Amendment 17

Product Security and Telecommunications Infrastructure Bill - Committee (1st Day) (Continued) – in the House of Lords at 8:15 pm on 21st June 2022.

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Lord Fox:

Moved by Lord Fox

17: After Clause 57, insert the following new Clause—“Rights in occupation(1) The electronic communications code is amended as follows.(2) In paragraph 21 (test to be applied by the court), in sub-paragraph (4), at the end insert “the terms of any existing agreement, and any other method of statutory renewal available.””Member’s explanatory statementThis amendment seeks to ensure that any new agreements which are made with reference to Clause 57 of the Bill and using paragraph 20 of the Electronic Communications Code must have regard to the terms of the existing agreement to ensure continuity and fairness.

Photo of Lord Fox Lord Fox Liberal Democrat Lords Spokesperson (Business, Energy and Industrial Strategy)

I know. I rise to move Amendment 17 in his name. I am grateful for the tuition that I have also had from the noble Earl, Lord Lytton—more about him shortly. Unfortunately, we are missing his huge expertise, but do not worry, I will be here to channel some of his thoughts.

This amendment seeks to ensure that any new agreements made with reference to Clause 57 and using paragraph 20 of the Electronic Communications Code must have regard to the terms of the existing agreement to ensure continuity and fairness. It aims to address outstanding concerns with the way rights are assigned when there are operators in occupation at a site. This is a complex issue and I am aware that the Minister and his colleagues at DCMS have been grappling with it as the Bill has been developed, but it is vital that the Government get this right.

The issue that the Government are trying to address was brought about by a confusion in the 2017 code. There have been some issues where operators have been prevented from getting the code rights they need to support their networks because they are already in occupation of the land and they cannot grant themselves rights.

The Government’s original consultation response and the first draft of the Bill tried to address this by changing the definition of “occupier” in the Bill. This was at Clause 57 in the original Bill. The stated policy intent made it clear that the change is intended only to address the issue that we have outlined and to ensure that when operators are in occupation of land they are able to obtain new code rights.

However, it was made clear to the Minister and his colleagues at DCMS that the original draft would in fact have much greater implications and would potentially allow operators to misuse Clause 57 as it was originally set out to modify or cancel agreements mid-term. This would be in the operators’ interest, since they could break a contract that had been agreed in good faith and move the new contract on to a new valuation basis under the 2017 “no scheme” provisions for consideration.

The Government tried to address this by removing the original draft of Clause 57 and replacing it with the new Clause 57 that we have before us today. Instead of changing the definition of “occupier” in the Electronic Communications Code, it creates a more specific code right to deal with the underlying problem.

However, despite this change, concerns remain that operators could still use the new Clause 57 in conjunction with paragraph 20 of the Electronic Communications Code to break existing contracts. Ministers tried to provide some reassurance that this is not the case in their presentation of the Government’s amendment in the House of Commons, but this simply does not create enough certainty within the industry, and it could cause unnecessary delays.

We know that this issue has been tested in the courts in the years that followed the 2017 reforms to the Electronic Communications Code. We have no reason to believe that the response from the industry will be any different this time, not least because there is so much commercially to play for—there is a lot of money on the table here. The best thing to do is to provide legal clarity.

This amendment is intended to remove the incentive for operators to use paragraph 20 of the Electronic Communications Code—the paragraph that details when a court can impose a code agreement—to break and reconstitute agreements on more favourable commercial terms where other methods are available to address pressing needs for narrow rights when in occupation under an existing contract. It would do this by ensuring that any court imposing a code agreement must have regard to the commercial terms of any existing agreement and to any other methods of statutory renewal available to the parties. I am aware that this is a complex problem, but it is one that we really have to get right. We would welcome the Minister’s urgent attention on this issue.

If noble Lords thought that got complicated, I am now going to channel the thoughts of the noble Earl, Lord Lytton. There is precedent for this: during the passage of the Commercial Rent (Coronavirus) Bill, the noble Earl was struck down with coronavirus—as was almost everybody else—so the House was left with me and the Minister, and I had the pleasure of channelling the noble Earl’s thoughts. I know of no one in your Lordships’ House who understands the valuation issue better. Therefore, I am going to reproduce what he sent me, because I think it is important to put it on the record at this point.

The noble Earl said that one important factor behind this amendment is the long-standing principle that where a business lease is protected under statute by the Landlord and Tenant Act 1954, its renewal is to be on substantially the same terms and based on the same principles as the existing lease. This follows because the LTA—as I will now call it—provides that the old lease does not end but is statutorily continued. The entitlement of a tenant to apply to a court for a new lease is based on this principle.

