Evaluations in valuation: further guidance on rents under the Telecoms Code

COMMENT Two decisions in January have provided further guidance on valuations (rent) under the Electronic Communications Code, and are likely to prove useful yardsticks in future cases. The Pippingford Park case EE Ltd and another v Morriss and others [2022] EW Misc 1 (CC); [2022] PLSCS 4 involved consideration of the appropriate rent and associated methodology for a rural estate, Pippingford Park, near Uckfield in East Sussex. EE applied for a new tenancy as a continuation tenant under a business tenancy. In that sense, the case was on all fours with the scenario in Vodafone Ltd v Hanover Capital Ltd [2020] EW Misc 18 (CC); [2020] EGLR 35; the new tenancies would be those to which the Code applies, and would confer Code rights on the tenants. However, the decision diverged somewhat from the process adopted in Hanover in determining the correct approach under section 34 of the Landlord and Tenant Act 1954 on the basis of the differing context for the evaluation. Context is key In Hanover, the deputy president of the Upper Tribunal (Lands Chamber), Martin Rodger QC (sitting as a county court judge), held that in the absence of valuation evidence, under section 34 the court was required to determine the rent at which the site might reasonably be expected to be let in the open market by a willing lessor on the terms of the new tenancy. That involved the valuation technique of imagining a negotiation between a hypothetical landlord and tenant who would enter into the tenancy, with the Code and its “no network assumption” (paragraph 24) providing the framework for the negotiation. In Morriss, however, the situation was different. There was suitable, comparable evidence before the court, the matter being called on some 16 months after the Hanover case. When considering Hanover, the court had just four examples before it as comparables, two relating to lettings to non-operators. In Morriss, because the evidence of new lettings was “of sufficient quality and quantity to enable clear conclusions to be drawn”, the court would simply consider the comparables. That said, it would keep in mind that the parties would proceed on the footing that if matters could not be agreed consensually, the prospective tenant would apply for the imposition of an agreement and determination of any terms outstanding between the parties. Hanover can therefore be considered to have been somewhat superseded by the approach in Morriss, with the structured approach only appropriate where there is a lack of suitable comparable evidence. Premiums A further point which arose for clarification was the effect of the payment of a premium in comparable lettings. The court confirmed that a capital payment, or ECIP (early completion incentive payment), must be considered as part and parcel of the comparable evidence, the judge commenting: “Capital payments are an established feature of the market, available irrespective of the level of enthusiasm of the particular site provider or the significance of the particular site. They cannot be dismissed as payments for willingness but represent instead a core component of the financial package which willing landlords and tenants agree for the lettings of new sites.” He therefore found that the rent for the site should be £1,200 (annual rent as indicated by comparables), plus around £1,950 for a premium (set at £15,000 but with a further allowance for 5% yield over 10 years rather than added on a straight-line basis) plus around £500 for professional fees, a total of £3,500 pa when rounded.  The Allenby Road reservoir case In EE Ltd and another v Affinity Water Ltd [2022] UKUT 8 (LC); [2022] PLSCS 12, the tribunal considered the appropriate rent for a water tower site at Allenby Road Reservoir in Southall, west London. The tower already housed equipment owned by three other operators in addition to EE’s kit. EE was occupying under a contracted-out, fixed-term lease. The operator therefore sought to renew under Part 5 of the Code, and it was common ground that it had a right to a new agreement. Rent was the only matter between the parties. Presumably, as a result of a dearth of comparables for water tower sites, the court adopted the approach from Hanover, namely: (i) assessing alternative use value; (ii) considering additional benefits for the operator (if any) in respect of the particular site; and (iii) considering the need to compensate the site provider for any adverse effects. The decision is likely to prove of use in assessing appropriate rent in other water tower cases. The tribunal found a nominal amount of £62.50 under the first stage. The parties’ arguments on the second and third limbs were much more seriously contended, however. The parties had already agreed a sum of £500 to cover benefits afforded by locks, maintenance of the tower’s lightning conductor, labour costs, five-yearly inspections and insurance. The tribunal heard argument concerning the benefits to the operator afforded by grounds maintenance, security, building and site maintenance, tree works and pest control, and awarded small sums for each, totalling less than £500 across all five heads. The tribunal added £350 for forthcoming repairs and £50 for the right to operate a generator. Adding together the sums, the second stage produced a total that would be rounded up to £1,400. The appropriate amount under the third stage was deemed to be £1,500, and a 10% uplift for a flexible break clause brought the round total for all three stages to £3,300 pa. Laura West is senior associate (barrister) in the real estate litigation team at Penningtons Manches Cooper Photo © Martin Moxter/imageBROKER/Shutterstock