the Code agreement and, therefore, can exercise the rights conferred by Part 5 of the Code. Technically, this was achieved by construing paragraph 10(3) of the Code (which refers to a successor in title to the original grantor who is bound by a Code right being treated as a party to the agreement by which the original grantor conferred the right) as not being intended to define exhaustively who is to be treated as a party to the Code agreement. 

On that basis and as a result of the general law of landlord and tenant, the tenant under the concurrent lease, APW, was entitled to both the benefit and the burden of the Code agreement by virtue of its interest under the concurrent lease and was therefore regarded as a “party to the agreement”. The tenant would be expected to be regarded as the other party to the Code agreement for the term of the concurrent lease, as during that period, the tenant steps into the shoes of its landlord, just as much as a transferee of the landlord’s interest.

The consequence of the Court of Appeal’s decision is that the tenant under the concurrent lease can invoke paragraph 31 by serving notice on the operator, and both it and the operator can invoke paragraph 33 (which enables either party to initiate a change once the contractual term of a Code agreement has expired) by serving notice on each other as “the other party to the agreement”.

This interpretation of the Code also accords more with the guidance from the Supreme Court in Cornerstone Telecommunications Infrastructure Ltd v Compton Beauchamp Estates Ltd that the Code should be construed in such a way as best to achieve the goal of making the regime work as intended.

The Court of Appeal’s decision has resolved what was a serious problem, especially in a development situation where a developer tenant under a concurrent lease was for a period of time unable to terminate a pre-existing Code agreement. 

Vodafone Ltd v (1) Potting Shed Bar and Gardens Ltd (formerly known as Gencomp (No.7) Ltd) and (2) AP Wireless II (UK) Ltd [2023] EWCA Civ 825