Guides & Advice

“Codebreaker”: New Help for Landowners Fixing Rent on Telecoms Lease Renewals

Published: 25th August 2020
Area: Real Estate & Planning

“Codebreaker”: New Help for Landowners Fixing Rent on Telecoms Lease Renewals

If your negotiations with a telecoms operator over the terms of their new lease have stalled then the judgment in this recent test case, by the Courts, should certainly assist you.

The long awaited decision in Vodafone Limited v Hanover Capital Limited assists landlords to secure open market rents and longer lease terms which properly reflect reality, and dismisses operators’ arguments for “no network valuations” to value rent.

This case will particularly assist landlords where they are renewing a telecoms agreement under the Landlord and Tenant Act 1954 (“the 1954 Act”) where the new Telecoms Code is presently of limited relevance.

This is the first guidance issued by the Courts on the approach to be adopted when valuing rents and other key lease terms in this area. This highly significant case is likely to be of direct application to hundreds of other cases.

The details of the case - The Length of Term and Tenant Break Option

Vodafone wanted a three year lease with an unconditional tenant break on six months’ notice exercisable at any time. The landowner, Hanover, wanted 10 years but with a break after five years.

The Court fixed a 10 year term but with a break option at year five on the giving of six months’ notice to expire at the end of year five or each subsequent anniversary of the term. The break option granted by the Court was also conditional on the operator not being in arrears of rents or in material breach of covenant.

In reaching this decision the Court balanced the degree of protection the operator sought to safeguard its business and the need to make sure its decision on lease term was not unfair or oppressive for the landowner. The Court held that such a short a flexible lease term proposed by Vodafone would be unfair to the landlord.

The Court’s Approach to Rent Valuation

Even more fascinating is the insight this case provides into the Court’s thinking and approach to the way rent must be valued in this case (i.e. under the open market as assumed by section 34 of the 1954 Act).

There was a fundamental difference of approach between the valuers on both sides.

Vodafone argued a “no network” assumption. This is the same methodology used under the New Telecoms Code which looks at the value of the site to the landowner (i.e. disregarding the particular significance of the site to a telecoms operator) and which usually produces a lower valuation. In this case Vodafone argued the site was only useful to the landowner for car parking.

Hanover argued the reverse and that in order to calculate the level of open market rent in a hypothetical transaction under section 34 of the 1954 Act, then comparables of other telecoms lettings under the Old Code were relevant, and in particular they showed that those rents were negotiated without “a no network” assumption.

This was in fact the approach favoured by the Court.  Section 34 assumes that the landowner offers a site to the open market and in this case there was evidence of sharing of this site with other telecoms operators. As a result, the Court found that in reality there was likely to be more competition for this site as it would be of interest to other telecoms operators. This operation of the “open market” on these particular facts was likely to drive up rental values.

So whilst a “no network” assumption was not accepted by the Court in this case, depending on the nature of the particular site and evidence of competition amongst operators, then the value of the site to the operator market may still be a key factor in valuations and evidence of comparables.

The Court ultimately held that a rent of £5,750 per annum was to be payable which was a significant increase from the rent sought by the operator in the sum of £1,386 a year.

If you are a landowner or their agent we can help you in your negotiations with operators by guiding you through these and other issues which apply to your telecoms lease renewal.  This case may mean you can now with some confidence seek to kick-start negotiations previously long stalled.

Contact us

Please do not hesitate to get in contact with our specialist telecoms litigation team by contacting Justine Ball by email or 0121 214 0306.

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