The 1983 decision in O’May v City of London Real Property Co. Ltd set out the criteria, namely that while a court has discretion as to new lease terms, the starting point is always the existing lease terms. After all, this is a renewal of an existing deal, not a completely new one. So, the decision put the onus on the party proposing the change in lease terms to justify the change, and further, that the change should be fair and reasonable as between the parties, usually meaning that any change should not materially alter the character of the commercial arrangement. The court may reach its decision depending on whether detriment will be suffered by the non-proposing party that cannot be compensated in monetary terms within the parameters of the lease. Outside this—and the decision of a court in any given instance may be difficult to predict—changes made have been a matter of voluntary negotiation. This amendment seeks to restate this in the telecoms code environment.

A material departure from this principle, however, would risk mischief not just in the telecoms sector but—in the opinion of the noble Earl—in the wider world of commercial property. So, the Minister’s response may be a test of whether this Government believe in free market principles, which to a very large extent underpin the market in and provision of business space, commercial freedom to contract, flexibility, investment and innovation, and ultimately employment and productivity—not to mention entitlement to one’s property assets under convention rights. I think the noble Earl is raising the stakes on this issue.

In every other walk of life, commercial contracts freely entered into are not subject to unilateral redefinition of the lease terms, leaving aside for one moment the question of rent. The contract is a package of terms, in which rent is but one factor. What is the scope, in the Government’s view, of this contractual redefinition under the code, as reinforced by the Bill?

Governments can, of course, turn long-held understandings on their head, as the Labour Administration in 1963—I am sure none of the Front Bench remembers—did with the residential security of tenure of rent control.

Photo of Lord Fox Lord Fox Liberal Democrat Lords Spokesperson (Business, Energy and Industrial Strategy)

I say to the noble Lord, Lord Bassam, we are coming to the Landlord and Tenant Act 1954.

The residential security of rent control caused a seizing up of the private rented sector for the next 25 years. This is something that the Landlord and Tenant Act 1954 avoided doing in the business sector by providing security of tenure, but on market rental terms. The word of warning here from the noble Earl is that Government should be careful what they wish for and how they go about any significant transition in dealing with human sentiment against actuarial robotics, and be aware of whose voices they lend their ears to.

There are apparently three routes to lease renewal: the 1954 Act, which the noble Earl believes is effectively overwritten in some instances by the 2017 code revision; the immediate pre-2017 code for non-LTA leases; and the situation that pertains for agreements following the 2017 changes. This seems a recipe for confusion, and if the noble Earl is confused, where does that leave the rest of us?

There is a lot of detail in quite a short amendment, but this is an issue. I understand, and I think my noble friend Lord Clement-Jones and the noble Earl, Lord Lytton, understand, that there needs to be some clarity over which measures apply where, and whether the Government really want to sanction wholesale renegotiations of the nature that the noble Earl, Lord Lytton, has set out. I think that is a law of unintended consequence, and it will slow down the implementation of what we want to be implemented rather than allow it to happen more quickly.

Photo of The Earl of Erroll The Earl of Erroll Crossbench

My Lords, I would add that I completely trust my noble friend Lord Lytton on these affairs and issues. I have talked to him, particularly when discussing burying fibre and things like that, and he knows a lot about it.

Photo of Baroness Merron Baroness Merron Opposition Whip (Lords), Shadow Spokesperson (Health and Social Care), Shadow Spokesperson (Digital, Culture, Media and Sport)

My Lords, this is of course the first of a number of amendments that deal with Part 2 of the Bill. The amendment refers to telecoms infrastructure. This is far from the only debate that we will have on broad issues around property rights, operators, access to land and so on but, as a general point, it is worth restating our belief that this country needs access to better digital infrastructure. Our concern is that the Government have not been hitting their targets for the rollout of gigabyte-capable broadband. There have also been issues around the rollout of 5G technology. Although we want to see decent infrastructure, we also want to see fairness in the system, and that is what this amendment speaks to. It seeks to ensure a degree of continuity and fairness as new agreements are made to replace existing ones.

The principles cited by the noble Lord, Lord Fox, and in the amendments tabled by the noble Lord, Lord Clement-Jones, are reasonable. Again, they are principles that I am absolutely sure we will return to next week, as we have ever-more detailed discussions about rents, dispute resolution and so on.

