Infrastructure Bill [HL]

Written evidence submitted by Central Association of Agricultural Valuers (IB 41)

INFRASTRUCTURE BILL

NEW CLAUSE 19

NEW SCHEDULES 2 AND 3

THE ELECTRONIC COMMUNICATIONS CODE

CONTENTS

Introduction

1.0 Introduction

2.0 Paragraph 23 – Consideration

3.0 Paragraph 24 – Power to Amend Paragraph 23

4.0 Part 16 – Enforcement and dispute resolution

Background

5.0 The Central Association of Agricultural Valuers

6.0 The Electronic Communications Code – Principle

7.0 The Need for Reform

8.0 The Challenge of Technology and Business Change

9.0 CAAV involvement in Code Reform

10.0 Support for Reform Based on the Law Commission

INTRODUCTION

1.0 Introduction

1.1 This paper is an initial response to the amendments to the Infrastructure Bill which were published on 9th January 2015. We will provide a more detailed consideration of the issues very shortly. Background information on the CAAV and our involvement in the reform of the Electronic Communications Code is given from paragraph 5.0 below.

1.2 The two key issues which we highlight at this point are:

· Paragraph 23 – Consideration: the artificiality of the valuation proposition

· Part 16 – Enforcement and Dispute Resolution: the importance of effective and affordable dispute resolution procedures.

KEY ISSUES

2.0 Paragraph 23 – Consideration

2.1 We support the drafting of paragraphs 23(1) and 23(2) and are pleased that the definition of "market value" is included in the body of the Code, as it is in much tax legislation, affording certainty to those concerned.

2.2 The use of market value for the rent or other payment is a necessary part of the underlying principle that the infrastructure is there by agreement.

2.3 There are two particular issues that have attracted discussion in this. These are reflected in 23(4):

- the desire to exclude "ransom" value from this assessment

- the place of powers over assignment, site sharing and upgrading.

2.4 There is no particular dispute about the first of these. The present Code was construed in London and India Docks (LIDI) to exclude any ransom value to a special purchaser that an owner of a key location could extract over and above its market value. That is covered by 23(4)(a) which recognises the use for the land but assumes an alternative site.

2.5 However, we are concerned as a matter of professional practice about the artificiality of the assumption to be imposed by Paragraph 23(4)(b), which requires the parties (or their valuers) to disregard the statutory limitations which the Code will apply to agreements in permitting assignment or the sharing or upgrading of equipment.

2.6 The effect of this is that valuers will be asked to assess the consideration payable for a site on terms which cannot exist in practice because they are not permitted under the Code. This is akin to asking for a semi-detached house to be valued as if it were a detached house, but in a world where no detached houses exist. The valuer would have no more direct evidence of such new agreements than he would if asked to value a horse by reference to the sale price of unicorns.

2.7 If agreements are effectively to be "all inclusive" on these points, they should be valued as such. As noted above, developments in the market place may now often mean that apparent financial conditions or bars on site-sharing in agreements are already ineffective, meaning that rental differences between the regimes may be less marked than might have been supposed. Recognising the proposed inability to bar assignment, site sharing and upgrading would remove an assumption that is not only artificial, but one that is contrary to practical and commercial reality, enhancing transparency with the use of direct comparables and aiding the functioning of the market that delivers this infrastructure.

2.8 It is at this point that the valuation provision is inconsistent with that of Paragraph 61 (Crown interests in tidal waters). 61(5) carries forward the assumption that there is more than one site (so answering concerns about ransom value) but does not include the assumption that assignment, site sharing and upgrading is barred. That is a real world approach and should be adopted in Paragraph 23.

2.9 Recommendation – 23(4)(b) should not be enacted so that the consideration payable for an agreement is based on the actual terms agreed. There would be no disadvantage in doing so because all agreements will be treated on the same basis, but the valuer can assess what actually exists instead of a hypothetical agreement which can never exist.

3.0 Paragraph 24 – Power to Amend Paragraph 23

3.1 We are concerned about this Paragraph, providing a reserve power to change the basic approach to valuation removing reference to the use for which the land is wanted, as prejudicial to the basic mechanism of the Code.

3.2 We understand that this is in response to pressure from operators who perfectly naturally, and like the rest of humanity, wish to pay less. We are pleased that the Government has proceeded with Paragraph 23 as the default basis.

3.3 The issue here only touches a very small part of operators’ costs. In responding to the Law Commission and then on reviewing the later Nordicity report for DCMS, the CAAV identified that the maximum entire potential sum at stake should a compensation approach finally come to apply to all agreements lies between 0.05 and 0.07 per cent of operators’ annual turnover. However, such a change would have a substantial impact on many site providers who may no longer wish to have their land used in this way and create issues that operators may not yet have foreseen. It may be much harder for school governors, a village hall committee or a church council to explain why they should enter into an agreement affecting their property if they are not to be properly paid for it, especially if they are aware that it may complicate future plans they may have for it.

