On Tower UK Ltd v BT – Understanding the termination of a code agreement

Property Litigation Partner, Ros Monk, and associate, Luke Holden, analyse and comment on the recent Upper Tribunal ruling in On Tower UK Ltd v British Telecommunications plc [2024] UKUT 51 (LC) and what such judgment means for site providers seeking to terminate code agreements under the Electronic Communications Code (the ‘Code’).

Background

The case centred on telecommunications equipment owned by On Tower, which was installed on the roof of a telephone exchange owned by the respondent, BT.

This apparatus was required to be removed, due to BT decommissioning the building as part of yielding up vacant possession to its landlord, who was seeking to redevelop the site.

BT sought to terminate its lease with On Tower by serving a break notice and cited that On Tower could not acquire code rights over the telephone exchange, as it was itself an electronic communications apparatus (‘ECA’).

BT’s primary position was that the Code only allows code rights to be obtained against land and not ECA.

Notwithstanding this position, BT also served notice to terminate under paragraph 31 of the Code, citing redevelopment as the statutory ground to end the lease.

On Tower challenged the validity of the break notice, and consequently argued that the paragraph 31 notice was also invalid.

The Upper Tribunal

The Upper Tribunal considered whether BT needed to serve a valid break notice in accordance with the lease for service of a paragraph 31 notice to be valid under the Code.

In order to protect against operators accessing each other’s ECA on favourable terms, “land”, for the purposes of establishing Code rights, excludes buildings whose sole purpose is to enclose other ECA (paragraphs 3, 5 and 108 of the Code).

The purpose of this is to prevent one operator making use of another operator’s equipment at a price determined under the Code.

The Upper Tribunal determined that the telephone exchange’s sole function was not the enclosure of ECA and accordingly the building was “land” under the Code.

Consequently, the lease held between BT and On Tower was deemed to be a code agreement, which requires termination under the Code.

Irrespective of the fact that the preconditions of BT’s break clause were dependent upon which statutory ground under the Code it was relying on, BT could simply revert to the provisions of the Code and rely upon termination pursuant to paragraph 31.

The Upper Tribunal decided that in circumstances where the date specified in the paragraph 31 notice was after a date on which the landlord could have brought the lease to an end, the paragraph 31 notice was sufficient. There was no requirement to serve the break notice as well.

Where does this leave us?

The Upper Tribunal’s decision that the telephone exchange was “land” under the Code, due to the presence of welfare facilities, indicates that few buildings will satisfy the sole purpose test.

The decision crucially also established that a paragraph 31 notice can be served without the need for service of the break notice first, allowing the code rights to override the contractual obligations in the lease and enable BT to rely solely on the paragraph 31 notice.

This is in contrast to the way that break clauses in business leases protected by the Landlord and Tenant Act 1954 are operated.

Parallels were highlighted between the two regimes, with an indication from the Tribunal that the accepted approach of serving a break notice in addition to a notice pursuant to section 25 of the Landlord and Tenant Act 1954 may not be the correct one either.

Whilst the decision appears to loosen restrictions on site providers seeking to terminate such leases, to simply disregard break conditions within a lease would be to do so at great risk.

A further hearing will be required in this case to determine whether On Tower’s Code rights should be terminated under paragraph 31, which places pressure upon BT to demonstrate that it has satisfied the statutory ground for redevelopment.

Last word

It remains to be seen whether On Tower will seek to appeal the decision of the Upper Tribunal.

With very little judicial commentary on the topic of termination under paragraph 31 of the Code, this case will be one to watch if the appeal goes through.

Looking ahead, site providers may find it difficult to argue that a building with ECA counts as ECA for the purposes of the Code, if the building itself has other functions in addition to the ECA.

The Property Litigation team at Harrison Drury has significant experience in representing site providers and operators in telecommunication disputes and advising on the operation of the Code in relation lease to agreements held between such parties.

If you have any questions relating to the content of this article, please contact Ros Monk or Luke Holden. To make an appointment, please contact us on 01772 258 321.