Lease or licence? Tackling security of tenure in code agreements

In AP Wireless II (UK) Ltd -v- On Tower UK Ltd [2024], the Upper Tribunal (Lands Chamber) (“UT”) provided some much-needed guidance on distinguishing a lease from a licence when dealing with the termination and renewal of a “code agreement” (an agreement for the installation and maintenance of telecommunications apparatus).

As discussed below, code agreements may benefit from security of tenure via either the Electronic Communications Code or the Landlord and Tenant Act 1954, depending on:

• when the parties entered into the agreement; and
• whether the agreement is a lease or a licence.

Background

The case concerned two separate code agreements, neither of which were explicitly labelled as a “lease” or “licence”:

• one agreement was for a site in Hullbridge, Essex, entered into in 2002, for a fixed term of 20 years;
• the other concerned a site in Sandbach, Cheshire, entered into in 1997 for a minimum term of 10 years (terminable upon either party giving at least 12 months’ written notice).

Both agreements were entered into prior to 28 December 2017. Therefore, they did not automatically benefit from security of tenure via the Electronic Communications Code. In the first instance, the First Tier Tribunal (“FTT”) considered whether these agreements constituted a lease or licence, and therefore which statutory protections were granted to each agreement.

The FTT decided that, while both agreements were granted for a term certain, they were both licences because:

• neither agreement granted the tenant exclusive possession of the site with a corresponding interest in the land;
• both agreements contained a “lift and shift” provision, allowing the landlord to demand that the tenant moves the apparatus to another part of the site (albeit after sufficiently consulting the tenant); and
• the plans appended to the agreements did not demarcate the site, but were instead technical drawings of the PCN/telecommunications equipment.

AP Wireless appealed the decision on the basis that the FTT was wrong to conclude that both agreements were licences. In short, AP Wireless alleged that the FTT placed too much emphasis on the form of each agreement, whereas they should have considered:

• the substance and effect of each agreement and clause;
• the intentions of the parties when entering into the agreements; and
• the reality of how each site was being used and occupied.

The Decision

On reviewing the FTT’s decision, the UT confirmed that the starting position for determining the “lease or licence” question should be the criteria set out in Street v Mountford. Namely, a lease will typically grant to the tenant exclusive possession of the relevant land for a term certain at a rent.

On applying the Street v Mountford test, the UT disagreed with the FTT and concluded that both agreements did, in all practical senses, grant the tenant exclusive possession of the sites. The UT also ruled that the Sandbach agreement’s reference to a “minimum” term lacked certainty of length, and therefore did not grant a “term certain”.

Ultimately, the UT concluded that the Hullbridge agreement was a lease, whereas the Sandbach agreement was a licence (albeit for different reasons than ruled by the FTT).

Practical Implications

When dealing with an old code agreement (i.e. one entered into before 28 December 2017), it is vital that you determine whether you are dealing with a lease or licence, and therefore whether the Landlord and Tenant Act 1954 or Communications Act 2003 applies. The lines between a lease and licence can often blur, so careful consideration is needed.

Each Act offers different protections to the tenant and sets out different procedures that the landlord must follow to lawfully terminate the tenancy. The procedures offer little margin for error, and even the smallest mistakes may completely invalidate an otherwise lawful termination.

The Landlord and Tenant Act 1954 contains a more “landlord-friendly” process, as it allows landlords to apply for earlier interim rent payments, and could grant vacant possession of the site in a shorter timeframe.

Landlords also need to be mindful of the rent determination process in the Communications Act 2003, which requires the parties (or the tribunal) to calculate the new rent on a “no-network” basis. In short, the new rent is assessed as if the site was not being used for telecoms apparatus, which often results in much lower levels of rent. On the other hand, when using the Landlord and Tenant Act 1954 procedure, the court will disregard the “no-network” assumption and account for the current use of the site.

The case of AP Wireless demonstrates that, as with regular commercial tenancies, the courts will pay close attention to the criteria set out in Street v Mountford. Therefore, you should always consider how the tenant “actually” occupies the site, rather than how they theoretically occupy under the terms of the lease. Additionally, always check the definition of the “term” under the agreement – as AP Wireless has shown, failing just one limb of the Street v Mountford test can be decisive.