EE Ltd & Anor v Morrisss & Ors [2022] EW Misc 1 (CC) (07 January 2022)

“The parties would know that if a notice [under paragraphs 20 or 26 of the Code] was served and the landlord did not agree to the operator’s terms, the operator would have the right to refer their dispute to the Upper Tribunal. The reference might take up to a year or more to be concluded after a decision was taken to serve a notice. Its outcome would not be certain, …. If the hypothetical tenant (or whoever had given the notice) wanted to get on to the site early, it could apply for interim rights under paragraph 26 of the Code, which would be likely to be granted. Once a notice was given, the process would become increasingly costly for both parties until they reached agreement or a new lease was imposed on them by the Tribunal. The consideration which the Tribunal would include in the hypothetical agreement (the rent) would depend on the evidence which the parties adduced, as would any additional compensation which the hypothetical tenant would be required to pay to the hypothetical landlord. These sums would be ascertained, in default of agreement, under paragraphs 24 and 25 of the Code.”

The same right to resort to the Upper Tribunal and eventually to obtain a determination by it of the consideration payable under an imposed Code agreement are known to real parties negotiating new Code agreements (at least where the site provider is knowledgeable or professionally advised). The effect of negotiating in the shadow of the Code can therefore be expected to be reflected in the rents agreed between parties in reality (evidence I have heard in other cases confirms this). If sufficient evidence of those rents is available there should be no need to resort to other valuation approaches.

On behalf of the defendants Mr Wills submitted that it was not permissible to take account of the possibility that the operator might seek to obtain a new Code agreement by any means other than by negotiation. The suggestion in Hanover Capital that the hypothetical parties would negotiate a rent influenced by the right of the operator to give notice under paragraph 20 of the Code and to apply to the Tribunal for the imposition of a Code agreement at a consideration determined in accordance with paragraph 24 was, he suggested, wrong in principle and contrary to the decision of Lewison J in Marklands Limited v Virgin Retail [2004] 2 EGLR 43.

Marklands was a rent review case concerning a large retail unit on three floors. The landlord argued before an arbitrator that the rent should take account of the landlord’s ability, in the hypothetical negotiations with the tenant, to suggest that he might choose to divide the unit into smaller component parts and to let those parts separately. The arbitrator’s award did not take that possibility into account and the landlord appealed to the High Court. Lewison J held that the only alternatives to the hypothetical letting which can be taken into account are those within the framework of the hypothetical transaction i.e. a letting of the whole to a single occupier. At paragraph 20 of his judgment Lewison J explained why that approach was necessary:

“ … the landlord is willing to enter into the transaction laid down by the lease, and does not have to be persuaded into doing so by being compensated for giving up more profitable transactions that he might have done instead. In my judgment if the landlord is allowed to rely on the possibility of entering into wholly different transactions at least two possible problems will ensue. First, there will be a real danger that the tenant will be made to pay a rent appropriate to a more valuable lease than the one by which he is in fact bound. Second, the range of alternatives would greatly increase the scope of the hypothetical factual enquiry. I conclude, therefore, that the arbitrator made no error of law in not considering whether the landlord had alternatives outside the transactional framework laid down by the lease.”

I do not think Marklands has any relevance to this case. The rent to be determined under section 34 is a rent for the whole Site which takes account of all relevant features of the real world, except to the extent that the valuation hypothesis requires otherwise. That rent is to be arrived at having regard only to those matters which would influence parties negotiating a letting of the whole Site, and uninfluenced by any other way in which the Site could be let. Section 34 does not require that the existence of the Code be ignored, or that the parties must be assumed to be ignorant of its provisions. They will reach agreement, but in the course of their negotiations they will both be aware of the valuation approach which would be taken if the consideration was to be determined by the Tribunal under paragraph 24. That does not involve the threat of a transaction outside the framework of the putative letting and carries with it no danger that the tenant will have to pay the rent appropriate to a more valuable tenancy, nor does it increase the range of the relevant evidence. It involves no more than assuming that the parties will make full use of their respective bargaining positions. As Donaldson J put it in F.R. Evans (Leeds) Ltd v English Electric Co. Ltd (1977) 38 P. & C.R. 185, at 191: “The negotiations are assumed to be friendly and fair, but, subject to that qualification, would be conducted in the light of all the bargaining advantages and disadvantages which existed on [the valuation date].”

