Interplay of contractual and statutory break notices under the Electronic Communications Code

Summary 

Actual service of a contractual break notice is not required for termination of agreements under the Electronic Communications Code.

The Case

In ON Tower UK Limited v British Telecommunications PLC [23 February 2024], BT operated a telephone exchange, on the roof of which ON Tower managed various mobile telephone installations. In 2021 BT granted ON Tower a lease of various properties including part of the roof of the exchange for a term ending in 2030, but with a contractual right for BT to end the lease early. 

ON Tower UK Limited is a Code operator meaning that it can potentially benefit from rights under Schedule 3A to the Communications Act 2003 (the Code). However, a right to install equipment on a building (such as pursuant to a lease) is not a Code right if the sole purpose of that building is to enclose other electronic communications apparatus. The idea here is to prevent one operator from making use of another operator’s equipment at a price determined under the Code. One of the issues for the Upper Tribunal was whether, at the time that the lease was entered into, the telephone exchange was such a building and therefore whether ON Tower’s lease was a Code agreement. If it was a Code agreement, then the termination provisions of the Code came into play.

In October 2022, BT sought to trigger an early lease termination by serving two notices on ON Tower: a contractual notice pursuant to the lease and (even though it contended that the lease was not a Code agreement) a statutory notice pursuant to paragraph 31 of the Code (the Code notice) to bring the Code agreement to an end. ON Tower issued a counter-notice and contended that the lease was a Code agreement and that the Code notice was invalid. It sought an order that either the lease continues, or a new Code lease is granted on the terms that it proposed.

Upper Tribunal’s decision

The issues for the Upper Tribunal to decide were:

1) Was the lease a Code agreement? If it was not, the Tribunal had no jurisdiction to decide anything else. If it was, then:

2) Did BT give a valid notice under the lease? If it did, then the parties agreed that the Code notice was also valid. But if it did not, then:

3) Was the Code notice valid?

Issues 1 and 2

On issue 1, the Tribunal concluded that the telephone exchange did not have as its sole purpose the enclosure of electronic communications equipment. The test was to look simply at the purpose of the building and to ask what it is for or what is its function. And its function here was not only the accommodation of telecommunications apparatus but also the provision of office, storage and welfare facilities. While its main purpose was to house apparatus, it wasn’t the sole purpose. ON Tower, in placing the apparatus on the roof, was not making use of BT’s apparatus. Since the sole purpose test was not satisfied, ON Tower had Code rights and the lease was a Code agreement.

On issue 2, since the lease was a Code agreement, BT’s contractual termination notice under the lease, whether or not it was valid for the purposes of the lease, could not bring the Code agreement to an end.

Issue 3

ON Tower argued that the Code notice was not valid unless a valid contractual break notice has been served and that since in their view the break notice was invalid, the Code notice was also invalid. Conversely, BT argued that the break notice was valid, but that, even if it was not, the Code notice was valid because there was no need for a break notice to be served in addition to the Code notice.

The Tribunal decided that it was not necessary for a valid break notice to have been served, in order for a valid Code notice to be served. It considered that if the intention of paragraph 31 of the Code was that the landlord actually serve a contractual break notice then (quite apart from the fact that one would expect the statute to say that expressly) the correct word in the paragraph would be ‘would’, but instead the word ‘could’ was used.

The Tribunal cautioned against comparisons with the Landlord and Tenant Act 1954, where, for protected leases, both a break notice and a section 25 notice are often, if not usually, served.

The Tribunal considered that on the date that a Code notice is given, the recipient has to look at the proposed termination date in the Code notice and ask itself: does that date fall after a date on which the landlord could have brought the lease to an end? That is, could the landlord (absent the Code) have brought the lease to an end before the proposed termination date. It does not have to ask whether that date falls after a date on which the lease would in fact have come to an end, owing to the service of an actual break notice, but for the Code.

The Tribunal did not have to decide how any conditions precedent or conditions subsequent to a contractual break would impact on a Code notice. 

The Tribunal determined that the end date proposed in the Code notice fell more than 18 months (the requisite period under the Code) after the date of the Code notice and also fell at a time when the lease, absent the Code, could have been brought to an end. The Code notice was therefore valid.

The next step is for the parties to agree, or for the Tribunal to decide, whether BT can make out the relevant ground for the Code notice.

Implications

The Upper Tribunal decision is somewhat surprising, since usually contractual as well as Code notices are served to terminate a Code agreement. The effect of the decision is that a site provider can serve a paragraph 31 notice without actually having to serve a contractual break notice first. While this is contrary to the accepted approach to terminating protected business leases in relation to the Landlord and Tenant Act 1954, the Tribunal highlighted that care needs to be taken in making comparisons between the Code and the 1954 Act. The Tribunal was not required to address how conditions precedent or subsequent for contractual break rights would impact on a Code notice. It remains to be seen whether this decision is appealed and also whether in practice contractual notices are served less often when terminating a Code agreement.