Ensuring that utility agreements do not delay your development
Thu 26 Feb 2015
At the outset of a development, it is easy to underestimate the legal obstacles that might arise when dealing with utility companies. While many objections that utilities companies raise may at times seem arbitrary, there is a method to their behaviour, and this article will review the nature of these kinds of agreements and suggest ways in which the process of “progressing the legals” can be streamlined to ensure that last minute scramble to energise a development can be avoided!
Nature of the documents
The phrase ‘utility agreements’ can encompass a wide variety of documentation, from the more straightforward wayleave agreements (common with telecommunications companies) which are not registrable land interests, to deeds of grant of easements and substation leases which are registrable (for example gas pipelines and electricity cables). All of these agreements essentially govern how rights are granted by a landowner (“grantor”) to a utility company to allow that company to come onto the grantor’s land in order to lay infrastructure and thereafter maintain, clean and replace it. A utility company will wish to carry on its undertaking with the minimum interference from the landowner, and the initial draft documents very often reflect this attitude; many are, perhaps unsurprisingly, very ‘undertaker friendly’.
The legal process
Once the developer’s technical team signs off on the designs and heads of terms are agreed, the utility company will then issue drawings showing the locations of their various proposed apparatus, as well as any easement corridors they foresee needing. This in itself can take much longer than anticipated, especially if the utility company drawings do not match the consented scheme and require multiple revisions.
A utility company’s legal advisors will then issue their standard form draft agreement and standard enquiries which are designed to flush out title issues and potential conflicting rights which may already exist. In order to speed up the process, and keep their costs down, utility companies will put the onus of due diligence on the grantor, requiring it to warrant that it has the relevant interest in land and the relevant rights to be able to grant rights in turn to the utility company. Special care should be taken to ensure that the grantor is able to grant the exact rights a utility company requires, as it is possible that a development site does not abut a highway where existing services exist, and services must be run over third party land. Sometimes a developer may have sufficient rights over the third party land to be able to grant these to a utility company but often the utility company will need another wayleave or deed of easement with the land owner of the third party land.
Negotiations can often become protracted, especially in cases where a utility company will refuse to amend its standard form documentation, which is often a tactic utility companies use as a developer is, by this point, desperate to have any utilities switched on.
Points of contention
Utility companies will provide indemnities in favour of the grantors to protect grantors from costs, claims and losses that emanate from the exercise of the rights by the utility company. All utility companies, without exception, will insist that such an indemnity relate only to direct losses; a grantor would prefer to see indirect losses also covered (for example loss of profits) but it is very difficult to persuade a utility company to allow this. Often the requirements of a company’s insurers are cited as a reason that losses be restricted to those which are direct. Another point which arises is the limit of the indemnity, and again, this is governed by the company’s insurance policy. It is also usual for a utility company to ask for an indemnity from the grantor in relation to any damage caused to infrastructure installed by a utility company, and here it is important that the grantor reserves the right to conduct any proceedings against any claimants, as a utility company could conduct such proceedings in a way that reflects poorly on the grantor’s reputation, if, for example, the utility company uses overly aggressive tactics.
‘Lift and shift’ clauses are included in utility agreements to enable a developer to move the utility apparatus when it comes to redeveloping the land in the future. These provisions can be rejected outright by a utility company, or are subjected to very long notice periods. Utility companies often require for a detailed planning permission to be obtained before the ‘lift and shift’ rights can be exercised.
As mentioned above, a utility agreement will grant rights to a utility company to lay and thereafter maintain, cleanse, repair etc. conducting media. They will need rights to come onto the grantor’s land and break up surfaces to access the apparatus, but it is important to limit such rights so as to prevent unnecessary disruption to the estate once built. For example, utility companies should not completely block any estate roads; there should be restrictions to the operation of cranes and where they are allowed to oversail; works that need to be done should only be done within certain hours on weekdays and weekends (unless in extreme circumstances); and any repairs carried out to estate roads or buildings in the estate should be done to the grantor’s reasonable satisfaction.
Electronic Communications Code (“Code”)
The Code is contained in Schedule 2 of the Telecommunications Act 1984 as amended by the Communications Act 2003 and it governs the rights and obligations of telecoms operators (a list of them is available here). Its fundamental precept is that nobody should unreasonably be denied access to telecommunications services. Therefore, if telecoms apparatus exists within the development site, a developer may have to pursue a statutory process in order to reach an agreement with a telecoms operator or relocate it, even if there are no existing wayleaves, easements or leases in respect of such apparatus. Payments may also need to be made to the telecoms operator as compensation in such circumstances.
Lessons learned in streamlining the process
The golden rule in relation to utility agreements is to engage the utility companies or operators as early as possible. Ascertaining the location of existing apparatus and planning for its removal or replacement within the development will go a long way towards ensuring that the construction programme is not delayed. If a developer or its technical team understand the concerns of a utility company when negotiating an agreement, it can take a more pragmatic and focussed approach to ensure services are provided to a development on time and on budget.