Cornerstone v. Compton Beauchamp: Code Ruling
Electronic Communications Code
Upper Tribunal dismisses a paragraph 20 Application by Cornerstone for a Code Agreement
Carlos Pierce and Tina Middleton look at the recent decision in Cornerstone Telecommunications Infrastructure Limited v Compton Beauchamp Estates Limited [2019] UKUT 0107 (LC) under the Electronic Communications Code (“the Code”).
What was the case about?
Cornerstone (a joint venture company owned equally by Vodafone and Telefónica (O2)) sought a Code agreement from the freeholder of land at Galleyherns Farm in Longcot Oxon (“the Site”) which is owned by Compton Beauchamp Estates Limited (“CBE”). Vodafone is currently transmitting from the Site, although its 1954 Act excluded lease had expired.
CBE argued that it wasn’t the occupier for the purposes of paragraph 20 of the Code and that Cornerstone should seek the Code agreement from the occupier, i.e. Vodafone.
There was a discussion over the exact status of Vodafone’s occupation. In possession proceedings, CBE asserted that Vodafone was occupying pursuant to the Telecommunications Act 1984 (as amended by the Communications Act 2003) (“the Old Code”) whilst Vodafone argued for a periodic tenancy. In the Code proceedings, each party reversed its position.
The Tribunal decided that Vodafone was occupying the Site pursuant to the Old Code.
Decision
The judge dismissed the case because it said that Cornerstone should have sought the Code Agreement from the occupier, Vodafone, rather than the freeholder.
Key issues considered by the Tribunal
The Tribunal had to consider four key issues:
| Headline | Issue |
|---|---|
| Jurisdiction | Can Cornerstone seek the Code agreement against the freeholder (CBE) or should it seek it against the occupier, Vodafone |
| Public Benefit | Does Cornerstone pass the public benefit test in paragraph 21 of the Code where there is existing apparatus in situ? |
| Terms | The Terms that the Tribunal might impose |
| Valuation | The value of the Code agreement |
Jurisdiction
The judge agreed with CBE that the “relevant person” who can confer the Code Rights for the purposes of paragraph 20 of the Code is the ‘occupier’ as that term is defined in paragraph 105 of the Code. He said Vodafone was the ‘occupier’ for the purposes of paragraph 20 of the Code. The judge dismissed the application on a technicality and therefore didn’t discuss the terms.
Whilst deciding in favour of CBE, the judge made the following observations:
“[Cornerstone] could have reached agreement with Vodafone for it, as occupier, to confer the rights on [Cornerstone], and could then have asked the Tribunal to impose an agreement providing for those rights to bind [CBE] but it did not do so.” (paragraph 89).
The judge also explained how an operator might overcome such an obstacle including:
“..the Tribunal…[imposing] an agreement which was contingent on Vodafone voluntarily giving up its right…” (paragraph 94).
This could give a welcome direction, and a practical solution, for an operator in a similar position. An operator could seek a Code agreement directly from the operator in occupation on its preferred Code terms and ask the freeholder to be “bound” by that agreement.
Public Benefit
The judge said that Cornerstone would have met the public benefit test in paragraph 21 of the Code in this case and said that “…the public benefit resulting from the making of an order for a new agreement would outweigh the prejudice to the respondent.” (paragraph 103).
Valuation
As the case was dismissed, the Tribunal made no decision, or binding direction, on valuation. However, its observations are of particular interest as to how it might have arrived at a decision.
Compensation
CBE only made one claim for compensation, that being the loss of rent from the existing Vodafone lease should a Code agreement be imposed by the Tribunal. This claim was dismissed by the Judge.[1]
Consideration
As regards consideration, the judge considered the different approaches taken by the opposing expert valuers but did not arrive at a conclusion on the appropriate consideration in this case.
CBE’s Approach
The judge dismissed:
- the approach taken by CBE’s valuer[2] to arbitrarily discount Old Code agreements by 35%; and
- his approach of discounting new Code agreements.
