04/11/2019

Forfeiture is a term usually associated with leases where a landlord is able to terminate a lease; similarly, relief from forfeiture is a remedy available to a tenant in certain circumstances to prevent this from happening.  What is less well known is that relief from forfeiture is not just confined to the landlord and tenant relationship, but can extend to other contractual arrangements where proprietary or possessory rights exist.

The recent Supreme Court ruling in The Manchester Ship Canal Company Ltd v Vauxhall Motors Ltd [2019] is the first case where relief from forfeiture has been extended to a possessory right over land and highlighted the fact that relief can be available on forfeiture of a licence.

Facts

In 1962 Vauxhall entered into a perpetual licence with the Manchester Ship Canal Company (MSCC) which allowed Vauxhall to discharge surface water and trade effluent from its large Ellesmere Port car plant into the canal.  The licence also allowed Vauxhall to construct, use and maintain a large concrete structure (Spillway) on MSCC’s land in order to do this.  The terms of the licence were subject to:

  • Vauxhall paying a licence fee of £50 per year
  • MSCC having the ability to terminate the licence on non-payment of the licence fee.

When Vauxhall failed to pay the licence fee, MSCC served notice terminating the licence in 2014.  The parties then entered into failed negotiations for a new licence based on a commercial rent of £300K to £440K per year.  Vauxhall applied to the High Court for relief from forfeiture in 2015 which would allow it to exercise its rights under the old licence for £50 a year.  MSCC argued that relief did not apply as Vauxhall was only entitled to use the Spillway rather than having possession of it.

The High Court granted Vauxhall relief from forfeiture on condition that Vauxhall paid its arrears and other costs.  MSCC appealed unsuccessfully to the Court of Appeal arguing that the High Court had no jurisdiction to grant such relief.  MSCC appealed to the Supreme Court on the jurisdiction point.

Supreme Court’s decision

The Supreme Court dismissed MSCC’s appeal and held that the courts can grant relief from forfeiture in relation to possessory rights over land when two conditions are satisfied in the contract:

  • The contract grants either proprietary or possessory rights over land – in this case, Vauxhall had virtually exclusive possession of the Spillway and was clearly intended to be in control of the maintenance and operation of it; to deprive Vauxhall of its drainage right for failure to pay £50 would be unjust.
  • The termination provision must have been included in the contract as security for the attainment of a particular result – in this case, the payment of the annual fee.

Comment

This ruling does not necessarily mean that relief from forfeiture will apply to all licences; the facts in this case were unusual as few licences are granted in perpetuity, plus the considerable rights granted in relation to the Spillway would usually be included in a more formal deed of easement rather than a licence.

However, this case highlights the fact that landowners should always be careful when negotiating agreements granting rights over their land.  Thought must be given as to what rights are intended to be granted so that possessory rights are not granted by accident.  The drafting of termination provisions must also be considered in light of the comments in the judgment.

Whilst a licence can still prevent a licensee from gaining a proprietary interest in the land, this case has established that licensees occupying under the terms of a licence may be able to benefit from relief from forfeiture, which is not something they would previously have been aware of.