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Solicitors Journal: A matter of intention

Posted on 25 October 2019. Source: Solicitors Journal

Solicitors Journal: A matter of intention

Property Litigation Managing Associate Mark Reading and Associate Isabel Lich analyse the first application of the Franses conditional intention test for landlords in the context of telecommunications.

In the recent case of EE Ltd and Hutchison 3G UK v Meyrick 1968 Combined Trust of Meyrick Estate Management [2019] UKUT 164 (LC), the Upper Tribunal (the tribunal) had to consider a landowner's objection to the imposition of rights pursuant to the Electronic Communications Code.

The Code creates rights for mobile telephone network operators to keep and use telecommunications equipment on land. In this case, the operators' application for code rights was challenged on the basis that the landowner intended to redevelop the land in question.

The landowner was unsuccessful as it was not found to have the requisite intention as its redevelopment plans were plainly "conceived in order to defeat the claim for Code rights".

In reaching its conclusion, the tribunal considered and applied case law generated in relation to section 30(1)(f) of the Landlord and Tenant Act 1954 (the 1954 Act), commonly known as the ‘redevelopment ground’ which can be used by landlords to oppose the grant of a new business tenancy.

Notably, the tribunal confirmed that the new conditional intention test established in the Supreme Court decision in S Franses Limited v The Cavendish Hotel (London) Limited [2018] UKSC 62 is relevant in a telecommunications context.

Resisting code rights

The Code, which came into force on 28 December 2017, grants operators statutory rights to install or keep apparatus on land after their contractual rights have been terminated.

Operators can gain rights under the Code by agreement with the landowner or, if such agreement is not forthcoming, by asking the tribunal to impose them by way of an order.

A landowner can attempt to resist the imposition of code rights by relying on paragraph 21(5) of the Code.

This provides: “The court may not make an order […] if it thinks that [the landowner] intends to redevelop all or part of the land to which the code right would relate […] and could not reasonably do so if the order were made.”

The claimants in this case are operators who, despite being competitors, share infrastructure. The subject matter of the proceedings was an estate in Hampshire on which the claimants occupied four masts.

In March 2018, negotiations for the renewal of the leases of the mast sites broke down and the claimants commenced proceedings for the grant of code rights.

The landowner attempted to resist the application on the basis of paragraph 21(5) by asserting that it planned to replace the claimants' masts with its own masts to provide the estate with better broadband services.

The landowner was attempting to take advantage of the fact operators can only gain code rights over land and not over existing equipment, by obtaining “possession, redevelop[ing] and then allow[ing] the claimants back” on its own terms, free of the constraints of the Code.

The three issues in dispute were:

  • whether Code rights should be imposed; if so,
  • what rights and on what terms; and
  • what consideration and compensation should be payable.

The tribunal chose to deal with the first issue as a preliminary issue.

Objective and subjective tests

Although the tribunal accepted that case law associated with section 30(1)(f) of the 1954 Act is "not binding authority in the context of the Code", it found that "the principles applicable to the 1954 Act should be adopted where they are relevant".

The tribunal adopted the two-part test usually applied to 1954 Act cases – whether at the date of the hearing the landlord had:

  • a reasonable prospect of being able to carry out the redevelopment works (the objective test); and
  • a firm, settled and unconditional intention to do so (the subjective test).

The tribunal found that the landowner had satisfied the objective test as it had been granted planning permission and had sufficient resources to fund the redevelopment without the need for co-operation from others.

The difficultly for the landowner was satisfying the subjective test. Until the Supreme Court's decision in Franses, the subjective test had been largely unchanged since the 1954 Act came into force.

In Franses Lord Sumption introduced a new approach; in order to satisfy the subjective test "the landowner must intend to do the same works if the tenant left voluntarily".

In other words, if the landlord's only motivation in carrying out the redevelopment works is to prevent the tenant's continued occupation of the property, then the intention is said to be conditional on their occupation and will fail the test articulated in Franses.

The tribunal confirmed that in a telecoms context a landowner could be said to have conditional intention if its intention was based on a desire to prevent the acquisition of code rights.

It found that the landowner had failed to satisfy the subjective test as its scheme of redevelopment "was put together in response to the claimants' application for Code Rights and in order to prevent their getting those rights, but that the Respondents had no serious intention to carry it out".

The tribunal based its decision on four key factors:

  1. The timing of redevelopment plans – The landowner's willingness to change its plans in an attempt to overcome difficulties in the original scheme it proposed was not evidence of dynamic business planning, but of a determination on the landowner's part to "produce a scheme that will enable the respondents to resist the grant of Code rights to the claimants" thereby denying the claimants' code rights. The question of timing was also a key factor in the only other post-Franses judgment (London Kendal Street No 3 Ltd v Daejan Investments Ltd [2019] 7 WLUK 589). However, the County Court failed to offer any guidance on how this issue should be addressed (the decision is currently being appealed).
  2. The landowner's failure to explore alternative options – Had the respondent held a genuine intention to provide better broadband services to the estate, it would have contacted the established providers already on the estate. Instead "the respondents composed their original scheme without any consideration of easier options".
  3. The (lack of) evidence for the utility of the landowner's schemes – The landowner failed to supply any credible evidence of problems with broadband on the estate. Its evidence was mainly anecdotal, with the exception of a questionnaire commissioned after proceedings had commenced; and after the decision to redevelop had already been made. In contrast, the claimants' expert had undertaken tests which showed the broadband service was not as bad as the landowner had alleged.
  4. The financial viability of the current scheme – While the tribunal accepted that the landowner would have the means to fund the scheme, it could not show why the scheme was a financially viable one. The tribunal was "not persuaded that the respondents have so much money to spare that they can – consistently with their responsibilities as trustees – squander it in this way".

Continued uncertainty

While this case brings welcome guidance on how Franses should be applied in a telecoms context, the legal landscape in this area remains uncertain.

The decision in Franses left many questions unanswered and it is still not clear how it would be applied by the lower courts.

The timing of redevelopment plans is likely to be a key factor in many cases but, as mentioned, we are yet to receive any clear guidance from the county court on this issue.

Both landlords and tenants will be able to deploy tactics to exploit the present uncertainty to their advantage in 1954 Act or code proceedings.

This means obtaining specialist advice on any such proceedings is more important than ever.

This article was first published by Solicitors Journal's here.

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