On Tower UK Limited v British Telecommunications PLC

This is the Tribunal’s determination of preliminary issues in a reference under Schedule 3A to the Communications Act 2003, known as the Electronic Communications Code or simply “the Code”. The claimant, On Tower UK Ltd, has equipment on the roof of a telephone exchange belonging to the respondent, and the respondent, British Telecommunications plc, wants it removed; that apparently straightforward situation is complicated by the fact that both parties are “Code operators”, that is, organisations who have been designated by OFCOM as ones that may benefit from Code rights pursuant to section 106 of the 2003 Act.

The claimant was represented by Mr Kester Lees, and the respondent by Ms Stephanie Tozer KC and Ms Tricia Hemans; we are grateful to them all.

In the paragraphs that follow we set out the factual and legal background to the reference, and then we address the issues we are asked to decide.

The claimant is a familiar litigant in Code references. It is a Code operator, but does not operate a mobile telephone network; it is an infrastructure provider, building and maintaining masts and other apparatus for the use of mobile network providers. Typically, the mobile network operators attach their antennae to the claimant’s masts.

The respondent is of course a household name and the principal provider of fixed line telephone and data services in the UK. It owns thousands of telephone exchanges all over the country, most of them built in the 1920s and 1930s when the telephone network was rolled out to the general population. They were reinforced at construction with a steel infrastructure because the exchange equipment that they contained was immensely heavy. They were designed to blend with the surrounding architecture (rather like the TARDIS) and we tend to walk past without noticing them.

The subject of this reference is the telephone exchange on Kenton Park Parade, Kenton Road, Harrow. We visited it the day before the hearing. It is built of red brick like the parade of shops beside it, and is quite an imposing building with some nice Arts and Crafts touches, over three storeys under a flat roof, and with a car park at the back. Built in the 1920s, it is a typical example of reinforced construction to support the heavy switching equipment which used to fill its first and second storeys. There is a jib on the roof and large doors on the upper floors so that equipment can be winched in, and there are extensions at the back to accommodate cooling equipment. The ground floor contains offices, store rooms, a kitchen, a dining room or common room, and a large games room with a once-splendid billiard table; there are toilets on all floors. There is a boiler and further storage space in the basement.

The heavy equipment that telephone exchanges were built to house is becoming obsolete as telephone technology advances. The Kenton Road exchange is a tired and largely empty building; it still contains significant amounts of equipment, albeit smaller in scale than originally following digitisation, on the first and second floors but there are big empty spaces. The cooling system has gone. There are no staff stationed there, the offices are empty and the games room is dusty and sad. There is still a kettle and microwave in the kitchen, though, and the building is used by engineers working in the area to store equipment and to take breaks.

The respondent has been making arrangements for some years to close telephone exchanges; the following account is taken from counsel’s submissions and from the unchallenged evidence of Mr Donald Sellar, a Senior In-House Commercial Lawyer for the respondent.

In 2020 the respondent consulted on its plans to close at least 100 superfluous exchanges by December 2030, the Kenton Road exchange among them, and about 4,400 more in the early 2030s. OFCOM has approved the closure programme. The respondent has re-structured its title to the Kenton Road and other exchanges so as to be able to divest itself of them.

The respondent holds the freehold of the Kenton Road exchange. In 2001 it granted a long lease of this and a number of other exchanges to Autumnwindow Limited (“AW”), its wholly-owned subsidiary, which holds that lease upon trust for Telereal Trillium Group (“Telereal”). Below that lease are two subleases, of which we need not set out the detail; we can summarise by saying that the respondent has taken a lease back from AW, the terms of which enable it to continue operating the exchanges for as long as it needs to and then to surrender them – individually or in groups - when it chooses to do so, provided that it surrenders them with vacant possession. “Vacant possession” is defined in the relevant agreement so as to make it clear that all telecommunications equipment must be removed, including what is on the roof. Following surrender, the land will be used for development by Telereal.

The Kenton Road exchange, being a little taller than its neighbours and having a flat roof, is an attractive site for mobile telephone apparatus, and for many years mobile operators have had equipment on the roof by agreement with the respondent. Since 2000 the claimant has managed these installations on the respondent’s behalf. On 1 January 2021 the respondent granted to the claimant a lease (“the OT Lease”) of a number of properties including part of the roof of the Kenton Road exchange (“the Site”) for a term expiring on 14 November 2030 at a peppercorn rent, with an option to renew in 2030 and 2040, again at a peppercorn rent. The OT Lease gave the claimant the right to put telecommunications apparatus on the Site. It was granted out of the respondent’s leasehold title to the Kenton Road exchange.