However, whilst the Old Code agreement approach seems to have now been put to bed, the judge tantalisingly suggested that true Code agreements might be useful in future cases[3]. Clearly, though, those agreements would need to relate to sites with similar characteristics in close proximity and be agreed on the statutory assumptions to be true comparables.
Cornerstone’s Approach
In the absence of any potential alternative use, Cornerstone’s approach was to use evidence of freehold sales of arable land (existing use) convert it to an appropriate rental value and then pro-rata it for the Site based on its area. A recognised, and established, method of valuation.
Whilst the Tribunal acknowledged that, for a site with no alternative use, existing use values may be an appropriate starting point,[4] it was not attracted to the ‘low’ value such an approach generated. The Judge said:
“[the parties have to] stand back and look at the product of the valuation…if it seems improbably high or low..” (paragraph 110).
It, therefore, seems that, whilst the Tribunal in the EE Limited and Hutchison 3G UK Limited v London Borough of Islington[5] case (“EE/3 case”) found that there was no floor below which the willing seller wouldn’t go, in this case, that would not have been the case.
Perhaps what the Tribunal is doing is encouraging the parties to make an additional ‘allowance’ for the potential risk and burdens on the landowner arising from the grant of the Code agreement where the existing use value does not perhaps recognise these risks. This is consistent with the EE/3 case where an additional ‘allowance’ was used to supplement the nominal value of £50 leading to the grant of an ‘all-in’ agreement.
Key Points
- Jurisdiction – an operator should seek a Code agreement against the occupier, even if that occupier is another operator.
- Public Benefit – Cornerstone satisfied the public benefit test.
- Terms – given that the case was dismissed, the terms of the Code agreement were not considered.
- Consideration: CBE’s Approach:
- Tribunal dismissed CBE’s approach of arbitrarily discounting Old Code (by 35%) and new Code agreements.
- Evidence of genuine new Code agreements, or a coherent basis for adjustment, could be persuasive.
- Cornerstone’s Approach: Tribunal agreed that, where no other potential alternative use can be identified by reference to evidence of similar sites, existing use value may provide an appropriate starting point. Thought CS’s approach led to a figure that was ‘too low’ i.e. the parties wouldn’t agree to such a low figure (Consideration of £26 for a 10 year term)
- Compensation – Tribunal dismissed CBE’s compensation claim for loss of rent from Vodafone’s existing occupation.
Final Word on Consideration
There is a lot that both operators and landowners can learn from this case. But what most people involved in telecoms really want to know is…what’s a Code agreement worth?
Pulling the various threads together from both this case and the EE/3 case, it appears that where there is a greenfield site with similar characteristics as this site:
- The starting point is existing use value (excluding telecommunications use) where no other potential alternative use can be identified (by reference to evidence of similar sites).
- Post new Code agreements of similar rural sites in close proximity concluded on statutory assumptions might be persuasive as comparables.
- The existence of a service charge in the EE/3 case gave the Tribunal a helpful mechanism to arrive at an ‘all-in’ occupational lease that gave unrestricted access rights at £1,000 per annum.
- Is it conceivable that the Site, in this case, would achieve more than £1,000 per annum? In the absence of evidence to the contrary, it is arguably a lot less.
What’s clear though is that both parties must keep working at this – and that’s what the Tribunal will expect…
At Cornerstone, we are always willing to have a discussion with landowners on the value of sites, and their alternative uses.
Carlos Pierce is Head of Legal Projects, Strategy and the Code programme, and Tina Middleton is a Senior Code Lawyer, at Cornerstone the UK’s leading mobile infrastructure services company set up as a joint venture between Vodafone and Telefónica.
[1] This is consistent with the approach taken by the Tribunal in EE Limited and Hutchison 3G UK Limited v The Mayor and Burgesses of the London Borough of Islington [2019] UKUT 0053 (paragraphs 132 and 133)
[2] Paragraph 113 of the judgment
[3] paragraph 114 of the judgment
[4] Paragraph 107 of the judgment
[5] EE Limited and Hutchison 3G UK Limited v The Mayor and Burgesses of the London Borough of Islington [2019] UKUT 0053, per paragraph 96