Preliminaries

Before coming to the evidence there are a number of general points which can usefully be made.

First, it is common ground that it is necessary, when making use of transactional evidence, to consider whether agreed rents include an incentive payment to induce willingness in an otherwise unwilling site provider (discussed in Hanover Capital at paragraphs 56 to 63).

Secondly, in this sector it is almost invariably the case that agreed rents will have been arrived at “off market” in circumstances where the operator has selected a site in which it is interested and has approached the owner with a proposal to let it. It will usually be the case that the site owner had no previous interest in, or intention of, letting the site and did not offer it for letting on the open market. It will therefore be necessary to consider whether any adjustment is required to rents agreed in the real world to take account of the assumption that the hypothetical letting is one which takes place in the open market in which the property is offered to all who might be interested in it (discussed in Hanover Capital at paragraphs 64 to 71).

Thirdly, much of the transactional evidence is of the renewal of leases of existing sites; but a renewal is a poor comparator for a new letting of a bare site between parties negotiating at arm’s length in the open market and such evidence must be therefore viewed with circumspection. When parties negotiate for the renewal of a lease of an existing site they are already in a relationship of landlord and tenant, and the site is already equipped. In most cases, while the negotiation continues, the site provider will be entitled to receive a rent under the parties’ previous agreement which will have been set during the currency of the old Code (uninfluenced by the no-network assumption). That passing rent will almost certainly be considerably higher than the rent the parties eventually agree for their new letting in the shadow of the new Code. None of these features of a renewal negotiation is mirrored in the section 34 valuation hypothesis, and it would be very difficult to make a reliable assessment of the influence they are likely to have on the outcome of the negotiation. Because the parties are moving from one statutory environment to another, telecommunications lease renewals, to a much greater extent than lease renewals of other types of property, are poor comparables for section 34 valuations. Weight ought not to be put on them if sufficient evidence of lettings of new sites is available. The same point was made by the Court in Hanover Capital at paragraph 77.

Fourthly, when employing evidence of lettings of new sites for the purpose of a section 34 valuation, it is essential to be aware of all of the features of the comparable transaction which may have influenced the rent agreed. That is a basic principle of valuation by the comparative method, but it is one which the claimants dogmatically resisted earlier in these proceedings. It has been an article of faith for the claimants that capital sums paid by them to site providers as part of the terms of lettings of new sites, or on the renewal of leases of existing sites, must be treated as “inducements” and left entirely out of consideration. They insist that only the sum identified by the parties in a new letting as consideration assessed in accordance with the provisions of the Code can be used as a guide to rental value and that all other payments, no matter how substantial, must be treated as the price of purchasing the willingness of otherwise unwilling site providers.

Adherence to this dogma led the claimants to withhold full details of their own transactions from the defendants (and possibly even from their own expert witness - despite being aware of the practice of making capital payments Mr Sladdin did not include them in the comparable material he initially identified as relevant and could not recall when he had been given access to the full details of those transactions; the information about capital payments which he did include in his report were later agreed by him to be wrong, significantly under-stating the sums paid). It took an order of the Court before details of capital sums paid by the claimants on new lettings were disclosed. When disclosed, those payments cast many of the transactions on which Mr Sladdin had originally relied in a rather different light. New lettings which he had understood involved site payments of £250 a year had been accompanied by a capital payment of £15,000 on completion. Whether or not the claimants are right about those payments being inducements which ought in principle to be ignored (a matter to which I will return) it is indefensible for them to keep the details of such transactions from the experts and from the Court. What the payments represent is a question of fact for the Court, and what account is to be taken of them is a question of valuation judgment for the experts; neither question falls to be pre-determined by one of the parties.

