Vodaphone Ltd v Hanover Capital Ltd (renewal of a tenancy of a telecommunication mast site)

Factual and Procedural Background

This opinion concerns a trial for the renewal of a tenancy of a telecommunications mast site under Part II of the Landlord and Tenant Act 1954. The tenancy relates to a site occupied by the Plaintiff, an electronic communications operator, located adjacent to a two-storey office building in Greater Manchester. The Defendant owns the freehold interest in the site and adjoining properties.

The Plaintiff was granted a 5-year lease of the site in 2008, which expired in 2013 but continued under statutory provisions. In December 2016, the freehold owner served notice terminating the tenancy but agreed not to oppose renewal. The Plaintiff initiated proceedings in August 2017 seeking a new tenancy under the 1954 Act. The Defendant was substituted following acquisition of the freehold.

The case was heard in the County Court with assistance from an assessor from the Upper Tribunal (Lands Chamber). The key dispute concerned the terms of the new tenancy, particularly the rent, length of the term, and break clause provisions, against the backdrop of the introduction of a new electronic communications code (the Code) under the Digital Economy Act 2017, which replaced the previous statutory code governing telecommunications site agreements.

Legal Issues Presented

1. Whether the renewal of the tenancy should be governed by the 1954 Act or by the new electronic communications Code.
2. The appropriate length of the new tenancy term and the form and conditions of any break clause.
3. The proper approach to determining the rent payable under the new tenancy, including the application of the statutory valuation assumptions under section 34 of the 1954 Act.
4. The relevance and application of the "willing landlord and willing tenant" hypothetical negotiation in the context of telecommunications mast site lettings.
5. The impact of the open market assumption and competition between operators on valuation.

Arguments of the Parties

Appellant's Arguments (Plaintiff)

• The Plaintiff sought a short tenancy term of 3 years with a rolling break clause exercisable on 6 months' notice to provide flexibility in response to legal uncertainty created by the new Code and pending appellate decisions.
• They argued that the new tenancy should allow them to terminate and negotiate a new agreement under the Code if the courts ultimately interpret the Code favorably to operators.
• The Plaintiff contended the rent should be based on the value of the site reflecting the no network assumption in the Code, focusing on the value to the owner rather than the operator.
• The Plaintiff emphasized the need for flexibility to upgrade equipment and adapt to rapid technological changes.

Respondent's Arguments (Defendant)

• The Defendant proposed a 10-year term with a break clause exercisable after 5 years on 12 months' notice, conditional on payment of rent and compliance with covenants, to provide stability and protect its interest after significant litigation costs.
• The Defendant opposed an unconditional rolling break clause, arguing it would create unacceptable uncertainty and be unfair after the expense and disruption of the proceedings.
• They contended the rent should reflect the value of the site to the operator, supported by transactional evidence of comparable telecommunications site lettings.
• The Defendant maintained that the break clause should include standard conditions such as payment of rent and compliance with covenants but rejected a vacant possession requirement as unreasonable.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first established that the renewal tenancy falls under the 1954 Act and not under Part 5 of the Code due to the statutory modifications concerning subsisting agreements. The new tenancy would confer Code rights but would itself not be subject to the 1954 Act.

Regarding the term and break clause, the court balanced the Plaintiff’s need for flexibility amid legal uncertainty and the Defendant’s need for stability after costly proceedings. The court rejected the Plaintiff’s request for a short 3-year term with a rolling 6-month break clause exercisable at will, finding such uncertainty unfair to the Defendant. Instead, it ordered a 10-year term with a break clause exercisable on 6 months’ notice after the fifth anniversary, conditional on payment of rent and absence of material breach but not requiring vacant possession. This approach provided a minimum 5-year commitment with flexibility thereafter.

For rent valuation, the court applied the statutory assumptions under section 34 of the 1954 Act, envisioning a hypothetical negotiation between willing landlord and tenant on agreed terms, with the site assumed vacant and unimproved. The court emphasized that the hypothetical letting must be to a willing tenant and landlord, excluding inducements or unwillingness.

The court rejected the Plaintiff’s expert’s valuation based solely on the value of the site to the owner (existing use value) without competition or operator demand. It also found the Defendant’s expert’s transactional evidence problematic due to reliance on pre-Code agreements and insufficient adjustment for incentives and market changes.

Crucially, the court found that the hypothetical negotiation must assume the site offered openly to the market, attracting competition from multiple operators. This competition would push rent above existing use value to reflect the value to the successful operator tenant. The presence of four current operators using the site supported this conclusion.

After considering evidence of comparable transactions, adjustments for incentives, and the absence of a rent review clause, the court determined an annual rent of £5,750 as appropriate. This figure reflects the value to the operator in a competitive open market setting and incorporates a reasonable allowance for professional fees.

Holding and Implications

The court ORDERED the renewal tenancy with a term of ten years and a break clause exercisable on six months’ notice after the fifth anniversary, subject to payment of all outstanding rent and no material breach of covenant by the tenant, but not requiring vacant possession.

The rent for the new tenancy was fixed at £5,750 per annum, determined on the basis of a hypothetical open market letting to a willing landlord and willing tenant, reflecting competition among operators and the value of the site to the operator rather than merely to the owner.

This decision balances the tenant’s need for flexibility amid ongoing legal uncertainty around the electronic communications Code with the landlord’s interest in stability and protection against premature termination. The ruling does not set binding precedent but provides important guidance on applying the 1954 Act in the telecommunications context post-Code introduction.