Background
Manchester Ship Canal Co Ltd (“MSCC”) granted a licence to Vauxhall Motors Ltd (“Vauxhall”).
This allowed Vauxhall to construct a spillway on MSCC’s land, and then to discharge water and treated waste through the spillway into the canal.
The rights granted were (unusually for a licence) everlasting.
In 2013, Vauxhall didn’t pay the licence fee, which was only £50 a year, due to an administrative error.
MSCC sought to terminate the licence for this breach, relying on the forfeiture clause.
Vauxhall claimed relief from forfeiture to try to revive its bargain £50 a year licence.
Otherwise, Vauxhall would have been forced to renegotiate a licence and pay significantly higher market rates (around £400,000 a year).
The issue
It is well-established that the court can grant relief from forfeiture of a lease, but what about a licence?
MSCC argued that, in relation to land, the court could only grant relief from forfeiture of ‘proprietary rights’ (legal ownership of property) not ‘possessory’ rights (a mere contractual right to possession- something falling short of ownership).
Vauxhall only had a ‘possessory’ right under its licence.
Vauxhall argued that the court’s ability to grant of relief from forfeiture was broad enough to protect both ‘proprietary’ and ‘possessory’ rights.
The outcome
Relief from forfeiture was upheld, so Vauxhall kept its £50 a year licence
The Supreme Court considered the difference between ‘proprietary rights’ and ‘possessory rights’ to decide whether relief from forfeiture was available for both of these types of rights in relation to land.
In the context of personal property (property which is not land), case law showed that equitable relief is available for forfeiture of both “proprietary” rights and “possessory rights”.
The court considered there were powerful reasons why it should also be able to grant relief from forfeiture of “possessory” rights in the context of land too, including:
- The doctrine of relief from forfeiture historically developed in the context of land;
- There was no logical or principled reason why rights in relation to land should have different rules to personal property; and
- There should be a principled approach to identify the scope for the court’s ability to grant relief from forfeiture, to avoid arbitrary results.
So the Supreme Court concluded that the courts may relieve against the forfeiture of possessory rights over land.
Comment
It’s now clear that the court can grant relief from forfeiture for possessory rights over land.
This means valuable rights over land, which fall short of full proprietary interests, will be safeguarded against termination for trivial breaches of covenant which can be remedied.
On the facts, Vauxhall’s rights were sufficiently possessory over the land. Vauxhall’s licence was unusual in that it granted elements of exclusive possession, a high degree of control and was everlasting.
Most licences in relation to land will not grant sufficient possessory rights to fall into the same boundaries.
Extra care and consideration will now need to be given to agreements which grant possessory rights, to consider whether the occupier would have the right to relief from forfeiture.
Given the court’s ability to grant relief, forfeiture clauses should be regarded as a mechanism to get the other side to comply with its covenants, not as a termination clause.
When considered in this way, it is perhaps unsurprising that the court held that relief should be granted for possessory rights over land, particularly when this was the established position for other types of property.
If flexibility to terminate or renegotiate an agreement is likely to be required in the future, a short term licence, a lease outside the 1954 Act, and/or a break clause are the best options.
The case is also a cautionary tale about administrative errors.
Although Vauxhall eventually won, it took 6 years and a legal fight up to the Supreme Court, all for a failure to pay £50.
Vauxhall could have heeded advice from one of its slogans: ‘take control’.
Thank you to Solicitor Apprentices Ellie Serridge and Rhiannon Jeal for assisting with this blog.