Finally, submissions were made about the objectivity of the expert witnesses in this case (in particular, about Mr Sladdin’s objectivity). Two particular features of the telecommunications scene have to be kept in mind when considering that type of submission. First, the valuation of telecommunications sites is an abstruse sub-specialism in the world of property valuation in which there are few participants with the expertise and confidence to give evidence to Courts or Tribunals. Secondly, at least since the introduction of the new Code, relations between site providers and operators have become polarised and highly adversarial, with the result that professionals acting in this field, especially those giving evidence, operate almost exclusively for one side or the other. That presents real risks to the independence and objectivity of experts, as they can easily become advocates for the interests of the party instructing them. The Court is aware of those risks and can take them into account when evaluating an expert’s evidence. The experts in this case are both extremely well qualified and experienced and I have no doubt that the evidence they gave represented their true and honest opinions.

Valuations

Mr Sladdin provided evidence in support of a rent of £950 a year. His view was that the rent should be based on the six stage structured approach employed in Hanover Capital because an operator considering taking a tenancy of the Site would bear in mind that it could do so at a Code no-network valuation if it followed Code procedures.

Adopting that structured approach Mr Sladdin first attributed an existing use value of £250 to the Site. That figure reflected the income available from hostile environment training which had a higher value than what he called its “underlying land value” as non-commercial woodland. No services were provided by the landlord but, basing himself on the Upper Tribunal’s decision in On Tower UK Ltd v JH &FW Green [2020] UKUT 348 (LC), Mr Sladdin attributed £600 to the benefit of the right to install a mast, to maintain a connection to an electricity supply, to enter adjoining land for associated purposes and to carry out any necessary pruning of trees. The Site was not in proximity to any dwellings and its use for telecommunications purposes would not impose significant burdens on the landlord so Mr Sladdin made a nominal allowance of £100 at the third stage (again consistently with view of the Upper Tribunal in On Tower v Green at paragraph 142). Aggregating these three figures produced an annual rent of £950.

Mr Sladdin also thought that the value of the Site would be affected by the access arrangements. In particular, if the access arrangements did not require the tenant to make a payment on each occasion when access was required (as proposed in the defendants’ access protocol) he said he would increase the third stage component in the structured valuation (reflecting burdens on the landlord) from £100 to £500. If that approach was taken, he considered that it would be appropriate to reduce the existing use value from his original £250 to a nominal £100. The addition of £250 would produce a figure of £1200 which, by the end of his evidence, I took to be Mr Sladdin’s view of the appropriate rent under section 34 if (as I have done) I determined that no separate access payments should be made.

If legal and valuation fees were not paid separately Mr Sladdin considered that they ought to be rentalised and an additional sum added to the annual figure. He did not suggest a figure, but referred instead to Hanover Capital, where the Court added £445 a year to the rent to reflect the market practice of operators making a capital contribution to the site provider’s professional costs.

In his original report Mr Sladdin had assumed that the Site would be offered for letting without planning permission for a mast. He also considered that its designation as ancient woodland, SSSI, special conservation area, and area of outstanding natural beauty meant that commercial use would be unlikely to be granted planning approval (although some amenity or recreational uses would be consistent with planning policy). He therefore considered that the need to obtain planning permission would represent “a risk for the tenant”. By the time he gave evidence Mr Sladdin had been advised that the statutory valuation assumptions do not require a disregard of the planning permission for a mast which already existed in reality. He nevertheless did not consider that any adjustment was required to his proposed rent because, he said, he had assumed the incoming tenant would be confident of obtaining planning permission.

Mr Sladdin did not consider that old Code lettings of other sites for telecommunications purposes at rents of £5,000 to £6,000 a year were reliable guides to value under the new Code. Because consensual transactions under the new Code take place off-market, and because deals typically included a significant incentive element, he considered that they were difficult to use in a section 34 valuation. In his view greater weight should be given to the structured approach applied by the Upper Tribunal in Code valuations.

Mr Sladdin also considered whether the fact that the letting must be assumed to take place in the open market meant that the rental value would be increased by competition for the Site between operators or infrastructure providers, but he concluded that it was very rare for there to be competition in practice and that operators did not bid against each other for sites or take account of potential sharing income when deciding what to pay. On lease renewals the market did not differentiate between the value of a shared site and a site in single occupation. Site sharing between operators was rare (other than between EE and H3G through their joint ownership of MBNL, or between Vodafone and Telefonica through CTIL) and occurred at fewer than 5% of sites (although the subject site was one of them). He attributed this to technical and legal obstacles and considered that where sharing was both practically and legally possible it was likely to be pursued where an operator had an established site and another operator identified a need to install apparatus in that vicinity. But there was, as he put it, “almost zero prospect” of two operators having a need for a new site in the same location at the same time. Infrastructure providers (rather than operators) were interested in mature sites and would not speculate on a new site. Mr Sladdin’s assumption was that there would be no competition for the Site if it was offered to the open market by the owner.