3.4 A market value on the basis such as that outlined in most of Paragraph 23 is the complement of an agreement, balancing supply and demand, rights and responsibilities; statutorily providing for inadequate payment would not reflect an approach successfully founded on agreement. That issue is further compounded by the fact that this country has a large existing market of agreements for which payment is made on the basis of agreed values, especially for masts.

3.5 There is no requirement that a market value needs be a high price or one that always goes up. Properly functioning markets will see prices reflect their realities and so the value of some sites will be less than the value of other sites and may, according to circumstances, go down. Thus, sites that can only serve distinctively small or remote areas or those with low populations may naturally have a lower value than ordinary masts, but that is to be found in the market.

3.6 Recommendation – This paragraph should not be enacted.

4.0 Part 16: Enforcement and dispute resolution

4.1 Any process or legal framework is often only as good as its disputes resolution provisions. There are frequently occasions when reasonable people may have a reasonable difference of opinion over an issue and properly look to have that issue resolved by a third party, whether court, tribunal, arbitration, expert determination or other mechanism. Experience shows that where access to dispute resolution is easier, then powers provided by statute are less likely to be abused as everybody generally behaves better. Where the statutory powers are more absolute or access to a tribunal is harder, then the behaviour of statutorily empowered bodies is worse. An awareness of challenge is an important discipline encouraging a better culture.

4.2 One key to the success of the proposed Code is that it uses disputes mechanisms that are appropriate by being accessible, both in terms of procedure and cost, and effective, in terms of procedure and skill.

4.3 We are concerned that this Part retains the focus of the present Code in the county court with the formal procedures and costs of court procedures but at a level that does not generally have the required skills. While important to the owner, many issues are not of enormous financial scale and so do not warrant use of the more specialist parts of the court system, but may often be better handled by the less formal provisions for tribunals and arbitration. In that, we are pleased to see Paragraph 25’s recognition that the courts might use arbitration to determine compensation but regret that this is not extended to other issues, including consideration (save for some issues affecting "transport lands).

4.4 Throughout the process of consultation with the Law Commission and DCMS there has been strong and general support for the proposal to make the Lands Chamber of the Upper Tribunal the forum for disputes over the Code. The Lands Chamber:

- has the necessary expertise to deal with these complex property law and valuation issues

- offers several different mechanisms, including a simplified procedure and a written representations as well as a full formal hearing

both factors which can help to keep the cost of dispute resolution down in those cases where these are appropriate.

4.5 We are disappointed to see that the default position remains with the County Court. This may have been required by time pressure, but we strongly urge the Secretary of State to make the regulations referred to in paragraph 92 to confer the relevant powers on the Lands Chamber at the earliest opportunity.

4.6 Overall, we advocate using the Land Chamber as the forum for issues over property rights and substantial valuations, with arbitration used for lesser issues under agreements.

BACKGROUND

5.0 The Central Association of Agricultural Valuers (CAAV)

5.1 The CAAV represents, briefs and qualifies some 2700 professionals who advise and act on the very varied matters affecting rural and agricultural businesses and property throughout Great Britain. Instructed by a wide range of clients, including farmers, owners, lenders, public authorities, conservation bodies, utility providers, government agencies and others, this work requires an understanding of practical issues. Within our organisation are many members who advise landowner clients on telecommunication mast issues and a smaller number who work for or advise telecommunications operators and specialist providers of masts and other relevant infrastructure.

5 .2 The CAAV does not exist to lobby on behalf of any particular interest but rather, knowing its members will be called on to act or advise both Government and private interests under developing policies, aims to ensure that they are designed in as practical a way as possible, taking account of circumstances.

5 .3 Ultimately, the CAAV has to support its members, whoever their clients may be, in giving practical and sensible advice on any legal regime, so that they can give best service to those clients in the decisions they must make.

6.0 The Electronic Communications Code – Principle

6.1 The Code (and its predecessors for two centuries) has at its heart the longstanding, very simple, practical, effective and commercial principle that infrastructure is only to be on land by agreement. Where that infrastructure has to be imposed in the public interest, then that is to be after due process and on the terms of reasonable agreement. That principle is firmly endorsed by the CAAV and it is generally carried forward by the proposed Code.

6.2 That principle is very different from that of compulsory purchase, though both are of similarly old origin (compulsory purchase principles stemming from canals and railways). Among the points of practical difference is not only that communications have developed successfully in the market place, but also that relationships between owners and operators under the Code are continuing ones, while much compulsory purchase is about outright acquisition in which the former owner then no longer has an interest.

7.0 The Need for Reform

7.1 Despite the clarity of its informing principle, the detailed provisions of the Code, interacting with rapidly developing technologies and business structures, have become an impediment, hampering its practical operation. The judge’s comments in the Bridgewater case:

"The Code is not one of Parliament’s better drafting efforts. In my view it must rank as one of the least coherent and thought-through pieces of legislation on the statute book. Even its name is open to doubt."

were so well taken that they have been part of the background to the current reform.

