Court of Appeal decides in On Tower UK Limited v British Telecommunications PLC

Two major Code operators have been before the Court of Appeal to continue their dispute about break notices and notices served under the Electronic Communications Code (the Code) – On Tower UK Limited v British Telecommunications PLC.

In 2024 the Upper Tribunal accepted BT’s argument and decided that it was enough that a contractual break notice was exercisable under the terms of the lease even though it had not been exercised, and therefore the Paragraph 31 termination notice served under the Code was valid.  On Tower appealed and the Court of Appeal has recently overturned this decision.

The dispute related to a former BT telephone exchange in Harrow which had once housed substantial telecommunications equipment, offices, storerooms, dining and a large games room, intended to provide shelter and welfare facilities for engineers, but which were now largely empty.    These exchange buildings, built in the 1920’s and 30’s were surplus to requirements given the significant developments in telecommunications technology over the last century, meaning such structures were no longer required.

The Code  regulates legal rights between a site provider and a code operator.  The Code provides considerable statutory powers or Code rights to operators including security of tenure  and the right to remain on site, potentially long term and  indefinitely and to continue to use the telecoms apparatus located on, in, over or under the land, provided it continues to be used as part of an electronic communications network.

Facts

BT had leased the flat roof of this telephone exchange building on which On Tower as an infrastructure provider and registered operator for the purposes of the Code managed various mobile electronic installations telecommunications apparatus.  The lease, which had the protection of the Code, had been granted for a term expiring in 2030, included a break right which BT could operate to break the lease early upon certain stipulated circumstances arising.  As a Code operator, On Tower can benefit from statutory rights under Schedule 3A of the Code.

BT served two notices in October 2022 seeking to trigger an early termination of the lease: a contractual break notice and a Paragraph 31 termination notice under the Code.   On Tower argued both notices were invalid.

The issue

Under the Code, a paragraph 31 notice can be given as long as it gives at least 18 months’ notice to terminate a telecoms agreement, when the  agreement “ could have been brought to an end” by the site provider/landlord.  In this case, although BT is also an operator under the Code, it served notice as the landlord of On Tower, the operator.

A Paragraph 31 notice can only be given to bring a Code agreement to an end if one of the following grounds apply and must state the ground relied on.  The grounds are:

• Substantial breaches of the operator’s obligations under the agreement;
• Persistent delays by the operator making payments due under the agreement;
• The site provider intends to redevelop all or part of the land to which the agreement relates, or any neighbouring land, which it could not possibly do unless the agreement comes to an end; or
• The recipient of the notice is not entitled to the agreement because under Paragraph 21 of the Code the site provider can require the removal of the apparatus.

Before the Upper Tribunal decision, it had generally been accepted that a valid contractual break notice had to be served as well as the statutory termination notice under the Code to achieve early termination of the agreement.  The Upper Tribunal decided it was enough that a contractual break notice was exercisable and therefore the notices were valid to terminate On Tower’s lease.

Court of Appeal decision

BT argued that a Paragraph 31 Code termination notice could be served at a time when the lease “could have been brought to an end”, even though a separate valid contractual break notice had not been served.

On Tower argued that the contractual break notice that had been served was invalid, as it relied on the wrong circumstance in the lease and BT could not satisfy the other conditions in the lease to be able to serve a valid contractual break notice.  If the contractual break notice was invalid, the lease was continuing until the contractual expiry date and a Paragraph 31 notice was ineffective as it was not served at a time when the lease “could have been brought to an end” by BT as landlord.

The Court of Appeal agreed and overturned the Upper Tribunal’s decision and found in favour of On Tower.

Where a site provider relies on a break clause to base an entitlement to serve a Paragraph 31 termination notice, it had to exercise its rights to break the contractual term, complying with the terms of the break before a Paragraph 31 notice could be served to terminate rights under the Code.  The Court of Appeal agreed that it was not the function of the Code to enable a landlord to bring a Code agreement to an end earlier than the parties had bargained when agreeing the terms of the lease or agreement.  Where a lease includes a break right which, if exercised, would enable the agreement to be terminated early, that right had to be validly exercised to bring the contractual arrangements to an end before the site provider can rely on the Paragraph 31 notice to terminate the Code rights.

As a valid break notice had not been served by BT, even on its own case, the lease continued and BT could not rely on Paragraph 31 to terminate the agreement before the contractual expiry date. If there is no break right enabling the parties to serve notice to bring the agreement to an end early, the parties are bound to the terms of the agreement until it contractually expires.

The Court of Appeal were also clear in their conclusion that the Code does not take precedence over contractual provisions of the agreement and could not be used to override contractual provisions.  If a break option has been included in the agreement, the break option has to be validly exercised in accordance with the contractual agreement, in order for the site provider to be able to serve a Paragraph 31 notice to terminate the Code agreement.

This decision restores the general understanding the had existed before the Upper Tribunal decision, that to be able to determine an agreement at or before the contractual expiry date, both a contractual and Code notice had to be given in order to terminate a Code agreement.  Whilst similar to the Landlord & Tenant Act 1954, where a statutory section 25 notice could also serve as a contractual break notice, a paragraph 31 notice is not of the same effect: a contractual notice must be served as well.

As long as a valid contractual break notice has been given, a Paragraph 31 notice can be served: the site provider does not have to wait until the notice period in the contractual break notice has expired.  If the contractual break is conditional and these conditions are not ultimately met, the break notice will be ineffective and consequently the Paragraph 31 notice will also be of not effect and the agreement will continue.

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