To support his view that the potential for sharing was irrelevant to the value of a site Mr Sladdin referred to a consensual lease renewal under the 1954 Act at Orange Woods in December 2020. The landlord had been professionally represented and a rent of £1,000 a year with a capital sum of £10,000 had been agreed. If the capital payment was rentalised on a straight-line basis this represented an equivalent rent of £2,000 a year.

As for capital sums paid on the grant of new leases, referred to by operators as ECIPs (for “early completion incentive payments”) Mr Lester’s evidence had been that although capital payments were not included in the opening offers made by MBNL, in practice they were paid in a high proportion of cases: “invariably, a high proportion involve payments”. Mr Sladdin agreed with that evidence and that payments were offered both on lease renewals and on new sites, but he considered that in principle they should not be reflected in a rent determined under section 34 because they were a “payment for willingness”. He also agreed that the fact that operators were prepared to make capital payments and to pay a site provider’s professional fees was well known; in practice, he said, “as soon as people know about it everyone else will want it”.

Mr Thornton-Kemsley thought that the appropriate annual rent for the Site was £12,000. Section 34 did not include a no-network assumption and, whatever the hypothetical parties might be taken to have in mind in their negotiations, there is now sufficient market evidence to enable a rent to be determined by the conventional comparative method of valuation. It was therefore unnecessary to follow the structured approach taken in Hanover Capital.

Mr Thornton-Kemsley identified 12 transactions which, after what he called “objective adjustments”, he considered supported his rent for the Site of £12,000. The objective adjustments were very substantial and often led to an adjusted figure which was more than double the rent actually agreed. In most cases the adjustments included a figure of £5,000 or £5,500 said to reflect the site sharing potential of each site. The comparables included lettings to infrastructure providers and other tenants not entitled to the benefit of the Code (Gatwick Airport, utility companies and police forces); some were new lettings of bare sites, others were lease renewals, and one was a litigation settlement.

A number of Mr Thornton-Kemsley’s comparables were lettings of new sites. Several of these included a statement that the transaction had been negotiated before the commencement of the new Code in December 2017, although completed after it had come into force. Three other new lettings were not caveated in that way. Lettings of two sites to the Home Office at Hawick and at Selkirk on the Buccleuch Estates, agreed in April 2018 and completed in October the same year at rents of £5,400 a year, were said to include a premium element because of the strength of the Estate’s bargaining position due to its extensive landownership in the locality. Another letting at Kirriemuir, in Angus, in December 2019 to the Secretary of State at a rent of £5,500 was said to require adjustment due to the remote location and consequent difficulties in servicing the site. Finally, the letting of a bare site at Lossiemouth in January 2020 to an infrastructure provider at a rent of £5,000 a year was thought by Mr Thornton-Kemsley to illustrate the sort of rent such a tenant might pay for the opportunity to acquire a site which it would then make available to an operator.

Mr Thornton-Kemsley was not attracted to the approach to competition taken by the Court in Hanover Capital. He considered that the appropriate way to take account of the fact that the Site was used by a number of different operators was to adjust the market transactions to reflect the potential for the tenant to generate an income from sharing, rather than by assuming that different operators would compete with each other in the open market for the opportunity to take a tenancy of the Site.

Mr Thornton-Kemsley also provided a valuation on the Hanover Capital model, which suggested to him that rent of almost £19,000 a year would be appropriate, although he did not think that the approach was applicable in this case. He took the existing use value of the Site to be £8,620 a year based on the daily rates of hire paid by training companies and the rents charged for storage containers.

