The Code doesn't trump contractual rights
In the first week of July 2025, the Court of Appeal handed down its judgment in On Tower UK Ltd v British Telecommunications PLC, in which it confirmed the interplay of contractual and statutory Telecoms Code termination rights.
In brief
- In the context of terminating agreements under the Electronic Communications Code (the "Code"), site providers (landlords) must ensure that a valid break notice has been served, complying with contractual terms and conditions, in tandem with a statutory termination notice under the Code. It is not sufficient that a contractual break is merely "exercisable" as a basis for terminating an agreement under the Code.
- If a contractual break notice is defective rendering it invalid, the operator's agreement will continue, and the site provider will not be entitled to terminate that agreement separately under the Code.
- It is only where the operator's underlying contract or lease has expired, and there is a statutory continuation of Code rights under paragraph 30 of the Code, that a lone paragraph 31 Code termination notice can be served to terminate the operator's Code rights.
- It is not 100% clear from the Court of Appeal judgment (or the Code) whether a contractual break notice must be validly exercised (and expire) before an 18-month paragraph 31 Code notice is served, but this seems unlikely. There is nothing to suggest that a Code notice cannot be served immediately after a break notice, to run in parallel, provided the break is legally exercisable when served, is validly executed, and expires before the paragraph 31 Code notice.
Facts of the case
The case concerned a BT-owned rooftop space on the Kenton Road telephone exchange, which it leased to Code operator, On Tower, to house telecoms apparatus.
In October 2022, BT sought to exercise a contractual break right to terminate On Tower's lease by serving both a contractual break notice and a termination notice pursuant to paragraph 31 of the Code, relying on the redevelopment termination ground.
On Tower contended that the contractual break notice was invalid as BT had relied on the wrong contractual provision, and the paragraph 31 Code notice was therefore also of no effect.
At first instance, the Upper Tribunal decided the following three key points:
- On Tower's lease is a Code agreement, conferring Code rights;
- BT’s contractual break notice was valid and effective to terminate the lease; and
- Even if BT's contractual break notice wasn't valid, the paragraph 31 Code notice alone was effective to terminate On Tower's Code agreement. It suffices that a break clause is exercisable, without having been exercised.
On Tower appealed points 2 and 3.
Court of Appeal judgment
The Court of Appeal upheld On Tower's appeal, finding in relation to point 3 that to terminate a Code agreement under paragraph 31 of the Code, a landlord must have effectively exercised its contractual break right (including complying with any procedural requirement(s) and/or pre-conditions for exercising the contractual break). This ensures that parties to a contract cannot use the Code to bypass the terms of an agreement struck between them.
In relation to point 2, the Court of Appeal held that BT’s contractual break notice was invalid. The break clause in On Tower's lease allowed BT to terminate on five specified grounds, one of which was disposition of the landlord's interest, which the court found to be BT's true intention here. However, BT had specified a different ground in its notice, which allows termination "for any reason other than the reasons set out in" the break clause, rendering the break notice invalid. BT argued that it was sufficient that it could have exercised a valid break under the lease (had it cited the correct ground), which the court did not accept. As no valid contractual break notice had been served, BT's paragraph 31 Code notice purporting to terminate On Tower's Code rights was of no effect.
This decision highlights the importance of landlords looking to terminate Code agreements getting proper advice on contractual break provisions and the Code. In particular, landlords should be aware that:
- The Code cannot be used to circumvent contractual terms; and
- Any such contractual terms must be strictly complied with.
A "minimum term" (10 years) Code agreement sparks the well-trodden lease/licence debate
Two weeks later, on 25 July, the Court of Appeal handed down its judgment in AP Wireless II (UK) Ltd v On Tower (UK) Ltd that centred around whether an agreement for a minimum of 10 years that continued until terminated by either party, created a "term certain" and thus took effect as a lease rather than a licence.
In brief
- There are three defining features of a lease: (1) the tenant has exclusive possession of the premises; (2) the lease is granted for a certain duration (a fixed term or a term capable of being ascertained with certainty); and (3) the lease requires the tenant to pay rent (not always strictly necessary).
- This case focused on the second requirement. The agreement between the parties was expressed to continue for a minimum period of 10 years (from 11 March 1997) and could be terminated by either party giving 12 months' notice, expiring on any day after the minimum term. The Court of Appeal had to decide if the term of the agreement expressed in this way was clearly ascertainable when the parties entered into the contract, which would mean it was a "term certain" and would meet the requirements of a lease.
- The Court of Appeal decided that a term will only be "certain" if it is clear at the outset of the agreement when it will or could terminate. An indeterminate period ending on an uncertain day in the future will not suffice (even if there is a fixed minimum period, and/or it is clear how or when notice to determine can be given).
Facts of the case
The case concerned an agreement entitling On Tower to install and maintain telecommunications equipment, including a phone mast, on a greenfield site in Sandbach owned by AP Wireless II (UK) Ltd ("APW").
On Tower sought to terminate the agreement and enter into a new agreement under the Code, which would only be possible if the agreement was a licence rather than a lease.
On Tower and APW could not agree on whether the agreement was a lease or a licence. APW was eager for it to be treated as a lease so that the first renewal of the agreement would be under the Landlord and Tenant Act 1954, commanding a higher rent. On Tower asserted that the agreement took effect as a licence to be dealt with under the Code, attracting a lower rent.
The main battleground was whether the agreement was for a "term certain" (an essential requirement for a lease).
In support of its contention that the agreement took effect as a lease, APW argued that:
- The term of the lease was not of uncertain duration. The minimum term of 10 years was the initial fixed "certain duration", and there was no fetter or restriction on either party's ability to serve 12 months' notice terminating the agreement after the minimum term.
- Even if the agreement was void as a lease (because it lacked a "certain term"), an annual periodic tenancy ought to have been inferred (in which case the agreement would also be renewable under the Landlord and Tenant Act 1954 rather than the Code).
Court of Appeal judgment
The court did not agree with any of APW's arguments. The length of the tenancy could not be determined with any certainty when the parties entered into the agreement, and therefore the agreement did not create a valid "term certain", which meant it could not take effect as a lease.
There was also nothing in any of the words used in the agreement to suggest that a periodic tenancy could be inferred. Instead, the Court of Appeal found that the agreement took effect as a contractual licence, on the same terms as the agreement. It would therefore be terminated and renewed under the Code (with its tenant-friendly 'no network' valuation model) rather than the Landlord and Tenant Act 1954 (under which rent is calculated on the open market).
Earlier this year, the Government consulted on the secondary legislation necessary to implement Part 2 of the Product Security and Telecommunications Infrastructure Act 2022 that will alter the financial terms on 1954 Act renewals of relevant (telecoms) leases so that they mirror those in the Code. This will ensure that the method of calculating rent for renewal agreements conferring Code rights is more consistent across the UK and will eliminate what has proved to be fertile ground for litigation between landowners and telecoms operators.