Farmers leasing sites to telecommunications companies are receiving letters suggesting that unless they agree to rent cuts, their sites could be decommissioned. Robyn Vinter finds out why farmers shouldn’t necessarily agree to the changes
Site owners entering negotiations with telecoms operators have more power than they might think, according to advisers.
There are about 60,000 telecoms installations in the UK, many of these on farmland.
Across the UK, 96% of people now live in postcode districts with at least 90% 2G coverage, and 3G coverage is relatively similar. This makes farmland sites an invaluable resource for telecoms companies.
In recent months operators have been writing to landowners in an effort to reduce rents, arguing that there has been a shift in the market because of site sharing due to network consolidation.
After receiving these letters, many farmers agreed to the terms because they feared losing the rent completely, but they did not need to do this, says Robert Paul, head of Strutt & Parker’s telecoms group.
“Landowners are under huge pressure to agree terms to existing leases to benefit phone companies,” he says.
“The letters usually say something along the lines that the sites are not being let on ‘sustainable terms’ and suggests farmers will lose the site if they don’t agree.”
Typical rents are in excess of £5,000, but many operators are looking to knock this down to between £3,500 and £4,000.
“However, no operator will move over the single issue of £1,000 rent, considering the cost to set one up is about £100,000.”
Landlords need to understand the strength of their negotiating position, based on how close competing sites are, says Mr Paul.
Site owners can use the Ofcom online sitefinder tool, which is free and reasonably accurate, and operators should also tell you if pressed for an answer, he says.
If the site is under some threat, the tenant may only be able to terminate the agreement if the lease is due to expire or contains a specific break clause.
“Break clauses have to be complied with, both in terms of the timing of a notice and the reason for the notice – many break clauses refer to sites being ‘unsuitable’ or allow a break for ‘environmental reasons’, but a site is not unsuitable just because the operator no longer requires it and ‘environmental issues’ require a change in the actual environment, such as the growth of nearby trees or a development that blocks out a site.”
Landowners should also consider that upon termination of any lease, the operator can be required to reinstate the land fully, but the lease may not give rights to use vehicles or machinery, giving the landlord further leverage.
Different operators have different models and priorities, and site owners should take advice on their individual situation, says Mr Paul. “Every site owner should look at their lease to check how strong their position is. There are very few identical leases – site sharing rights are different, compound sizes and towers vary.”
With many mergers and acquisitions in the sector in recent years, site owners need to be aware of who the players are and what their position is likely to be. Here, Mr Paul reviews the operators:
O2 and Vodafone
In October 2012, O2 and Vodafone created a joint venture called Cornerstone Telecommunications Infrastructure (CTI) to consolidate existing telecoms equipment. They aim to transfer 9,000 sites into the name of CTI before June 2013, which in many cases will mean formal consent to transfer the leases. Unless the lease openly allows assignment, landlords are under no obligation to give consent.
For those who receive a lease variation letter, it is important to establish where the nearest competing site is in the vicinity. Generally, competing sites for a Vodafone mast will be nearby O2 sites and vice versa. If there are no competing sites in the locality then the negotiating position should be relatively strong.
Hutchison 3G, T-Mobile and Orange
Three years ago Hutchison 3G (H3G) and T-Mobile agreed to share networks. Most of these sites will be safe from threats, having recently been renegotiated, but a recent merger means Orange masts will now be threats, and vice-versa, said Mr Paul.
Orange is now part of Everything Everywhere, which is the new name for T-Mobile and H3G. Existing T-Mobile and H3G leases will allow for use by group companies, but Orange leases will not automatically allow others to share or use the site free of charge, so the preference will be to keep the existing T-Mobile and H3G sites where possible.
The T-Mobile and Orange networks were rolled out at about the same time, so many of the sites are in similar locations.
Airwave operates an emergency services wireless network that has contracts with fire and police authorities and government agencies.
It is contractually obliged to provide 100% coverage on all tarmac roads in the UK and, as a result, is unlikely to relocate sites for modest savings in rent.
Airwave does not have any group companies in the UK to share with free of charge, so landlords should receive additional rent for any site sharing that occurs.
Arqiva transmits TV and radio and sublets masts and infrastructure to mobile phone operators. Landords should receive about 30-50% of the site share payments made by operators.
Arqiva has been sending out lease variation letters, but for those sites with TV or radio broadcasting operations, Strutt & Parker has successfully resisted these variations.
For sites that have a telecommunications use, a termination notice from Arqiva could not be valid unless the site sharer removes its equipment too, which it may be reluctant to do.
If Arqiva were to relinquish their interest in the site this could merely amount to the removal of a “middle man” in some cases. In most cases, a robust refusal may be the best first response to a lease variation letter.
BT used to own 02 and Airwave, but now has no interest in the companies at all. Any BT microwave dishes on a mast owned by another company should provide additional rent for the landlord.