Discussion

The new Code came into force in December 2017 but the evidence before the Court in Hanover Capital in August 2020 was that there had been very few new lettings (paragraph 4). It was suggested that situation was contributed to by uncertainty over the operation of the Code but, whatever the reason, it meant that the Court in Hanover Capital had very little market evidence of new lettings (meaning lettings of new sites, rather than re-lettings of existing sites) on which to base its determination of a rent. The evidence included only four transactions relating to new sites. Two of those were relied on by the landlord but both had been negotiated and agreed in principle before the commencement of the Code, and for that reason the Court did not find them a reliable guide to what would be likely to be agreed in the current market for a letting of a new bare site (see Hanover Capital, at paragraphs 76 to 80). The same can be said of a number of Mr Thornton-Kemsley’s comparable transaction. The transactions referred to by the tenant’s expert in Hanover Capital were complicated by substantial one-off capital payments and were not relied on by him for that reason (see Hanover Capital, at paragraph 88).

I agree with Mr Thornton-Kemsley that where a rent is to be determined under section 34 of the 1954 Act the adoption of the structured approach resorted to in Hanover Capital is only necessary where reliable transactional evidence is missing. This case is being decided sixteen months after Hanover Capital and on different evidence. If the evidence of new lettings of bare sites is of sufficient quality and quantity to enable clear conclusions to be drawn, as I believe it is in this case, it is unnecessary to adopt the structured approach previously identified.

I remain of the view that the negotiating parties would have in mind the possibility that, if they could not agree terms, the prospective tenant could give notice under the Code and apply to the Upper Tribunal for the imposition of a Code agreement. But such a protracted and expensive process would not be an attractive prospect for either party, and while it would serve as a backstop and provide a valuation context it would be unlikely to feature significantly in their negotiation. The same route is available to the prospective tenant in most new transactions and the effect which it has on the negotiation can be determined by looking at the outcome, without the need to undertake a valuation under paragraph 24 of the Code and then to speculate about how it might be adjusted up or down in light of the parties’ relative bargaining positions.

In principle, therefor, based on the evidence which is now available, I prefer Mr Thornton-Kemsley’s conventional comparative approach to the route taken by Mr Sladdin.

The weaknesses in Mr Thornton-Kemsley’s approach were his preference for older comparables and the substantial and apparently arbitrary adjustments he made to the transactional evidence.

He qualified his acceptance of the proposition that a market transaction which was close in time to the valuation date was more useful than a historic transaction by saying that that was true in a changing market, but he made no attempt to demonstrate that the market in telecommunications sites was stable. The Upper Tribunal had been prepared to make that assumption in Hanover Capital at [107] but with the caveat that an absence of evidence of changes in rental value between 2017 and 2020 might simply reflect an absence of relevant transactions. Mr Thornton-Kemsley’s own evidence appeared to demonstrate that an assumption of stability was no longer justified and other evidence of lettings of new sites not analysed by Mr Thornton-Kemsley strengthened that impression. His report included a list running to four pages of transactions between January 2018 and September 2020 (plus a litigation settlement in January 2021), yet the latest letting of a new site selected for inclusion in his 12 key comparables was in January 2020. He made no reference to 19 transactions in his list which completed in 2020 or to a further 13 such transactions of which there was also evidence. These 2020 transactions were almost all at substantially lower rents than Mr Thornton-Kemsley’s preferred comparables. 17 of the 24 transactions in his list which completed after December 2019 were at rents of £2,250 or less (including capital payments rentalised on a straight-line basis).

Three of the 12 transactions on which Mr Thornton-Kemsley relied were plainly not comparable. One was at a rent of £27,500 plus a 15% pay-away and was part of a complex arrangement involving a much larger site with buildings which already hosted a 40m mast shared by at least 7 users. Two others had been settled in the course of litigation at rents of £13,000 (plus a contribution towards the landlord’s costs) and £10,000 (which Mr Thornton-Kemsley agreed was not helpful).

Mr Thornton-Kemsley’s other nine key transactions were lettings at rents of between £4,500 and £7,500 with an average of £5,740. After making adjustments he considered that these transactions supported a valuation for the Site of between £9,400 and £12,325. Whether one looked only at the nine transactions or at all 12, the average adjusted rental value of Mr Thornton-Kemsley’s key comparables was around £11,200. He considered that average should be adjusted upwards “to reflect the fact that the lease is to two Code operators who are not joint and severally liable” (overlooking the fact that the lease in question is to a hypothetical tenant and that, in any event, the claimants will be jointly and severally liable under the terms of the new tenancy). By that route Mr Thornton-Kemsley arrived at his valuation of £12,000.

