Is it a lease or a licence? Challenges of a telecommunications agreement

The recurring challenge of whether a telecommunications agreement is recognised as a lease or a licence has been highlighted again following a recent Upper Tribunal decision on the telecommunications case of AP Wireless II (UK) Ltd v On Tower UK Ltd  [2024].

Categorising a telecommunications agreement as either a lease or a licence, has significant implications for the rights of both parties, particularly in relation to termination and renewal. In order to determine whether an agreement is a lease or a licence, the timing of when it was entered into is important as this will impact which statute it is governed by.

If a telecommunications agreement was entered into prior to December 2017, it will be an ‘old’ code agreement. If that agreement is not contracted out of the Landlord & Tenant Act 1954 (the ‘1954 Act’) and is held to be a lease, any renewal or termination will be dealt with under the 1954 Act, and not the Electronic Communications Code 2017 (the ‘EC Code’). The 1954 Act is more favourable to site owners than the EC Code. For example, the 1954 Act requires at least 6 months’ notice to terminate an agreement, whereas the EC Code stipulates a minimum of 18 months.

Background to AP Wireless II (UK) Ltd v On Tower UK Ltd [2024]

This case concerned two agreements entered into under the old code, one in 1997, (’the 1997 Agreement’) and one in 2002 (the ‘2002 Agreement’), for the installation and maintenance of telecoms equipment on two greenfield sites in Cheshire and Essex.

Both agreements were in writing and signed by both parties, but neither was expressly referred to as a lease or a licence. The 1997 Agreement had a minimum term of 10 years, subject to termination on any date thereafter on 12 months’ notice, whereas, the 2002 Agreement had a fixed term of 20 years. The telecommunications equipment under both agreements was kept in a high fenced, padlocked compound which included affixed telecommunications towers.

The case questioned whether the agreements created a lease or a licence and, therefore, under which statute their renewal/termination should be determined.

The First-Tier Tribunal Judge held that both agreements created licences rather than leases. He said neither granted exclusive possession and commented that even though the term of the 1997 Agreement was stated as a “minimum term”, it did have sufficient “term certain” to be a lease. The agreement just didn’t get over the hurdle of exclusive possession.

The appellant, AP Wireless II (UK) Limited (the owner of the sites), appealed the decision to the Upper Tribunal. The respondent, On Tower UK Limited (the operator of the sites), opposed the appeal.

The Upper Tribunal’s decision

Mr Justice Edwin Johnson allowed the appeal in part. He held:

• The starting point is Street v Mountford [1985]. The agreement for occupation of land must (1) grant exclusive possession of the land; (2) be granted for a “term certain” and (3) at a rent. If all three are present, it will generally be a lease, whatever label is put on the agreement.
• Both agreements gave the operator defined, enclosed areas for its equipment and the owners’ rights to come onto the sites were substantially restricted. Thus, granting exclusive possession to the operator which was strongly indicative of a lease rather than a licence.
• Terms of a lease allowing for relocation of equipment do not necessarily prevent an agreement from granting exclusive possession and qualifying as a lease.
• The definition of the “term” of the agreement is also crucial. Even if the agreement establishes exclusive possession, an agreement may still be considered a licence if it lacks a sufficient certain term.
• The 2002 Agreement created a lease, not a licence, thereby allowing the appeal for this agreement. Mr Justice Edwin Johnson held the agreement granted exclusive possession of the site, was for a rent and was for a “term certain” (fixed term of 20 years) and so qualified as a lease.
• The 1997 Agreement was a licence, not a lease. He disagreed that the agreement did not grant exclusive possession; he held that it did, and it was for a rent. However, reference to “minimum term” and 12 months’ notice expiring on any date thereafter showed no determinable certain term. Having a “term certain” is a requirement to qualify as a lease and so this agreement did not qualify.

Conclusion

For parties entering into code agreements, the top 3 things to consider for it to qualify as a lease are:

1. a rent is reserved
2. a defined area is granted for the equipment with restricted access to the site owner, thereby granting exclusive possession; and
3. the agreement must be for a certain term. A minimum term will not be enough.

The Hamlins Real Estate Disputes team has expertise in both commercial and residential matters. We seek to obtain the best outcome possible for every client, no matter how big or small the issue may be. If you would like a conversation to find out how we might help you, please get in touch.