The OT Lease, as we said above, covers a number of properties. We can make decisions about it in this reference only insofar as it relates to the Site; we have no information about the other land to which it relates. We have to decide whether it is a Code agreement in relation to the Site, and our decision on that point is not a decision about the OT Lease insofar as it relates to any other land. Therefore we use the term “the Site Lease” to mean the OT Lease insofar as it relates to the Site.

By the time the OT Lease was granted the respondent’s plans for divesting itself of telephone exchanges were well-developed, and unsurprisingly, in light of those plans, the OT Lease contains provision for the landlord to bring it to an early end in respect of any of the individual sites demised.

The early termination provisions are contained in clause 5.8 of the OT Lease. Here are the relevant parts of that clause, with the punctuation (or lack of it) and emphasis as in the original:

So there are five circumstances in which, or grounds on which, the landlord can terminate. Those labelled (i) to (iv) are specific, while the general right labelled (v) is available only if none of the others is available; so if the landlord has contracted to sell the relevant site it can use ground (i) and not ground (v). The notice period for grounds (i) to (iv) is 12 months, whereas the notice period under ground (v) depends upon the notice to be given in other licence agreements (about which the Tribunal has, and needs, no information). Where grounds (i), (ii) or (iv) are relied upon, specific additional requirements are imposed.

So much for the parties’ contractual arrangements; we now turn to the Code, which regulates the legal relationship between Code operators and those on whose land their equipment is placed – the site provider. Unusually, the respondent site provider is itself a Code operator. The Code provides that where “Code rights” are granted by a site provider the operator has considerable security of tenure.

Code rights are defined in paragraph 3 of the Code and can be summarised as rights to install and keep electronic communications apparatus on, under or over land, to maintain it and to carry out works in connection with its installation or maintenance on under or over land, to enter the land and so on. It follows that a right to do something – eg to keep apparatus – anywhere other than on, under or over land is not a Code right.

Paragraph 108 provides that:

““land” does not include electronic communications apparatus”.

Paragraph 5 says this:

“(1)

In this code “electronic communications apparatus” means—

(a)

apparatus designed or adapted for use in connection with the provision of an electronic communications network,

(b)

apparatus designed or adapted for a use which consists of or includes the sending or receiving of communications or other signals that are transmitted by means of an electronic communications network,

(c)

lines, and

(d)

other structures or things designed or adapted for use in connection with the provision of an electronic communications network.

(2)

References to the installation of electronic communications apparatus are to be construed accordingly.

(3)

In this code—

…“structure”  includes a building only if the sole purpose of that building is to enclose other electronic communications apparatus.”

The consequence of the interaction of those provisions is that where the claimant gives a mobile operator the right to mount antennae on one of its masts, the agreement between them is not a Code agreement, because the operator’s right is to install apparatus on other apparatus and not on land.

A further consequence is that the right to install equipment on a building is not a Code right if “the sole purpose of that building is to enclose other electronic communications apparatus”. What that quoted phrase means is one of the issues in this reference, because the respondent says that the Kenton Road exchange is such a building and that therefore the Site Lease is not a Code agreement. The claimant disagrees.

If the claimant is right, then the Site Lease is a Code agreement and paragraphs 30 and 31 of the Code apply to it and have an effect upon the way in which it can be brought to an end. In that event we shall have to decide whether the respondent has given a valid notice under paragraph 31. By “valid”, we mean formally valid; if the paragraph 31 notice is valid, there will be a further preliminary issue to be decided on another occasion if not agreed, namely whether the respondent can make out the grounds set out in paragraph 31(4)(c) or (d) on which it seeks to rely.

On 3 October 2022 the respondent served two notices upon the claimant. One was a notice bringing the Site Lease to an end on 8 November 2023, said to be given in accordance with clause 5.8(b)(v) of the lease. The other was a notice under paragraph 31 of the Code, stated to be given without prejudice to the respondent’s contention that the Site Lease does not grant Code rights and is not a Code agreement. The paragraph 31 notice proposed that the Site Lease come to an end on 8 April 2024.

Put another way, the respondent claims to have brought the Site Lease to an end in accordance with the terms of clause 5.8. It says that the Site Lease is not a Code agreement so that the Code cannot prevent the notice given under clause 5.8 from having effect; but in case it is wrong about that it has also given notice intending to bring the lease to an end in accordance with the provisions of the Code.