It can be seen from this overview that the influence on Mr Thornton-Kemsley’s valuation of the adjustments he made to the transactional evidence was huge, enabling him to settle on a rent which was more than double the average of the rents agreed for his chosen comparables and 60% higher than the highest of the nine transactions with any claim to comparability.

The most significant adjustment was an addition to the rent agreed for the various comparables to reflect the potential of the subject Site to generate an income for the tenant through sharing its apparatus. Mr Thornton-Kemsley added £5,500 to the rents agreed in five of the nine transactions for that factor. He said he based his adjustment on the equipment present on the mast currently on the Site, which he took to be representative of the equipment which a prospective tenant would anticipate being able to place on a new mast which it would erect. He added £5,000 to the other four transactions.

I have three difficulties with these adjustments. First, Mr Thornton-Kemsley agreed that substantial payments to reflect the potential to share a new site, or to continue sharing an existing site on renewal, are not reflected in any of the transactional evidence. There were at least four lease renewals of sites with an established potential for sharing (because sharing was already taking place) where rents of £2,500 or less had been agreed (Park Saddle Wood, Orange Woods, Frimley Ridge and Battle). Secondly, the transactions to which Mr Thornton-Kemsley applied these adjustments themselves permitted sharing and it was clear that some at least were of sites which were being shared or were to be shared (Lossiemouth Road, Elgin for example). Thirdly, rents for new sites will be agreed in most cases against the background of paragraph 24 of the Code, with its no-network assumption. That assumption requires that the commercial value of the right to share a mast must be disregarded when consideration is determined by the Tribunal. It is therefore no surprise to find that any commercial value which the potential to share a site may have is not generally reflected in the rents agreed for the lettings of new sites.

The statutory valuation hypothesis is of a letting of a bare site. There is no justification for the assumption that an incoming tenant would be willing to pay an additional rent to reflect the apparatus which had previously been on the Site which must be assumed to have been removed. The transactional evidence demonstrates conclusively that such additional payments are not made when the leases of existing sites are renewed. The evidence of operational behaviour is also inconsistent with the underlying assumption that an incoming tenant would expect to be able to share a mast with previous occupiers of a site. Mr Lester’s evidence was that where a mast has to be decommissioned and a site vacated, it is unusual for operators or others who had previously been sharing the site to move to the same replacement site. It is more common to see former sharers dispersing to whichever alternative site best suits the current needs of their own network.

For these reasons I did not find Mr Thornton-Kemsley’s valuation convincing and it is clear to me from the transactional evidence that his figure of £12,000 a year is very much higher than would be agreed if an operator approached a potential site provider and concluded a letting off-market as almost always happens. He did not consider that competition between operators would influence rental value if, instead of being let off-market, a site was offered in the open market as the statutory hypothesis requires us to assume.

The transactional evidence appears to me to demonstrate a clear pattern. Between December 2019 and December 2020 (there was no evidence of later transactions) there was evidence of lettings of 33 new sites. In almost all cases where no capital payment was made the rent agreed was £2,250. Where capital payments were included as part of the deal a lower rent was paid, usually £1,000 but sometimes higher and sometime as low as £250. The up-front payments which featured in those transaction were usually £15,000 (there were examples at £12,000 and £18,000). Ms Tozer QC provided a table on which was shown the aggregate of the rent agreed and the annualised capital payments (on a straight-line basis) for each of the transactions in the most recent 12 months for which evidence is available. That exercise showed that in 28 of the 33 transactions the annual equivalent payment to the site provider was between £1,750 and £2,500. In addition to these agreed rents and capital payments, in cases where the full details of the transaction are apparent the incoming tenant also made a contribution towards the site provider’s professional fees.

