Relief from forfeiture: major development for property owners

In ‘The Manchester Ship Canal Co Ltd v Vauxhall Motor Ltd’, the Supreme Court has permitted a licensee to be granted ’relief from forfeiture’. This is a major development for property owners and users, which could in the right circumstances have a significant impact on them. Before detailing this decision, an explanation of forfeiture and the difference between a lease and a licence may be helpful.

What is a lease?

A lease is the grant by the landlord of rights to a tenant giving a proprietary interest in land – This means that a separate legal estate in land is created by the grant of the lease which must, in some circumstances, be registered at the Land Registry. This interest in land gives rights to occupy and use the land to the exclusion of all others, subject to the terms of the lease. A lease can be for a short period of time (a year or less) up to 999 years or more. A leasehold interest in land can be a substantial asset and the tenant may be able to grant security over the lease in return for financial borrowing.

What is a licence?

By contrast, a licence given by the land owner gives the occupier of the land the right to occupy or use the land in accordance with the terms of the licence but, does not give the licence holder any proprietorial or ’ownership’ rights to the land.

What is forfeiture?

A landlord can end the lease and treat it as no longer in existence (in other words forfeit the lease) if a tenant does not comply with its obligations under a lease.

Relief from forfeiture happens when a tenant asks the court to intervene and cancel the forfeiture of the lease, so the lease continues on as if it had not been forfeited. This ’relief’ may be granted on the terms that the tenant remedy the default under the lease that led to the lease’s forfeiture.

Supreme Court’s decision

In the recent Supreme Court appeal case, the manufacturer of Vauxhall motor cars, the licence holder, had forgotten to pay a £50 annual licence fee, which allowed the Manchester Ship Canal to forfeit the licence which it had granted around 50 years previously. Under the licence Vauxhall had been entitled to use a spillway on the land belonging to the Manchester Ship Canal to drain away industrial effluent. The spillway contained pipes and chambers constructed by Vauxhall, with permission from Manchester Ship Canal, and was used exclusively by Vauxhall. The original licence terms were negotiated in the 1960s and the value of the use of the spillway has significantly increased over time. If Vauxhall had to negotiate the terms of a new licence to enable it to continue to use the spillway, it would have cost upwards of £300,000 per year instead of £50.

The Supreme Court decided that Vauxhall’s possessory interest in the spillway was enough to permit the licence to be reinstated, and relief from forfeiture was granted.

Why is the Supreme Court’s decision so important?

The right to possession of land under a licence has not previously been considered sufficient to permit a licence to be reinstated once terminated by the land owner due to the licence holder’s wrongful act. Whilst the right to be in possession of land under a licence is not as ’strong’ as the right to ’ownership’ of land under a lease, in the right circumstances the court is willing to use its equitable powers (in other words to deliver justice) to grant the relief. There is an important distinction, in which the use of land is not the same as possession, in this case Vauxhall had been entitled under the licence to perpetual (non-ending save for forfeiture) exclusive possession of the land which the court found was sufficient interest for relief to be granted.