Relief from forfeiture is a remedy most commonly associated with the reinstatement of leases. The doctrine has developed over the centuries, with recent cases considering the extent of the jurisdiction and the nature of the rights that equity will apply relief to with the outcome that the jurisdiction is expanding.
What is relief from forfeiture?
The effect of relief is to reinstate the rights forfeited and to put the parties back in their original positions with the rights reinstated. Only the court has the power to award relief and the parties are unable to agree this between themselves.
Why does the court intervene?
It intervenes to undo an injustice. The justification behind the judicial intervention is that the right to terminate had been conferred to secure the performance of some other covenant. While that covenant may have been breached, the covenantor is now in a position to perform the covenant and to pay any compensation that might be appropriate.
As such, were relief not to be granted it would leave the covenantor disproportionally deprived of both the contract and the “property”.
What kind of rights does the jurisdiction apply to?
In Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The Scaptrade) [1983] 2 AC 694 Lord Diplock effectively stated that equitable relief could only be granted to rights that are proprietary or possessory in nature. This has been followed in later cases, but the subject matter of those later cases has tended to relate to personal, ie moveable items, rather than real property. This was so until 2019.
Vauxhall Motors
Vauxhall Motors Ltd (formerly General Motors UK Ltd) v Manchester Ship Canal Company Ltd [2019] UKSC 46; [2019] EGLR 51 concerned the termination of a licence. In 1962, a perpetual licence to discharge surface water and trade effluent into the ship canal had been granted by MSC to VM. In 2013, VM failed to pay the licence fee and MSC forfeited the licence. VM applied to the court for relief from forfeiture. The key question to be determined was whether the court had jurisdiction to grant relief from forfeiture of a licence.
The licence had unusual features such as that it granted VM an element of virtually exclusive possession and it was granted in perpetuity. Indeed, the Supreme Court found that the rights granted by the licence were very similar to and more extensive than rights in the nature of an easement. However, it was common ground between the parties that the licence did not confer a proprietary interest. It was also common ground that an easement creates an interest in land and that the forfeiture of an easement may be relieved against.
In its journey through the courts, the High Court found the rights conferred by the licence were sufficiently analogous to possessory rights to engage the jurisdiction. The Court of Appeal instead decided the rights were possessory and so they engaged the jurisdiction.
When the appeal reached the Supreme Court, the focus was on the nature of the right which would be lost if forfeiture was not relieved. The Supreme Court highlighted that it has always been a condition of equitable relief from forfeiture that the forfeiture provision in question should have been conferred by way of security for the enforcement of some lesser primary obligation such as but not limited to the payment of money.
Both parties accepted this condition was a prerequisite of the jurisdiction but assuming it was satisfied VM asked the court to declare that any right to use property, whether real or personal, sufficiently engages the jurisdiction to get relief.
In contrast, the MSC argued that in relation to rights over land, nothing less than a proprietary interest will be sufficient to engage the jurisdiction to grant relief.
The Supreme Court considered the different rules that have evolved in relation to personal property and real property and whether the rules in relation to personal property had affected the rules concerning real property.
The Supreme Court found no logical basis to justify a distinction between proprietary and personal rights in this context. Relief from forfeiture was available in relation to possessory rights over personal property and could also be available to possessory rights over real property.
The Supreme Court granted relief from forfeiture and thus extended the jurisdiction to include, in theory, licences. However, it is important to note the court highlighted that this was an unusual licence. As such, while in theory the jurisdiction has now been extended to licences, it is unlikely many licences will fall within the criteria.
The Supreme Court expressly stated that the decision was not an expansion of the doctrine to include any right to use property.
Hush Brasseries
Hush Brasseries Ltd v RLUK Ref Nominees (UK) One Ltd and another [2022] EWHC 3018; [2023] EGLR 9 further expressly extended the jurisdiction of relief from forfeiture to include option agreements.
In this case, the tenant had both a lease of premises and an option for a new lease. The option allowed the landlord to terminate the option if any of the grounds allowing the landlord to forfeit the lease existed. The difficult economic conditions caused by the Covid-19 pandemic resulted in the tenant going into arrears of rent. The tenant engaged with the landlord regarding the arrears and negotiations were going well. However, before any agreement could be documented, the landlord served a notice on the tenant terminating the option. The landlord did not seek to forfeit the lease. The tenant applied to the High Court for relief from the forfeiture of the option.
The parties agreed that before the jurisdiction could be established, the following two pre-conditions needed to be determined:
- by the option H had obtained a proprietary (or “sufficiently” proprietary) interest in the property, and
- the termination provision in the option secured the performance of the tenant covenants in the lease, in particular the rent payment obligation.
However, even if these two preconditions were satisfied, then the court retains discretion whether or not to grant relief from forfeiture. There was a significant dispute between the parties regarding the first pre-condition and the extent of the proprietary interest needed. On this, the court decided that in order to satisfy the first pre-condition, the tenant only needed to establish that immediately before the service of the termination notice, it had a proprietary interest in the premises by virtue of the option. The relevant land interest in the option was such a proprietary interest and the case law did not support the landlord’s contention that to satisfy the first pre-condition the claimant’s proprietary interest must have a particular quality. H had, therefore, established the first pre-condition.
The court also held that H had satisfied the second pre-condition and considered that it would be unconscionable to allow R to forfeit the option. The court, therefore, ordered relief from the forfeiture of the option agreement.
Where are we now?
The extent of the doctrine of relief from forfeiture is wider than is commonly understood. Without question, the jurisdiction can apply beyond leases, to easements and option agreements but it can also apply to the right kind of licences. It is the characteristics of exclusivity and possessory rights that may bring the right within the scope. The perpetual nature of a right will not, on its own, put it within the jurisdiction. As ever with these issues, the particular factual characteristics are key to determining whether the jurisdiction may be engaged.
What is also clear is the courts are mindful of inadvertently causing uncertainty and want to define the boundaries of the jurisdiction, so the decision is not left to the particular judge’s discretion as to whether a forfeiture is unconscionable. Consequently, it is likely any further expansion will be carefully considered.
Ros Monk is a managing associate and Mark Reading is a partner at Mishcon de Reya LLP, which acted for Hush Brasseries in the featured case
