Court Of Appeal Clears The Way For Developers: Update On Code Rights And Concurrent Leases

• Published date: 25 July 2023
• Subject Matter: Litigation, Mediation & Arbitration, Real Estate and Construction, Trials & Appeals & Compensation, Real Estate, Landlord & Tenant - Leases
• Law Firm: Herbert Smith Freehills
• Author: Mr Matthew Bonye, Frances Edwards and Shanna Davison

In August 2022, the Upper Chamber of the Lands Tribunal identified a major structural defect in the Electronic Communications Code which sterilised land from development if there was an intermediate lease structure in place. The case was Vodafone Limited v Gencomp (No.7) Limited and A P Wireless II (UK) Limited (LC-2021-613) and you can read our blog post here for further details.

Interestingly, the Gencomp case wasn't in fact about development. Vodafone wanted to renew its Code agreement (granted in the form of a lease) and whilst the original site provider and the intermediate landlord were happy to do so, no-one could work out who should be the correct party to terminate the existing Code agreement and grant the new one.

The issue turned on paragraph 10 of the Code, which sets out who is bound by a Code right. It includes:

• an occupier with an interest in land who conferred the Code right (we'll call them "O")
• a successor in title to O (ie a purchaser of O's property interest) ("P"); and
• any subleases created out of O's interest after the Code rights had been granted ("S").

Paragraph 10 states P is treated as a party to the Code agreement, alongside O, but it is silent on S.

The importance is that Part 5 (termination and modification of a Code agreement) can only be triggered by a notice served by or on "a site provider who is a party to a Code agreement". So whilst O, P and any S are all bound by the Code agreement, it is only O or P who are treated as parties to the Code agreement.

As a worked example, and using our labels above, a freehold owner of an office block (O) may grant a Code agreement via a lease to a telecoms operator to install a mobile phone aerial on the roof. The freehold owner then sells the building to P. P grants a long leasehold interest to the building occupier (S), which includes the roof. This is a concurrent lease, as S takes the property subject to the Code agreement lease. Some years down the line, S wishes to redevelop the roof and convert it to a terrace, green space and install solar panels. The outcome of the structural defect identified by the Tribunal is that S, whilst the competent landlord of the operator under landlord and tenant principles, is not treated as a party to the Code agreement. So S could not serve a termination notice. P, whilst treated as a party to the Code agreement, is not the occupier (ignoring the operator) and so is also not the correct person to serve the notice either. It left developers in an...