Digital Economy Act 2017 - the new Electronic Communications Code

The Digital Economy Act 2017 has now been passed and is due to come into effect later in 2017, and with it, comes the new Electronic Communications Code. The new Code has been eagerly anticipated; the old code having been famously described in a case in 2010 by Mr Justice Lewison (as he then was) as “one of the least coherent and thought-through pieces of legislation on the statute book”. Given the Government’s drive to provide high-quality networks to the entire country and with businesses becoming more and more reliant on superfast broadband, what has changed for operators and landowners?

The New Code is longer!

The original 1984 Code had 28 sections, and was about 32 pages. The new one has 108 sections, and is 55 pages. That may or may not be progress. But more importantly……

More power to the Operator

Under the new Code, Operators now have an automatic right to assign code agreements and, subject to certain conditions, to share or upgrade equipment with other Operators. The landowner can insist that the outgoing Operator guarantees the performance of the incoming Operator, but sharing or upgrading is permitted without the need for landowner’s consent so long as it only causes minimal adverse visual impact and does not impose any additional burden on the landowner (meaning no additional adverse effect on the landowner’s enjoyment of the land and no additional loss, damage or expense). So landowners will no longer be able to charge extra for new or additional operator users, or (generally) for new equipment. Although code agreements can be terminated if the landowner wants to redevelop, at least 18 months’ notice is required. So a well-advised landowner should be careful to ensure that it retains sufficient ‘lift and shift’ rights in the Code agreement as there is nothing in the new Code akin to paragraph 20 of the old code that provides for this.

Another issue for the landowner to consider is that these greater sharing and assignment rights could cause difficulty in identifying the actual Operator at any one time. We expect to see express notice provisions in Code agreements compelling Operators to inform the landowner on any such dealing.

Less income for the landowner

As a result of a revised assessment for rents under new Code agreements, income streams for landowners are likely to decrease significantly. While still supposed to represent market value, the calculation is now to exclude any value attributable to the proposed network use, or attributable to the enhanced rights to share use or upgrade equipment, and to assume there are other sites the Operator could use. So in future, the rent will reflect the value of other possible uses to which the site – typically, only a small area e.g. an empty portion of a roof - could be put.

As the new Code is not retrospective, landowners with Operators already on their land under old code agreements would be advised to keep those agreements in place as they are likely to command higher rents than those granted under the new Code. We would expect to see Code agreements governed by the old code being renewed by landowners and refusing Operators’ attempts to surrender existing agreements.

Clarity on the Landlord and Tenant Act 1954

One of the main problems with the old code was that it did not exclude the security of tenure provisions of the Landlord and Tenant Act 1954 (which gives business tenants the right to renew their leases). As a result, Operators could be doubly-protected (where an agreement could be regarded as a lease) which meant landowners trying to end a code agreement were left with a messy and burdensome process. In light of this, landowners would seek to exclude the 1954 Act in the usual way for property leases.
   
Under the new Code the 1954 Act no longer applies to Code agreements, where the primary purpose of the agreement is to give the Operator rights under the Code. If an agreement is deemed to be a property lease and not a Code agreement (if the main purpose was not the grant of Code rights), then the 1954 Act security of tenure rights would govern the document rather than the Code’s termination rights. This welcome change ensures that the relevant document will only be governed by one of the regimes on termination.

Are disputes likely to increase?

Historically, Operators have been reluctant to exercise their Code rights to compel landowners to grant a code agreement, due to potential reputational harm, not to mention the costs and timeframes involved. However, with less commercial incentives for landowners to agree, one might expect Operators to be forced to invoke their Code rights more frequently and with that, more disputes will inevitably follow – especially when you couple this with the likely increase on landowners seeking to renew old code agreements rather than granting new ones.

The new Code, however, makes it easier for Operators to argue that the Court should give an order imposing Code rights on a landowner. The Court is now required to look at the public interest and it is deemed to be in the public interest to have a choice of high quality services rather than just ensuring (as was the case under the old code) that a person must not be unreasonably denied access to a service. It remains to be seen whether the interpretation of this new test will include a right to upgrade to full fibre broadband.
    
The Code also contains a more efficient and streamlined dispute resolution procedure in the event that landowners refuse consent, and contains similar grounds for refusal to grant a new Code agreement or to terminate an existing one as contained in the 1954 Act. We would expect that any disputes would be construed in the light of existing 1954 Act case law.

Our assessment of the changes

• Given the lower revenues available and greater uncertainty in recovering their land, we would expect to see more refusals by landowners to Operators seeking to obtain a Code agreement.
• As a result, we may see more use of the Court procedure to compel landowners to grant Code agreements and more litigation as a result.
• Greater certainty on 1954 Act implications and a likelihood to use existing 1954 Act case law as an aid to interpret the new grounds for refusal contained in the new Code.
• Greater confidence for Operators to roll-out new Code agreements resulting in an uplift in the volume of Code agreements being entered into.
• Government pressure on Operators to deliver faster and more reliable broadband services.