Valuation under the new electronic communications code

Mobile operators are capitalising on the confusion surrounding the terms of the new Electronic Communications Code to demand substantial rent reductions.

It previously appeared that regulatory changes to the Electronic Communications Code as part of the Digital Economy Bill would result in tumbling rents and operators are seeking substantial reductions as a consequence of such misperceptions.

Ian Thornton-Kemsley, a consultant with Strutt& Parker and one of the leading experts in telecoms valuation said: “The operators sought a regime closer to the compulsory purchase system used by other utilities such as the water and electricity industry. However, this is not what the new Telecoms Code now provides. It appears to operate in much the same way as the existing code, which, while it has its faults, is a significantly fairer system for landowners than what we were expecting to see going forward.

“The Government’s position has been clouded by a general misapprehension about the code and the potential introduction of a valuation based on that in compulsory purchase. It is now clear that both the existing and proposed code operate in a very distinctive way; they work on the basis that code rights are there by agreement, which is not the case for other utilities. This has been the basis for communications apparatus for two centuries, delivering networks with considerably less litigation than that faced by compulsory purchase orders. The long history of the current code and its preceding legislation has used what is essentially market value as the basis for consideration and has been interpreted as such in various cases.

“The clear use of the words ‘market value’ in the drafting of the consideration provisions in the revised Code largely follows the conventional definitions provided by professional valuation standards. The disregard of compulsion is covered by the requirement that both parties are ‘willing’ and the expectation of proper marketing is implied and may be covered by the ‘seller’ being required to act ‘prudently’.”

When introducing amendments to the Digital Economy Bill in the House of Lords last month, Lord Ashton of Hyde (Department for Culture Media and Sport’s representative in the House of Lords) said: “The Government are clear that landowners should be paid appropriately for allowing code operators to use their land. That is why the revised code requires a price to be paid for that use, rather than creating a system where the land owner solely receives compensation.”

Mr Thornton-Kemsley said: “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.

“We welcome this clarification and the fairer outcome it offers to landowners, while still providing operators with the opportunity to improve network coverage.

“Although many operators are seeking rents of£3,000 for new sites, research by Deloitte for the mobile operators suggested that the industry pays, on average, £7,500pa in rent for sites in rural areas and £9,200 pa in urban areas. Rents continue to rise. 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.

“However, it should be noted that nonetheless some operators are proceeding on the basis of paying compensation rather than market rent. As such, landowners face operator attempts to secure low rents, which could in turn create a precedent. It is vital to keep informed about the regulatory changes and, if necessary, take advice from telecoms valuations experts.

The Digital Economy Bill appears likely to receive Royal Assent by Easter but the code will not come into force immediately as OFCOM have yet to draft various forms and Codes of Practice required under the revised code.

Transitional provisions apply following its introduction and it is important that landowners seek specialist advice regarding the impact of the code on any agreement they may have for electronic communications apparatus.