The claimant gave a counter-notice to the paragraph 31 notice and has brought this reference. It says that the Site Lease is a Code agreement, so that the lease can only be brought to an end in accordance with the provisions of paragraphs 31 and following. The claimant says that the paragraph 31 notice given by the respondent is not valid; but in case it is, the claimant has brought this reference and applies under paragraph 34 for an order either that the Site Lease continue or that it be granted a new Code lease on terms that it has set out.

Under the current legal provisions the reference had to be commenced in the Upper Tribunal. It is the Tribunal’s practice to transfer most Code references to the First-tier Tribunal unless they raise issues of principle, and it did so in this case because it was not apparent from the claimant’s statement of case that the reference was going to give rise to any novel issues. However, it was transferred back to the Tribunal by directions given by the FTT for the hearing of the following preliminary issues:

Only if the Site Lease is a Code agreement and the paragraph 31 notice was valid does the Tribunal then have jurisdiction to decide whether the Site Lease should be brought to an end.

The claimant’s argument, in very brief summary, is twofold: first, that the Site is land because the enclosure of electronic communications apparatus is not the sole purpose of the Kenton Road exchange, and second that the purpose of the definition of land in the Code is not to prevent the grant of Code rights over this sort of building. The respondent says that that is indeed the purpose of that definition, and moreover that BT’s sole purpose for the building is the enclosure of electronic communications apparatus.

Three things are helpfully not in dispute.

The first is that that the Kenton Road exchange has always contained electronic communications apparatus.

The second is that the building is a structure “designed or adapted for use in connection with the provision of an electronic communications network” as paragraph 5(1)(d) requires, because of course the respondent operates a communications network and nowadays it is electronic.

The third relates to the rest of the contents of the building, as to which the claimant relied upon a witness statement by its Head of Portfolio Management, Mr Alexander Barnes, and the respondent relied upon a witness statement by Mr Stephen Prance, its Operational Estate Manager. Neither was cross-examined about that part of their evidence and in any event we have seen the building. It is not in dispute that it contains the office, storage and welfare facilities that we described at paragraphs 6 and 7 above. The building contains things that are not electronic communications apparatus.

Accordingly the issue is whether the “the sole purpose” of the Kenton Road exchange “is to enclose other electronic communications apparatus” as paragraph 5(3) requires in order for this building to be electronic communications apparatus.

It is worth saying a few words about how the exclusion of electronic communications apparatus from the definition of land in the Code came about. It was not one of the recommendations of the Law Commission in its 2013 Report (The Electronic Communications Code Law Com No 336) from which most of the Code’s provisions were derived. As is well-known, although the government accepted most of the recommendations made in that Report, it rejected the key recommendation that the consideration to be paid for Code rights should continue to be determined by the market. Instead, it determined that consideration should be assessed without regard to the value of the rights to the operator. As paragraph 24(3)(a) puts it, the market value of the right is to be assessed on the assumption:

“that the right that the transaction relates to does not relate to the provision or use of an electronic communications network.”

The result of that provision is that rates of consideration under the new Code are considerably lower than they were under the old Code that was in force before December 2018.

That policy by itself would have left the infrastructure providers, such as the claimant, in difficulties. Their business depends upon their making a profit from granting rights to use their apparatus; and the mobile network operators need the infrastructure providers to stay in business to provide costly infrastructure such as masts. The solution to that problem is the definition of “land” in the Code; as we said above, the effect of the exclusion of electronic communications apparatus from the definition of land means that an agreement granting the right to place antennae on a mast is not a Code right, and the infrastructure provider can continue to require a consideration that reflects the value of that right to the mobile network operator.

The Explanatory Notes published with the legislation that introduced the new Code said this at note 403:

“Paragraph 5 defines electronic communications apparatus i.e. the apparatus which can be installed on, under or over land. This definition is important for two reasons. Firstly, it defines the scope of what can be installed and kept on land under the provisions of the code. Secondly, because paragraph 108(1) specifically provides that land does not include electronic communications apparatus, anything that falls within the definition of ‘electronic communications apparatus’ (as it is set out in paragraph 5) cannot have code rights imposed against it. This has the practical effect of ensuring that one code operator cannot seek to exercise code rights against the apparatus of another (or indeed against the apparatus of a person who is not a code operator).”

Ms Tozer KC pointed out that the Code is intended to be “technology neutral”; in other words it is not intended to give any particular technology an advantage over any other, and specifically it is not intended to favour mobile operators over fixed-line operators. That is seen in paragraphs of the Law Commission’s 2013 report at paragraphs 1.32 and 1.33 and is uncontroversial. Going back to the Explanatory Note just quoted, the definition of “land” in the Code is designed to ensure that a Code operator such as the claimant cannot seek to exercise Code rights against the apparatus of another such as the respondent. That too is uncontroversial.

