A new Code has been introduced as Schedule 1 of the Digital Economy Bill which will revise and replace the existing provisions. This blog considers the valuation basis.
Communications networks, giving a public service with their masts, cables and other apparatus, have long had their own particular code of law, entirely separate from the regimes for compulsory purchase. The Code applies equally to copper telephone wires, fibre optic cables and telecommunications masts.
Both the existing and proposed Code operate in a very distinctive way; on the basis that Code rights are there by agreement, not taken as might be the case for other utilities. This has been the basis for communications apparatus for two centuries, delivering networks with vastly less litigation than that seen with compulsory purchase.
Where parties are unable to reach an agreement the matter can be referred to a court (likely to become the Lands Tribunal) for determination. The court has to balance any public benefit from the communications that could be provided and the prejudice to the site provider; the new test can be failed. If the court approves the grant of rights it is then to determine a “fair and reasonable” agreement, including the payment, called the “consideration”, for the agreement. Paragraph 23 of the proposed Code sets out the basis for that assessment.
Whereas the operators sought a regime closer to that for other utilities such as the water and electricity industry this is not what the new Code now provides. It appears to operate in much the same way as the existing Code.
The long history of the current Code and its preceding legislation has used what is essentially market value as the basis for consideration. This was interpreted as such, with an express point made about the exclusion of ransom value, in Mercury v London and India Docks Investments Limited, affirmed by Cabletel v Brookwood Cemetery. A counter argument had since arisen following the decision in Bocardo v Star Energy; a case under the Mines Support etc Act 1966 which held that the payment for taking underground access to oil reserves should be on a compensation basis. That argument was rejected as an interpretation for the current Code in the Scottish Sherriff Court case Vodafone v Scott in 2016.
The clear use of the words “market value” and subparagraph (2) of paragraph 23 introduced in the House of Lords largely follows the conventional definitions provided by professional valuation standards, whether International Valuation Standards (as adopted by the RICS and imported into its Red Book) or European Valuation Standards. The disregard of compulsion is covered by the requirement that both parties be willing and the expectation of proper marketing is implied and may be covered by the “seller” being required to act “prudently”.
The market value is to be assessed with reference to all the terms of the agreement settled by the court. Thus, it would take account of terms on such points as the arrangements for access, rent review, any “lift and shift” provisions for development and other matters.
The sub-paragraph (3) makes four further assumptions:-
• assumption (a) recognises the agreement but imposes a disregard that it does not relate to the provision or use of an electronic communications network (as defined by s.32 of the Communications Act 2003). A summary would be that the rights are taken and the apparatus installed (or could be installed) under them would be there but “dumb”. That rules out any argument that the rent should be based on a share of the operator’s traffic through the apparatus. It also removes any distinction between apparatus, such as fibre optic cable, that is being used and a fibre that is not being used. The market for radar installations for instance require very similar agreements and do not suggest much market differential with electronic communications sites.
• assumption (b) sets out the Government policy that the operator’s freedom to assign the agreement and the qualified freedoms to upgrade or share apparatus are to be disregarded.
• assumption (c) follows those two disregards to affirm that the Code rights in question are otherwise to be assessed as they are in the real world. All other terms of the agreement must anyway be considered.
• assumption (d) follows the Law Commission’s report and recent Government policy in assuming that there is more than one suitable site available as a means to exclude ransom value. It can be noted that this assumption allows that there might only be one other site and does not necessarily imply a plenitude of sites. In most instances in this market there is more than one site available to an operator.
The proposed Code imposes an 18m notice period and site providers will have much more restricted rights to obtain possession. Attitudes towards operators are hardening and concerns about the proposed Code which is likely to come into effect later this year are leading many property owners to question whether they wish electronic communications equipment on their rooftops.
Research by Deloitte for the mobile operators suggested that the industry pays, on average, £7,500 pa in rent for sites in rural areas and £9,200 pa in urban areas. The reported figure for rural rents was considered high at the time but now appears prophetic as market rents continue to rise. Rooftop rents average £13,712. It remains to be seen if the new Code will lead to a reduction in rents but it seems unlikely given the terms it will impose on any new agreement.
I S Thornton-Kemsley TD MRICS FAAV ACIArb