- By Paul Sullivan
A forfeiture clause in a licence was the subject matter of a recent case before the Supreme Court in London. The case turned on an equitable remedy developed at common law.
Vauxhall’s Ellesmere Port plant is beside the Manchester Ship Canal. When it was being built in the 1960s, they entered into a contract with the Manchester Ship Canal Company to allow them to drain surface water and treated effluent into the Canal. In consideration of this, Vauxhall agreed to pay an annual licence fee of £50. Under the agreement, there was a clause allowing the Canal Company to terminate the licence if Vauxhall did not pay the annual rent within 28 days of in being demanded.
In 2013, due to ‘an administrative oversight’, Vauxhall failed to pay its rent within 28 days of a demand. The Canal Company therefore served notice terminating the Licence. This put Vauxhall in the position where they would have to renegotiate the Licence if they wished to continue to operate. The market rate for such rights could have been in the region of £400,000.
At first instance, the Court granted ‘relief from forfeiture’ and effectively reinstated the Licence subject to the arrears being paid. This position was upheld by the Court of Appeal. The Canal Company appealed to the Supreme Court.
Dismissing their appeal, Lord Briggs reviewed the historic case law and noted that there may be ‘forms of possessory rights in relation to land which are not perpetual, but which might nonetheless qualify for equitable relief from forfeiture.’ This is an equitable remedy developed by common law rather than a creature of statute.
In the instant case, the Licence did however grant ‘possessory rights’ to Vauxhall with virtually exclusive possession and a high degree of control in perpetuity. Accordingly, Vauxhall was entitled to the relief sought.
From a landlords’ perspective, this case highlights the benefits of including a review mechanism for any licence fee particularly where the licence of a long-term nature.
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