The question remains: at the date of the Site Lease was the sole purpose of this building the enclosure of electronic communications apparatus? We have to look at the situation at the date of the agreement, in 2021, although it was common ground that the building and its purpose are the same now as they were then.

The respondent says that the sole purpose of the Kenton Road exchange is the enclosure of electronic communications apparatus because that is what the respondent built it for and has retained it for. Now that the equipment is becoming redundant it no longer wants the building, which emphasizes the point. Ms Tozer KC argued that “purpose” in this context has a subjective meaning. She referred to the Oxford English Dictionary, and argued that to find the purpose of an object we have to ask what it is intended for. The OED gives as an example “The purpose of temporary classrooms is … to cope with rapidly shifting population densities”; obviously a child may leave their pencil case in the temporary classroom at lunchtime, but the purpose of the classroom is not to enclose the pencil case but for teaching children in. One’s home may have bats in the loft, but the purpose of the building is to house one’s family and not to house the bats.

Ms Tozer KC referred to a number of authorities where the word “purpose” in a statute has been given a subjective meaning. She began with the proposition that in the absence of evidence of subjective intention, purpose may be inferred (Inland Revenue Commissioners v Mills [1975] AC 38 (HL)), but that where there is such evidence it is important. In Smyth-Britt v Chubb [2004] 2 WLUK 621 the question for the Employment Appeal Tribunal was whether the claimant’s employer had subjected him to detriment “for the purpose of preventing or deterring him” from engaging in union activities (contrary to section 146(1) of the Trade Union and Labour Relations (Consolidation) Act 1992). It was held that the “purpose” in section 146(1) was the purpose of the employer, and was the object desired or sought to be achieved, not the consequence or effect of the employer’s actions. And in R v Spooner (ex p Arun DC) [2007] EWHC 307 (Admin) the question was whether a “pet ambulance” was used “for the purpose of carrying passengers”, because if so it needed a taxi licence. The Administrative Court found that in 95% of cases only an animal was carried, whereas in the other cases the owner went too; it was found that it was no part of the driver’s purpose to carry people, although he occasionally did so.

Similarly, said Ms Tozer KC, the question for the Tribunal was: what was the respondent’s objective in owning the building? The reason why BT has the Kenton Exchange is to house telecommunications equipment, although other things happen there too. Once the equipment has been decommissioned, which is going to happen soon, the respondent will dispose of the building, its purpose having disappeared.

In response Mr Lees pointed out that none of the cases cited by Ms Tozer was about the “sole purpose” of anything. Moreover, while “purpose” can be subjective, whether it is or not depends upon the context. In all the examples given, “purpose” is necessarily subjective. A gift has a “purpose” only because it is intended by someone for a particular purpose. The unlawful behaviour complained of in Smyth-Britt v Chubb was necessarily assessed from the point of view of the employer’s intention. As for R v Spooner (ex p Arun DC), it is not clear that this was a subjective test. The court looked at the proportion of journeys on which only a pet was carried; it was asking what the journey was for, rather than looking at a subjective intention.

But in the present case, Mr Lees argued, the Tribunal has to look at the purpose of the building objectively. What is it for? Clearly it is for a number of things, not just for enclosing equipment.

In any event, even on a subjective construction Mr Lees argued that while BT’s main purpose was the housing of its exchange equipment, it had subsidiary purposes: the accommodation of its staff and the provision of welfare facilities. These are not analogous to uninvited bats in the loft; they are things that the respondent deliberately does in the building, and will do elsewhere once the building has been disposed of.

We agree with Mr Lees on this point. Whether “purpose” is subjective or objective will depend upon the context; and we agree that cases that have construed the word “purpose” may not be on all fours with the position where the statute says “sole purpose”. In the present case it is not and has never been the sole purpose of this building to enclose electronic communications apparatus. We take the view that that is the outcome both of a literal and of a purposive construction of the statute.

Taking first the literal words, we would read “purpose” in an objective sense here. Nothing in the wording of the Code or in the context requires us to look at the purpose of any person whether in acquiring or retaining or maintaining a building, and to broaden the enquiry in that way is to add a gloss to the statutory wording. We are to look simply at the purpose of the building, and therefore to ask what it is for or what is its function. And its function is the accommodation of telecommunications apparatus and the provision of office, storage and welfare facilities. That is what the Kenton Road exchange is for. Certainly its main purpose has been to house apparatus and that was why it was built the way it was, and that is why it is still owned by the respondent. But it is a long way from being a building that has no other purpose. The purpose of the building is wider than just the containing of electronic communications equipment.