As has been outlined in this debate, the court is not currently bound to consider the terms of an existing agreement. This feels like a significant oversight. Perhaps the Minister can inform us about what actually happens in practice and what will happen in practice. Both operators and landowners have, or should have, certain rights and responsibilities within this process. I look forward to the Minister’s response to Amendment 17 and to moving some of our own amendments during day two of Committee.

Photo of Lord Parkinson of Whitley Bay Lord Parkinson of Whitley Bay Lord in Waiting (HM Household) (Whip), The Parliamentary Under-Secretary of State for Digital, Culture, Media and Sport

As the noble Baroness says, this begins to anticipate some issues to which I know we will return on the second day of Committee, but it is useful to begin them tonight.

Amendment 17 seeks to insert a new clause after Clause 57 of the Bill. Its purpose is to add an extra element to the test at paragraph 21 of the code, where an operator enters into a new agreement because of the provisions in Clause 57. This is likely to be in circumstances where an operator in occupation of the land on which its apparatus is installed has an existing agreement but wishes to seek an additional code right. The code currently provides that operators in exclusive occupation of land are unable to obtain additional code rights until their existing agreement is about to end or has ended. This is because the code currently provides that only an occupier can grant code rights, and the operator clearly cannot enter into an agreement with itself.

Clause 57 remedies this position and allows an operator to obtain code rights where it is in exclusive occupation of the land. The test at paragraph 21 of the code is often referred to as the public interest test and sets out what a court must consider when deciding whether to impose a code right on a landowner. Paragraph 23 then sets out how the court should determine the remaining terms of the code agreement. Clause 57 simply gives an operator the ability to obtain a new code right or rights that they do not already have. The clause does not allow an operator to force changes to its existing code agreement or to compel the other party to modify any of its terms—for instance, to attempt to reduce the amount of rental payments. Furthermore, the clause does not enable an operator to bring an existing agreement to a premature end in order to take advantage of more favourable terms. Any existing code agreement that the operator has will be expected to continue and operate alongside the agreement relating to the new code right.

Amendment 17 seeks to expand the test at paragraph 21 so that the court also has to consider the terms of any existing agreement and any other method of statutory renewal available. We are, however, of the view that the court can already take such matters into consideration when deciding whether to make an order under paragraph 20 of the code, and again when applying the test at paragraph 23 to determine what terms the code agreement should contain.

This is a topical issue. Clause 57 rectifies an issue in the code that currently prevents operators who are in exclusive occupation of the land being able to obtain new code rights. As I said, three cases have touched on this issue, all of which were heard in the Supreme Court earlier this year, and the Supreme Court is due to hand down its judgment tomorrow.

At present we believe that Clause 57, as drafted, achieves its intended objective, but we recognise that this is a complex and technical area, on which the noble Lord, Lord Fox, valiantly conveyed the expert view of the noble Earl, Lord Lytton, and it is imperative that any unintended consequences are avoided. We will of course look closely at the Supreme Court’s judgment and carefully consider whether further amendments are needed, engaging with interested parties as required to ensure that the aim of the clause is fully realised.

I too am very conscious that the noble Earl, Lord Lytton, with whom we have already had some discussions on this and broader aspects of the Bill, will want to join those discussions, so I am sure he will be following the official record. But I am very happy to meet the noble Lords who have spoken, as well as the noble Earl, to discuss this issue in further detail, particularly once we have seen the judgment. For now, I urge the noble Lord to withdraw the amendment.

Photo of Lord Fox Lord Fox Liberal Democrat Lords Spokesperson (Business, Energy and Industrial Strategy)

I thank the Minister for his response, during which he said that the department is of a view. When I was speaking for my part, rather than for the noble Earl, I made it clear that there were quite strong opinions that that view might not be correct. Three cases are to be judged tomorrow, before this Bill is enacted, so although it may have some relevance, it will potentially —and in the views of the people we have spoken to, almost certainly will—end up back in the courts.

We share the objective of the noble Baroness, Lady Merron, that the rollout be accelerated, not inhibited. We also share the view, as expressed in the not very veiled threat in the part of my speech on behalf of the noble Earl, Lord Lytton, about what the 1963 rent Act did, which was clog up the system. We do not want to do that—we cannot afford to clog up the rollout. There are strong suspicions that, without giving the legal certainty we need to avoid getting tangled up in the courts, we will be back there again, notwithstanding the judgments of tomorrow. That said, I beg leave to withdraw Amendment 17.

Amendment 17 withdrawn.

Clauses 58 and 59 agreed.

House resumed.

House adjourned at 8.47 pm.