There is insufficient detailed evidence about these transactions to explain why some are at aggregate figures which are 40% higher than others, but they do indicate a range within which the financial elements of transactions agreed in the market can typically be expected to fall. A large number of the lettings of new sites were to EE and have an ESN site number, which I was told indicated that they were let for the purposes of the new emergency services network. It was suggested that the financial terms of lettings for this purpose are more generous to site providers than other lettings (EE was said to be under contractual pressure to complete the emergency services network). That suggestion is not reflected in the aggregate rent/annualised capital payments shown in the table prepared by Ms Tozer which had the ESN transactions in a range from £1,750 to £2,500, with higher aggregate figures (four in a range from £3,000 to £6,000) for non-ESN lettings. On the evidence before me there is no reason to treat ESN lettings as uncharacteristically generous to site providers.

Comparing Mr Sladdin’s figure of £1,200 a year, without a capital payment, to the transactional evidence of other lettings without capital payments it is clear that his valuation does not reflect what happens in reality when new sites are let. Assuming the Site is typical the evidence suggests it would let at about £2,250 a year (plus a contribution towards professional fees).

Mr Sladdin’s approach excludes consideration of capital sums. That exclusion was a matter of principle because Mr Sladdin assumed that the payments represented incentives which would not have to be paid to a willing landlord. Mr Thornton-Kemsley agreed that in principle any payment which was required, in effect, to convert an unwilling site provider into a willing one should not be reflected in the open market rental value of a site, which assumed a letting between willing parties. But it is quite clear that the evidence does not support treating the capital payments now being made in that way.

There was no evidence of how any individual transaction was negotiated. Even if there was such evidence it could not be assumed that a site provider was an unwilling participant simply because they refused to accept an operator’s opening offer and instead appointed an agent to negotiate on their behalf. There is no justification for the assertion (which is all that it was) that the capital payments made to site providers in 2020 and later were incentives which would not be required in a transaction between willing parties.

In Hanover Capital the evidence provided to the Tribunal by the operator’s expert, Mr Stott, was that incentives were not offered in all transactions, but that they may be available if there was some special urgency or some other reason why the operator wished to encourage the landlord to close a deal promptly (Hanover Capital at [88]). The effect of the evidence of Mr Sladdin and Mr Lester in this case is that the market has moved on, and that capital payments are now almost invariably paid to site providers. They are still described by operators in their standard documents (drafted with more than half an eye on creating a body of evidence to deploy in other transactions) as early completion payments, ECIPs, “commercial payments” or other incentives but I am satisfied that these terms are simply window dressing. The agreed financial terms of one such transaction (at Coreglass Forest) were recorded in the Code agreement as comprising consideration “derived in accordance with the Code” of £4 a year, compensation “derived in accordance with the Code” of £11 a year and a “balancing payment” of £235 a year. The agreement omitted any reference to the fact that a premium of £12,000 was also paid.

The evidence is that in practice payments described as incentives for early completion are not dependent on early completion. For example, heads of terms drawn up by the claimants on 28 February 2020 for the letting to them of a site at Frimley Ridge in Surrey included provision for an “early completion incentive payment” of £13,000 payable on completion of the agreement provided that was achieved by 16 April 2020. Completion was not achieved until 17 June 2020 but the payment was still made in full. As usual, the capital payment was not referred to in the lease, where the rent of £1,000 was described as Code consideration of £225 and a “commercial payment” of £775 a year. The only reason for the rent being divided in that way, I infer, was that £225 represented the claimant’s assessment of a paragraph 24 figure and while it was willing to pay more than that sum it was not willing to see it described as rent or consideration.

Ms Tozer QC submitted that the Court was not entitled to analyse documented transactions inconsistently from the way they had been recorded by the parties to those transaction. Her suggestion was that a party to a letting by deed would themselves be estopped from submitting an analysis inconsistent with what was recorded in the deed (even if the deed ignored a substantial capital payment and recorded the rent as £4 a year “derived in accordance with the Code”), and moreover that no other party, even in unconnected proceedings, could advance an inconsistent analysis. I reject that unreal submission, which was unsupported by authority or valuation practice and flatly contrary to the evidence in this and other cases. That evidence is that, whatever terms parties agree, they will be documented in the manner dictated by the operator. That was the evidence of Mr Thornton-Kemsley in this case, which mirrors evidence the Court has heard from agents acting for site providers in other cases. Mr Lester was equally clear about this in his evidence: any sum agreed to be payable which exceeded MBNL’s assessment of a paragraph 24 consideration would be documented as “a commercial inducement payment”. I have no doubt that transactions are documented in this way to enable operators to present a case to other site providers, their agents, tribunals and courts. But those labels are irrelevant to the site provider and to the rest of the market, which is interested only in the bottom line. They are equally irrelevant to the Court’s determination of a rent under section 34, which follows the market.