Second, as to the mischief that the words of the Code were designed to address, we have referred above to the Explanatory Note which makes it clear that the idea is to prevent one operator from making use of another operator’s equipment at a price determined under the Code. In CTIL v Keast [2019] UKUT 116 (LC) the Tribunal (Judge Cooke) said at paragraph 31:

“The Code regulates the legal relationship between Code operators and occupiers of land. It does not create or regulate legal relationships between Code operators. They are a matter of private contract, subject to regulation by OFCOM. In particular it is not the policy of the law to give Code operators access to each other’s equipment on favourable terms (in particular as to consideration; see paragraph 10 above). So the Code prevents what Mr Watkin tells me are called “blue on blue” applications for Code rights by providing that Code rights can be obtained over “land”, and stating in paragraph 108 that”

“‘land’ does not include electronic communications apparatus”.

If the claimant’s rights were to connect its apparatus to the equipment within the Kenton Road exchange then those would not be Code rights. But it is not making use of the respondent’s apparatus. The placing of the claimant’s apparatus on the roof does not deprive the respondent of its investment in its own equipment or damage its business model or erode its profit; it does not create the mischief that these provisions of the Code were designed to address. It is not, in the terms used in Keast, a “blue on blue” situation.

We would add that the definition of “land” in the Code does go a little wider than necessary to prevent “blue on blue” applications. Imagine a building belonging to an infrastructure provider whose sole purpose is to enclose electronic communications equipment; there is nothing else in it. An agreement for a mobile operator to connect to the equipment in that building would obviously not be a Code agreement. An agreement that allowed another operator to place equipment on the top of that building is equally not a Code agreement because of the definition of “land” in the Code; yet such an agreement is not a ”blue on blue” agreement and one might have thought that it fell outside the policy. Nevertheless it is not a Code agreement. That may be accidental overkill; or it may be a deliberate policy in order to give additional protection to infrastructure providers. It does not matter which. The provision benefits all landowners, and all types of Code operator, who have buildings whose sole purpose is to enclose electronic communications apparatus.

Furthermore, an agreement that enables a mobile operator to place electronic communications apparatus on the roof of a building whose purpose is wider than the enclosure of apparatus is a Code agreement, whether or not such a building belongs to an infrastructure provider. The provision is neutral between technologies and between business models.

The Kenton Road exchange does not have as its sole purpose the enclosure of electronic communications equipment and accordingly the Site Lease confers Code rights and is a Code agreement.

Because the Site Lease is a Code agreement, it is subject to the provisions of paragraph 30 of the Code, which says this:

“30 Continuation of code rights

(1)

Sub-paragraph (2) applies if—

(a)

a code right is conferred by, or is otherwise binding on, a person (the “site provider”) as the result of a code agreement, and

(b)

under the terms of the agreement—

(i)

the right ceases to be exercisable or the site provider ceases to be bound by it, or

(ii)

the site provider may bring the code agreement to an end so far as it relates to that right.

(2)

Where this sub-paragraph applies the code agreement continues so that—

(a)

the operator may continue to exercise that right, and

(b)

the site provider continues to be bound by the right.

(3)

Sub-paragraph (2) does not apply to a code right which is conferred by, or is otherwise binding on, a person by virtue of an order under paragraph 26 (interim code rights) or 27 (temporary code rights).”

The effect of paragraph 30 is to give the Code operator a form of security of tenure, because it ensures that the Code agreement continues when it would otherwise have expired by effluxion of time (sub-paragraph (1)(b)(i)), or where a break notice or a notice to quit has been served under the terms of the lease (sub-paragraph (1)(b)(ii)).

Therefore any attempt to bring the Site Lease to an end by the service of a notice pursuant to clause 5.8 of the lease is of no effect.

Had the Site Lease not been a Code agreement then it would have been crucial to determine whether the notice purportedly served pursuant to clause 5.8(b)(v) of the lease was valid, so that the parties would know whether the appellant’s leasehold interest in the Kenton Road exchange had been brought to an end – although of course this Tribunal would have had no jurisdiction to make such a determination.

As it is, whether or not a valid notice has been served the Code agreement continues. It can only be brought to an end if the respondent has not only served a valid notice under paragraph 31 of the Code but can also establish one or more of the conditions set out in that paragraph under which the Tribunal may make an order bringing the Site Lease to an end so far as the Kenton Road Exchange is concerned.

Accordingly we have to move to issue 3: was the paragraph 31 notice valid? The question that the FTT directed should be decided as issue 2, namely the validity of the break notice, is within the Tribunal’s jurisdiction only insofar as it is relevant to issue 3.

23 February 2024