Legal development

Data centres and the Electronic Communications Code: get ahead of the game when it comes to removal of apparatus

computer servers background

    A fast-growing asset class, data centres are dynamic and complex systems requiring careful design, management and optimisation to meet the unprecedented growth in demand fuelled by new ways of working and modern technologies including artificial intelligence, machine learning requirements and 5G.

    In this Data Centre Insights series of articles, we will explore and examine the challenges and opportunities they data centres present for the world in terms of technology, real estate, innovation, and sustainability and investment.

    In the first article of our series, we explore how the Electronic Communications Code interacts with data centre leases.

    It goes without saying that landlords (or 'site providers') dealing with data centres need to carefully consider the provisions of the Electronic Communications Code (the Code) and the ways in which it might affect the management of their assets.

    By way of reminder, the Code was introduced in 2017 and replaces the previous 1984 Code, which was generally considered to be outdated. The Code sets out the ways in which providers of electronic communications services and infrastructure providers (operators) can exercise their statutory powers to install, maintain and use electronic communications apparatus in, over or under land. In general the Code is considered to be particularly 'operator friendly', in that it grants a wide range of rights to operators and offers limited ability for site providers to object to the conferral of rights. This imbalance of power can lead to dispute, and it is the First Tier Tribunal (and Upper Tribunal, on appeal) in England & Wales that has the jurisdiction to deal with Code related referrals.

    By their nature, leases of data centres are often classed as Code agreements. Data centres often house large amounts of telecommunications apparatus and so their leases ordinarily meet the criteria under paragraph 29 of the Code, which states that the grant of Code rights must be the primary purpose of the lease in order to qualify.

    There is one particular area where the Code and data centres overlap that has not yet been tested by in case law, but that could have a significant impact on a site provider of a data centre: the reasonable period for the removal of telecoms apparatus.

    It is well established that in order to terminate a Code agreement, a site provider needs to provide at least 18 months' notice to an operator and must rely on one of the prescribed grounds, such as redevelopment. Once the notice period expires, a site provider must also then serve a removal notice giving the operator a 'reasonable period' to remove their apparatus and to make good any disrepair before they leave.

    Most apparatus can be decommissioned and removed by an operator in a few days or weeks. However data centres, particularly those operating as switching centres, will often consist of a number of floors within a building housing many tons of switching equipment and exchange devices. Whilst it may be reasonable to give an operator a few weeks' or months' notice for the removal of a few antenna on a rooftop, how much notice is it 'reasonable' for a site provider to give in a data centre scenario? Might an operator argue that it reasonably needs a further 18 months or longer to safely decommission its equipment and remove it from the building?

    Failing to consider this in advance could of course have a significant impact on a site provider's plans for when it recovers possession of the property, particularly if it has redevelopment plans. It might also be arguable that failing to give an operator sufficient 'reasonable' time to remove its apparatus could invalidate a removal notice, and in turn potentially require a site provider to serve another long removal notice. The cost and time delay associated with tripping up on this point could be substantial.

    A practical way to deal with this could be for a site provider to write to the operator at the same time as serving its 18 month termination notice asking what the operator would consider a reasonable removal period to be. And then to keep an open dialogue on this topic until the removal notice is served and the apparatus removed. In short, try to get ahead of the problem rather than being left with a potentially difficult and lengthy additional period at the removal stage. If the matter were then to be contested, when looking at what a reasonable period constitutes the Tribunal would hopefully consider the fact that the operator would have known about the removal for at least 18 months and that it could and should have been making alternative arrangements during that time. Encouragingly, case law on other decisions from the Tribunal and from the appeal courts to date has been pragmatic, but it is of course difficult to predict with certainty how they might apply the 'reasonableness' test to such scenarios. For example, might they take into account how complex the machinery is, how expensive the move might be and if alternative sites are available? They may also consider it important to look at the public policy behind the Code and the importance of the site to the operator's network and decide that the reasonable period is considerably longer than in other straightforward cases.

    There are very few new Code agreements that have been terminated since 2017, and so this issue is not likely to come to the courts until later down the line when the agreements start expiring and site providers start seeking termination and removal. However, given the potential drastic ramifications of leaving it too late, landlords dealing with data centres would do well to keep this on their radars.

    Authors: Alison Hardy, Partner; Henry Moss, Partner; Joe Perry-Courtade, Associate

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


    Stay ahead with our business insights, updates and podcasts

    Sign-up to select your areas of interest