On the evidence before me, 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.

There is a further point. Even if in practice substantial capital payments are paid because site providers are unwilling to transact at a true open market level (which I do not believe to be the case), they nevertheless reflect the real world in which our notional transaction is assumed to take place. Our site provider is willing and does not need to be induced, but his approach is not un-commercial, let alone charitable. There is no reason why, knowing that operators are prepared to make capital payments to secure sites, he would be willing to accept any less than other site providers are known to be receiving. As Mr Sladdin put it, “as soon as people know about it everyone else will want it”.

I take as the starting point of my own valuation the figure of £1,200 a year proposed by Mr Sladdin. I found the logic of his final adjustment elusive (reducing the stage one element to compensate for an increase in the stage three element - see paragraph 76 above) and I doubt it would survive a negotiation with a well-advised site provider. A rent at or a little above that level would not be inconsistent with the transactional evidence of sites let with capital payments and would be the sort of figure around which a negotiation would take place.

To that figure must be added the annual equivalent of the capital payment which the landlord would be advised was routinely being paid on other lettings. Faced with that advice there is no reason why a willing landlord could be expected to let the Site without receiving a similar payment. The statutory hypothesis (a letting on the agreed terms, which do not include a premium) means that the premium which would be likely to be paid in practice must be reflected in an addition to the rent. A premium of £15,000 would be typical and the willing parties would know it; if it was accounted for by a straight-line apportionment it would add £1,500 a year to the rent. But the willing parties would also know that a sum paid over 10 years would be worth less to the recipient than the same sum paid at the start of that period. To receive the equivalent of £15,000 by instalments over 10 years, assuming a 5% yield, would require an addition to the rent of £1,943 a year.

In a negotiation in which Mr Sladdin’s view of the appropriate level of consideration which might be ordered by the Upper Tribunal formed the basis of the operator’s negotiating position, and assuming an agreement to convert a premium of £15,000 into an annual equivalent, I would expect the parties to negotiate in the space between £2,700 and £3,300 and to compromise at a rent of £3,000. That figure is higher than the range suggested by the 2020 comparables in Ms Tozer’s table, which fell between £1,750 and £2,500 (including premiums expressed as an annual equivalent). I have considered whether that outcome is justified by the evidence, and I am satisfied that it is for two reasons. First, the figures in Ms Tozer’s table converted the capital sums paid up-front to an annual equivalent on a straight-line basis, whereas a well-advised landlord would appreciate the opportunity to negotiate for a higher sum. Secondly, I am satisfied that a rent of £3,000 reflects the significantly greater than average management time, inconvenience and potential for interference with other more profitable activities on the Estate that are a feature of the use of this particular Site for telecommunications purposes.

Neither valuer thought that the exposure of the Site to the open market would result in the rent being pushed up by competition, and I make no allowance in that respect.

It is finally necessary to take account of the contribution towards professional fees which the site provider would receive if the letting took place off market. Such payments are absolutely standard, as Mr Sladdin confirmed, and there is no reason why the willing site provider would not expect to receive or the willing operator to pay such a contribution. They were not included in Ms Tozer’s table of recent new lettings but were paid in addition to the range shown by the transactional evidence; they therefore do not affect the relationship between the figure of £3,000 and that range. The work involved on this Site would be more complicated than on a more straightforward letting (not least because of the involvement of the MoD) and an allowance of £500 a year would be justified.

The resulting total is £3,500 a year which I determine is the annual rent for the Site payable under the new tenancy to which the claimants are now entitled.

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	English and Welsh Courts - Miscellaneous
You are here: BAILII >> Databases >> English and Welsh Courts - Miscellaneous >> EE Ltd & Anor v Morrisss & Ors [2022] EW Misc 1 (CC) (07 January 2022) URL: http://www.bailii.org/ew/cases/Misc/2022/1.html Cite as: [2022] EW Misc 1 (CC)

English and Welsh Courts - Miscellaneous