Has a safety net for Operators now been lost?
Following the recent judgment by the Upper Tribunal (Lands Chamber) in Gravesham Borough Council v On Tower UK Limited (LC-2023-810, [2024] UKUT 151 (LC)), has a safety net for Operators now been lost?
Gravesham Borough Council appealed the earlier decision of the First Tier Tribunal (FTT) which determined that Part 4 of the Code could be used by Operators to secure a new Code agreement where the right of renewal under Part 2 of the 1954 Act had been lost. Reversing the decision of the FTT, the Upper Tribunal determined that Part 4 will not be available to an Operator in these circumstances, such that if an Operator's 1954 Act protected tenancy is brought to an end then it will not be able to subsequently serve a paragraph 20 notice under Part 4 and seek a new agreement under the Code.
Application to all scenarios where 1954 Act protection lost
The decision in this case involved specific (and somewhat unusual facts) in that On Tower failed to serve renewal proceedings issued under the 1954 Act within the four months provided for by the Civil Procedure Rules. It was this failure (and the subsequent decision of the County Court not to allow additional time for service) that led to On Tower's renewal proceedings being struck out and the loss of protection enjoyed by it under the 1954 Act. In turn, this prompted On Tower to serve notice under Part 4 of the Code to seek a new agreement under the Code.
Notwithstanding these specific facts, the Upper Tribunal's decision appears to apply to scenarios where the route for a new Code agreement is via the 1954 Act and that route has been lost, either through a procedural default (as here where the operator failed to serve its lease renewal claim in time) or where 1954 Act proceedings have run their course and the court has ruled against an Operator – for example on re-development grounds.
What was the law before the appeal?
Before this appeal, an Operator which had lost protection under the 1954 Act (providing this protection was not lost intentionally) was able to seek new rights under Part 4 of the Code. The regimes (1954 Act and the Code) therefore operated sequentially. An Operator could not unilaterally pick between the two regimes when seeking a renewal.
The FTT's decision was founded on the principles established by the judgment of the Supreme Court in the group of cases dealt with in Cornerstone Telecommunications Infrastructure Limited v Compton Beauchamp Estates Limited [2022] UKSC 18 (known as Compton Beauchamp).
One of the key points established by Compton Beauchamp is that an Operator that was unable to renew its rights under the 1954 Act or Part 5 of the Code could seek new rights under Part 4 of the Code, notwithstanding that it was already in occupation of the site. One of the most common reasons why an Operator might find itself in this position is where it is occupying under a periodic tenancy that has arisen following the expiry of a lease that has been contracted out of the 1954 Act.
The decision in Compton Beauchamp ensured a critical backstop, avoiding a situation where an Operator could be "locked out" from being able to renew its agreement in these circumstances.
An additional practical reason for the decision in Compton Beauchamp was to avoid the potentially absurd result of Part 4 only being available to Operators which were not currently in occupation. The most obvious of these would be forcing an Operator seeking to renew its agreement, where it was in occupation, to temporarily remove its apparatus from a site before it served notice under Part 4 to secure new Code rights to occupy the said site. As the Supreme Court noted, this outcome could not have been the intention of Parliament in framing the Code.
The FTT saw no reason to distinguish between the position dealt with in Compton Beauchamp and a situation where an Operator has lost the protection of the 1954 Act through its own unintentional default.
What is the law now?
The Upper Tribunal has signalled that Operators that have lost 1954 Act protection, no matter the circumstances, will not be able to seek new rights under the Code.
This creates a special, but limited, category of sites where an Operator is in occupation but is unable to pursue a renewal either under the Code or the 1954 Act. This situation was not envisaged or dealt with by Compton Beauchamp.
In reaching this decision, the Upper Tribunal briefly noted that this might place Operators in a situation where they were forced to engage in the "wasteful expedient" of temporarily vacating a site only to re-occupy it under Part 4 of the Code, contrary to the principles behind the Code. The Upper Tribunal subordinated this concern, in favour of maintaining the original policy decision to keep 1954 Act protected agreements within the 1954 Act renewal route initially, rather than moving these immediately to the Code jurisdiction.
Equally, the Upper Tribunal was concerned that a sequential approach to the 1954 Act and Code regimes would give rise to Operators being incentivised to deliberately lose 1954 Act protection so that they could access a new agreement under the Code.
Osborne Clarke comment
Despite the Upper Tribunal's concerns, it is highly doubtful that any Operator would have sought to engineer a situation where it deliberately lost its protection under the 1954 Act in order to access preferable renewal provisions under the Code – given the additional costs, uncertainty and administration associated with pursuing multiple routes to renewal.
Equally, any incentive that might have existed in so doing will be further reduced once changes introduced by the Product Security and Infrastructure Act 2022 are brought into force. These will align the valuation of rent payable under leases renewed by way of the 1954 Act with site payments under new Code agreements.
However, and as noted in the judgment, the number of sites falling into this new category should be low, applying only to those sites where the Operator is unable to renew its agreement under the 1954 Act, its primary (and now only) route for renewal. As such, Operators will be able to take comfort that this decision will not have wider application (nor did the Upper Tribunal intend for it to have) and its impact will be limited to the circumstances identified in this case. Even so, it will be interesting to see whether On Tower decides to appeal the decision so that further guidance can be provided on an Operator's options in this rare scenario.
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