Licences: a sigh of relief for tenants

Solicitor James Freeman looks at case that will be of interest to commercial landlords and tenants concerning relief from forfeiture in respect of licenses. The case was heard by the High Court, the Court of Appeal and the Supreme Court.

The recent Supreme Court case of Manchester Ship Canal Company Ltd (Appellant) v Vauxhall Motors Ltd (Respondent) extended the doctrine of relief from forfeiture to licences to possess land. As a result, relief from forfeiture is available, even in relation to licences.

Background

In addition to issues relating to The Manchester Ship Canal Act 1885, the case concerned whether (and in what circumstances) relief from forfeiture may be granted in respect of licences.

The Manchester Ship Canal Company Ltd owns the Manchester Ship Canal and adjacent land in the vicinity of Ellesmere Port. Vauxhall Motors Ltd acquired nearby land to develop its manufacturing plant. This case concerned the right granted by Manchester Ship Canal Company Ltd to Vauxhall Motors Limited of the right to discharge surface water from its large Ellesmere Port Car Plant in to the canal. The right was conferred in 1962 by a Licence which was granted in perpetuity (i.e. forever), in exchange for a payment of ‘rent or annual sum’ of £50 and performance of various covenants by Vauxhall. The licence contained an early termination provision that equated to a forfeiture clause and read:

If the said yearly rent or sum or any part thereof shall at any time be in arrear for the space of 21 days after the same shall have accrued due (whether legally demanded or not)….the Canal Company may thereupon by notice in writing determine this Licence forthwith and in such event this Licence and every clause matter and thing herein contained shall forthwith absolutely cease and determine.

Breach

In October 2013, Vauxhall failed to pay the annual licence fee of £50. As a result, the Canal Company served notice pursuant to the above forfeiture clause demanding payment in February 2014. Following Vauxhall’s continued failure to pay, the Canal Company served further notice in March 2014, terminating the Licence.

The parties then entered negotiations for the grant of a new licence to Vauxhall at market rates. Market rates were substantially higher than the £50 annual fee that had been payable under the licence. Those negotiations were unsuccessful and Vauxhall issued a claim for relief from forfeiture in March 2015.

Previous Court decisions

The High Court granted relief from forfeiture in respect of the licence. As a result, Vauxhall would be obliged to pay only the fixed annual sum of £50 (which was not subject to review) for the duration of the Licence. This was on the basis that the rights granted by the licence were (if not possessory rights) at least sufficiently similar in nature to possessory rights.

The canal company appealed the decision on the basis that the Licence did not grant Vauxhall either proprietary or possessory rights. The Court of Appeal considered that the concept of possession is made up of 2 elements, namely possession and the intention to possess. In view of Vauxhall’s obligations under the licence (which included obligations to construct, repair and maintain the infrastructure required for the exercise of Vauxhall’s rights) the Court of Appeal held that Vauxhall in fact was granted possessory rights by the licence, but no proprietary rights.

Supreme Court

The Canal Company appealed to the Supreme Court and argued (in essence) that relief from forfeiture is only available in respect of land where the party seeking such relief has a proprietary interest in the land concerned.

The Canal Company’s appeal was unanimously dismissed as the Court determined that it was able to grant relief from forfeiture.

Importance for Landlords and Tenants

This case highlights the importance of careful consideration when granting licences. Care must be taken to:

  • avoid drafting termination clauses that equate to a traditional forfeiture clause;
  • include a mechanism for review of any licence fee and;
  • avoid granting any possessory or proprietary rights (if possible).