EE Limited and Hutchinson 3G UK Limited v Affinity Water: putting a price on the value of a water tower

EE Limited and Hutchinson 3G UK Limited v Affinity Water: putting a price on the value of a water tower

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In EE Limited and Hutchinson 3G UK Limited v Affinity Water, the court reviewed the consideration and rent payable on an occupied telecommunications site.  The case provides useful information on how the courts will value occupied telecommunications sites after the term of the original agreement has expired.

The background to the case was that a 20-year telecommunications lease had been granted in 1998 to install apparatus on top of a water tower.  This lease was excluded from the security of tenure provisions in the Landlord and Tenant Act 1954.  As the lease expired after the commencement of the new Electronic Communications Code, it became classified as a “subsisting agreement” until a new lease could be entered into.

The parties brought proceedings to the court in accordance with the Code having been unable to reach agreement on a new lease, in particular on the level of rent payable.  EE’s position was that the rent should be £2,787 per annum, while Affinity’s position was it should be £6,560.84 per annum.  The court noted that while the difference was less than £4,000 per annum, the decisions might have ramifications for both parties across their wider portfolios.

The court considered the difficulties faced in applying the "no network assumption" (i.e. valuing the land without regard to its use as a telecommunications site) as this makes direct comparables in the market challenging.  The court applied the structured approach to valuation set out in Vodafone v Hanover Capital applied as though the site were vacant whereby the site following must be considered:

  • The alternative value of the site to a non-operator should be taken account of;
  • Consideration of any additional benefits conferred on the Tenant;
  • The extent of the adverse effect of the letting on the landowner;
  • Consideration of the fees payable in negotiating the new rent and lease, which it might be expected the operator would contribute towards; and
  • The possibility that a hypothetical tenant may be willing to pay an additional sum as an inducement to secure the lease.

The court found that a hypothetical lease for a water tower would likely fall somewhere between the value of a greenfield site and an office or commercial building.  The court’s view was that any adverse effect to Affinity of the letting was minimal.  The court set a rental valuation of £3,300 for a ten year term with an annual break option in favour of EE.

This judgment provides another example of how court’s will set rental values where new "Code agreements" are replacing agreements entered into before the Code came into force.

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