7.2 The sector, both operators and site providers, has had to make the Code work as electronic communications have developed rapidly over the last thirty or so years. They have done so because the sector has developed commercially, establishing over 50,000 masts and hundreds of thousands of miles of cable essentially by agreement and not by confrontation. It is a key point that the sector has developed more through the market than by statutory imposition, with masts commonly held on leases and cables on what are conventionally analysed as "wayleaves". Changing that would be likely to lead to much greater resistance by those affected.

7.3 However, as that process of development has become mature and new developments are underway so there are real practical problems over the Code’s operation in a number of areas. In summary, commercial practice has been very good at establishing necessary infrastructure but the Code has been found not to offer the tools or effective remedies to govern those relationships thereafter as, for example:

- when an agreement has come to an end, the operator’s Code rights continue. The means for an owner to seek renewal and updating of the agreement is by seeking the removal of the equipment. That has the problems of:

o not being what is really wanted

o procedurally difficult (and so also costly)

o easily trumped by the operator

leaving a very frustrated owner and many years until a new agreement is in place

- where the owner wishes to repair property supporting a mast. In one case an operator refused to move temporarily for a rotting roof supporting the mast to be replaced.

- where property is to be developed.

7.4 Especially for masts, operators represent an enormous concentration of economic power, more concentrated than even the supermarkets with two groups of two operators each handling 40,000 of the nation’s masts. Yet most owners may only have one mast and few will have more than a handful. As very large organisations with their infrastructure, once in place, having the statutory protection of the Code, operators can be very careless of the interests of the site providers on whom they depend. That makes effective, accessible and skilled dispute resolution very important. The proposed Code does assist this in separating out some of the issues and providing timetables for action. However, it could go further.

7.5 All involved have recognised that this is a particularly complex area of law and policy, very vulnerable to the risks of unintended consequences, in which unconsidered changes in one area will have unforeseen damaging effects in another part of the Code. Reform has to be achieved with a coherent package, building on the basic strengths of the underlying principle but taking proper account of the issues of today and tomorrow.

8.0 The Challenge of Technology and Business Change

8.1 While the previous communications media served by the Code and its predecessors - semaphore, telegraph and telephone - perhaps represented single technological revolutions, we are seeing a rapid pace of continuing technological change. That may unfold further in ways that may be unforeseen as the Code is revised or when individual agreements are written. In that vein, the Code should be based on principles rather than offer too much detail that may soon become obsolete or obstructive. In that, we support the basic principle that the law should not discriminate between different technologies, between wireless and cable, but leave that to competition.

8.2 The example of the issues of assignment and site sharing may illustrate this. Many agreements ought to control this, but changing business structures and technologies mean that most such clauses may now be largely pointless and the concept of site sharing may now, in reality, already be impossible to define in any useful way. As the proposed Code recognises at paragraph 4, operating masts is becoming distinct from operating a communications network.

9.0 CAAV involvement in Code Reform

9.1 Prompted by queries from our members concerning the powers of telecommunications operators in connection with mast sites, the CAAV published a professional guide to the topic in 2010, Telecommunications Masts, exploring law and the issues. This included our own consolidated text of the Electronic Communications Code ("the Code") as that had not previously been available following the major changes in 2003.

9.2 While that provided a point of professional reference for valuers, solicitors, policy makers and others involved in this work, questions continued to come in about issues on the ground, with many examples given where the operation of the Code was failing to provide a suitable framework for twenty-first century practice.

9.3 We welcomed the appointment of the Law Commission in 2012 to review the Code, met with the Law Commissioner, Professor Cooke, to discuss these issues and submitted a comprehensive report in response to the formal consultation. We were pleased that our input was extensively recognised in the Law Commission’s final report, published in 2013.

9.4 Since then we have continued to engage with the Department for Culture, Media and Sport, meeting with civil servants on several occasions to discuss the Law Commission recommendations in more detail.

10.0 Support for Reform Based on the Law Commission Recommendations

10.1 We support a reform of the Code broadly based on the Law Commission’s 2013 report, "The Electronic Communications Code", which made some very sound and practical recommendations.

10.2 However, there are some areas where we consider that the pressure of time on the Law Commission and the great complexity of the task they had undertaken within the time allowed meant that they were not always able to have thought through the detailed implications of every recommendation. Indeed, the report was itself conscious of this and recommended a further period of consideration for its conclusions. The Government has now come forward with its implementation based on those proposals and, while welcoming much of this, we suggest further modification in a few specific areas.

10.3 This paper is an initial comment on the parts of the proposals over which we have the greatest concern, whether to ensure its successful passage into legislation or to seek improvement by amendment.

January 2015