The Digital Economy Act 2017: Cracking the New Code

6th February 2018

Nick Cannon explains the new Electronic Communications Code and highlights key issues for landowners and telecommunications operators alike.

Changing landscape

An awful lot has changed in the world’s digital landscape since the original Electronic Communications Code was introduced in 1984, which was designed to facilitate the installation and maintenance of fixed line communications networks. The Code was extended in 2003 in recognition of the development and availability of new forms of digital technology, however, it has long been considered complex, out of date and unsatisfactory for landowners, operators and infrastructure providers alike. Indeed, it was famously described in a 2010 case by Mr Justice Lewison (as he then was) as “one of the least coherent and thought-through pieces of legislation in the statute book”.

Companies now rely on super-high-speed fibre optic broadband to keep up with their competitors, and consumers are becoming more and more dependent on technology, particularly with the use of smartphones which have become a part of daily life.

The Digital Economy Act 2017, therefore, which partially came into force in July last year, introduces a new Electronic Communications Code, intended to aid the creation and operation of such networks, as well as to address some of the critical issues that currently affect the telecommunications industry. The new Code has not been welcomed by landowners, but the government has stated that it is simply putting communications on the same footing as other essential utilities such as water and energy.

What’s New?

Rents: In an attempt to bring rents in line with those paid by utilities companies and providers of other essential services, the government has introduced a rent valuation system known as the “no scheme” valuation. The value of the land will be assessed on the basis of its value to the landowner without the presence of the telecommunication equipment, rather than the value to the operator. This is likely to reduce the rents and compensation received by landowners for the loss of their land. In addition, it is envisaged that costs will escalate for landlords due to an increase in disputes that may arise in determining the level of rent and the rate of compensation.

Site Sharing, Additional Apparatus and Assignability: In response to the rapid growth of digital technology and in order to facilitate its pervasiveness, operators will now have an automatic right to assign agreements, upgrade their equipment or share their apparatus provided that there will be little or no adverse impact on the appearance of it and the upgrade will impose no additional burden on the landowner. Indeed, any term which prevents or limits assignments of the agreement to, or site sharing arrangements with, another operator or makes such arrangement subject to conditions (such as the requirement for additional payment) would be void. The notable exception to this is a term imposing an obligation on the current operator to give an authorised guarantee agreement (‘AGA’).

Operators will welcome this change as it allows them to roll out new technology as soon as it comes to market without having to obtain the landowner’s permission first. This will, however, represent a significant loss of control for landowners, who have been used to restricting and/or charging operators for any such changes. Under the new Code, landowners could now face different and/or additional occupiers on their property whom they had not originally bargained for or vetted from a financial or security perspective. It follows that landowners will therefore be likely to claim that any upgrades or additional equipment will constitute an additional burden, however, since operators will have no obligation to first notify landowners of any changes, they may not get the chance!

Contracting Out of the Code: In the past, landowners have commonly sought to contract out of the old Code, or at the very least limit its application. This will no longer be possible and landowners will not be able to negotiate terms that are more favourable than those set down by the new Code.

Dispute Resolution: In the event that landowners refuse to consent to the installation of equipment on their land, or they dispute the amount of compensation they are to receive, the new Code will provide for a more efficient dispute resolution procedure. The new Code confers a range of powers on the court to expedite the litigation procedure and it gives the Secretary of State the power (through regulations) to specify that the appropriate forum for resolving disputes will be the First Tier or Upper Tier Tribunals, rather than the County Court. It is expected that any disputes would be construed in the light of existing 1954 Act case law.

Security of Tenure: One of the main issues experienced with the old Code was that it did not exclude the security of tenure provisions of the Landlord and Tenant Act 1954 (‘LTA 1954’), which gives business tenants the right to renew their leases. As a result, operators could be protected by both regimes if the agreement could be regarded as both a 1954 Act lease as well as a ‘Code agreement’. This meant landowners trying to terminate such agreements were left with a complex and burdensome process and in light of this, landowners would often seek to exclude the 1954 Act in the usual way.

In the new Code, this double layer of protection has been removed, meaning that where a landowner has a genuine need to recover possession it should be able to do so under the one applicable regime. Where the primary purpose of the agreement is to grant Code rights, that agreement will be automatically excluded from the LTA 1954 (although it would be prudent therefore to ensure the agreement is clear on the face of it that it is intended to be a ‘Code agreement’. Where the grant of Code rights is not the primary purpose of the agreement, and it is one to which Part 2 of the LTA 1954 applies, the termination provisions of the LTA 1954 will apply instead.

This welcome change ensures that the relevant document will only be governed by one of the statutory regimes on termination. The downside to landowners is that the statutory notice periods for them to obtain possession are longer under the new Code than they were under the LTA 1954, but this should be weighed against an increase in certainty and transparency of process and, in reality, we would expect most terminations to be settled out of Court by way of negotiated procedure, as they are now.

Retrospective effect? The new Code will not have retrospective effect: it will not affect any rights or liabilities arising under existing agreements between landowners and operators.

Therefore, landlords would be best advised to keep those agreements in place as they are likely to command higher rents than those granted under the new Code. Indeed, it is likely that pre-existing agreements governed by the old Code will be renewed by landowners and operators’ attempts to surrender existing agreements will be refused.

WM Comment

As the new legislation comes into force and the network of electronic communications expands throughout the UK, there will be a growing need for landowners and operators alike to enter into new agreements that will therefore fall under the new Code. The Walker Morris transactional Real Estate team can assist you in negotiating and drafting such agreements so that they are appropriate for you (whether as a landlord or as operator), as well as advising on any existing agreements falling within the scope of the old Code.

In the event of dispute on the determination of the level of rent or rate of compensation for the use of a particular piece of land, or relating to the termination of an existing arrangement, our Real Estate Litigation team would likewise be happy to assist.