Blurred Lines: Upper Tribunal revisits Lease/Licence test for telecoms agreements

When looking at telecoms agreements it is important to be clear whether or not you are dealing with a lease or a licence. If an “Old Code” agreement (i.e. those entered into prior to 28 December 2017) and the agreement does take effect as a lease and it is not contracted out of the protection of the 1954 Act, any renewal or termination must take place under the 1954 Act rather than the Electronic Communications Code.

In that context, the Upper Tribunal has revisited the lease/licence distinction on appeal in  AP Wireless II (UK) Limited v On Tower UK Limited [2024] UKUT 263. We expect the decision will be a leading authority and have summarised the key points below. 

The Facts

This case concerned two agreements under the old Electronic Communications Code for the installation and operation of telecoms apparatus on greenfield sites.

The key issue was whether the agreements created a lease or a licence. This was important in order to determine whether the statutory framework for termination and renewal of the agreements would be pursuant to the Electronic Communications Code (under transitional provisions) or under Part II of the 1954 Act.

If the agreement was a lease (where the lease was not contracted out of the protection of the 1954 Act), the termination and renewal would be pursuant to the 1954 Act; if the agreement was a licence, termination and renewal would take place under the Code.

The first agreement from 1997 ("1997 Agreement") was between Orange and Mr Thornhill for a site in Sandbach, Cheshire. The agreement was made in writing and signed by both parties but was not made by deed. It had a minimum term of 10 years that could be terminated on not less than 12 months’ notice.  The apparatus currently on the site is housed within a compound and included a tower bolted to a concrete pad with associated equipment cabins.

The second agreement from 2002 ("2002 Agreement") was between Orange and the Pinkertons for a site in Hullbridge, Essex. Again, the agreement was made in writing and signed by each party but not made by deed and it was granted for a fixed term of 20 years. The apparatus currently on the site is housed within a compound and included various pieces of equipment, including a cylindrical tower.

The First-Tier Tribunal Judge initially ruled that both agreements created licences rather than leases. This was based on his assessment of the nature of the legal relationship created by the agreements and the totality of the rights and obligations. 

The appellant, AP Wireless II (UK) Limited (APW), which now owns the sites as freehold owner, appealed this decision to the Upper Tribunal. The respondent, On Tower UK Limited (OT), which now operates the apparatus, opposed the appeal.

Decision and commentary

The Upper Tribunal judge, Mr Justice Edwin Johnson (Chamber President), allowed the appeal in part. He ruled that:

1. The 1997 Agreement created a licence, not a lease; the agreement did grant exclusive possession and it lacked a "term certain" required to be categorised as a lease.
2. The 2002 Agreement created a lease, not a licence. The Judge disagreed with the First-tier Tribunal's reasoning and concluded the agreement granted exclusive possession of the site to the operator for a fixed term at a rent, therefore satisfying the characteristics of a lease.

Commentary

The Judge reviewed the legal principles which apply when considering whether an agreement is a lease or a licence, citing the decision in Street v Mountford as the starting point. That decision confirmed that the essential elements of a lease are exclusive possession (which combines factual possession with an intention to possess a defined area of land), for a fixed term, at a rent and that establishing these characteristics is essential, regardless of any label placed on the agreement by the parties. It is also necessary to look at the entire agreement and analyse the substance as a whole. These principles are not ousted by the Code and continue to apply.

For both agreements, the Judge analysed various provisions to determine if they pointed towards a lease or licence. These included the wording of the grant clauses, site plans, fencing obligations, access rights, equipment ownership, and termination provisions. The Judge concluded both agreements effectively granted the operator exclusive possession of defined, enclosed sites for their telecommunications apparatus. This strongly indicated treatment as leases rather than licences.

For the 2002 Agreement, the Judge found no issues with the 20-year fixed term. He ruled it created a valid lease, overturning the First-tier Tribunal decision.

However, the 1997 agreement was granted for a 10-year minimum term, after which either party could terminate the agreement on not less than 12 months' notice. The Judge ruled this did not create a "term certain" which is a necessary requirement to establish the agreement as a lease. Therefore, while the 1997 Agreement granted exclusive possession, its lack of a term certain meant it took effect only as a licence.

Practical implications for landowners

The categorisation of a telecommunications agreement as either a lease or a licence has significant implications for the rights of both parties, particularly in relation to the termination and renewal and the statutory regime that applies. As a clear example, the shortest notice period for termination under the 1954 Act is not less than 6 months, whereas under the Code it is not less than 18 months. 

Here are some key considerations:

• Granting exclusive possession of a defined area for the installation of telecommunications apparatus is a strong indicator the agreement will be a lease, even if the agreement is not labelled as such.
• The definition of the “term” of the agreement is also critical. Even if the agreement provides for exclusive possession, an agreement may still be considered a licence if it lacks a sufficient certain term;
• Provisions allowing for relocation of apparatus do not necessarily prevent an agreement from granting exclusive possession and being characterised as a lease.

The case: AP Wireless II (UK) Limited v On Tower UK Limited [9 September 2024].