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Digital Economy Act 2017 – the new Telecoms Code

26 May 2017

The Digital Economy Act 2017 received royal assent on 27 April 2017 and introduces, amongst other changes, a new Electronic Communications Code (the 'New Code').

The existing Electronic Communications Code is found in Schedule 2 of the Telecommunications Act 1984 (as amended by Schedule 3 of the Communications Act 2003) and has long been earmarked for a revamp.

The New Code is contained in Schedule 1 of the Digital Economy Act 2017. The New Code makes some significant changes to the existing legislation and needs to be reviewed carefully by landowners who benefit from the income afforded by entering into agreements with telecom operators. The key provisions of the New Code are:

  1. Telecoms leases are removed from the ambit of the Landlord and Tenant Act 1954 and therefore will not benefit from security of tenure under that Act. This means that landowners no longer need to proactively seek to exclude telecoms leases from the security of tenure provisions of the Landlord and Tenant Act 1954. However, the powers in the New Code granted to telecoms operators cannot be contracted out of, so telecoms operators will still benefit from an alternative form of security of tenure under the New Code.
  2. New telecoms leases cannot limit the rights of the telecoms operators to assign the lease in future or impose any conditions for such assignment (except for requiring a guarantee on an assignment if appropriate) to another telecoms operator.
  3. Telecoms operators will have a right to share occupation of the relevant land with other operators. It is not clear whether landowners can require a further licence fee or 'payaway' in such circumstances as a condition of their leases. It is common practice at present for landowners to expect a share of royalties or licence fees where a tenant under a telecoms lease shares occupation with another operator and receives income as a result of that arrangement. This change in the New Code could therefore have a detrimental impact on income received by landowners going forward.
  4. Telecoms operators will also have a right to upgrade equipment they have erected pursuant to their New Code powers. There is a caveat on the free ability to upgrade equipment though and that is that the upgrade must have “no more than a minimal adverse impact” on the appearance of the equipment and place no extra burden on the landowner.
  5. Telecoms leases granted under the New Code will be overriding interests capable of binding successors in title even where they have not been registered at the Land Registry. When acquiring land then, it is important to carry out suitable due diligence to establish whether there are any telecoms rights affecting the land – whether leases for telecoms masts or rights to lay cables underground. Without the need to register telecoms leases and with the ability to freely share occupation, it could become more and more difficult for landowners and purchasers of land to keep track of who is occupying their land.
  6. Where a telecoms operator and a landowner have not been able to agree terms then a court can impose the New Code on a landowner where (a) financial compensation is adequate to overcome any prejudice caused to the landowner and (b) where the public benefit to the New Code rights being granted outweighs the prejudice to the landowner. It must be borne in mind though that the method of calculating the compensation and rent is now to be calculated by reference to the open market value of the land in question without the presence of the telecoms equipment. This means that the land or roof space to be leased is valued as it is without the equipment for its current use, ignoring the special value of it to the telecoms operators. This may well suppress rental income, particularly in relation to roof top leases as there will be very few uses that could drive up rent values for roof space!
  7. In order to terminate a lease granted under the New Code then a landowner will have to provide at least 18 months’ notice to terminate the New Code rights and the contractual term of the lease must have expired by the end of that 18 month period. The landowner must also satisfy one of the following conditions:

7.1 That the lease ought to come to an end as a result of substantial breaches by the operator of its obligations under that lease

7.2 That the lease ought to come to an end because of persistent delays by the operator in making rent payments

7.3 That the landowner intends to redevelop all or part of the land on which the equipment is based and could not reasonably do so unless the lease comes to an end, or

7.4 The telecoms operator is not entitled to a New Code protected lease because it has not satisfied the test referred to in paragraph 6 above.

If these grounds are satisfied, then the court must order that the New Code protected lease comes to an end.

The New Code has not immediately come into effect; the Secretary of State needs to issue regulations to bring it into effect and no indication has yet been given of when this might be. Ofcom is currently consulting on a proposed Code of Practice for telecoms operators and a number of template notices and standard terms that can be used alongside the New Code, so it may be that the outcome of this consultation will feed into regulations to bring the New Code into force. Although not yet in force the prospect of the New Code may start to influence negotiations for New Code leases. For instance, telecoms operators may now look at their expired leases that have not yet been renewed and wait for the New Code to come into force to take advantage of the change in rent valuations. They might also be looking at entering into shorter term leases so that they come up for renewal sooner and enable New Code valuation mechanisms to be triggered much sooner than if they entered into longer term leases.

Of course the upcoming general election and Brexit negotiations may impact on when the New Code will come into effect; the government and the civil service is likely to be tied up with Brexit negotiations for some time and so unless there is a pressing need to bring the New Code into force sooner rather than later, we may find that this is left where it is for some time. We will just have to wait and see.

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