Landlord & Tenant: Two significant decisions from the Supreme Court

Landlord and Tenant Supreme Court appeal cases seem to be like buses! Two recent decisions indicate that there is still plenty to argue about for landlords and tenants.

Often rights in land are granted in unusual ways, such as hybrids of easement and licence, or agreements which might be characterised as profits or leases. The Vauxhall case below considers whether or not a tenant can still seek relief from forfeiture where the agreement is not formally granted as a lease. The ability of a tenant to switch user to a potentially more lucrative activity is often contentious, particularly where the rent would not take account of that. The Sequent case considers situations where it might be appropriate for a landlord to withhold consent to a change in user.

The Sequent case

In Sequent Nominees Ltd (formerly Rotrust Nominees Ltd) v Hautford Ltd [2019] UKSC 47 Sequent was the landlord of London terraced premises let at a peppercorn for 100 years to Hautford. The lease covenants included a provision that the tenant could not apply for planning permission without the prior written consent of the landlord, such consent not to be unreasonably withheld.

Sequent's predecessor had refused consent to Hautford to apply for permission to convert floors 1 and 2 of the building on the basis that the change of use would increase the prospect of successful enfranchisement under the Leasehold Reform Act 1967. The County Court granted Hautford a declaration that Hautford was entitled to make the planning application. The Court of Appeal agreed and upheld that decision.

This decision will be of interest to surveyors and property managers because it makes clear that there are circumstances in which it will be reasonable for a landlord to withhold consent to changes of use, not least where that change might bring about a significant loss to the landlord in terms of their reversionary interest.

The Supreme Court held (by a majority decision) that:

  • Damage to the reversion was the quintessential type of consideration rendering a refusal of consent reasonable. A down to earth factual analysis of the economic consequences to Sequent plainly suggested that Sequent was acting reasonably in protecting the value of its property.
  • It cannot possibly be said that seeking to avoid a significant increase in the risk of enfranchisement, with consequential damage to the reversion, was something extraneous to or dissociated with the landlord and tenant relationship created by the Lease. On the contrary, damage to the reversion is the quintessential type of consideration rendering reasonable the refusal of consent.

A rather odd position which appears to have been the elephant in the Court during the parties arguments is that it appears to be agreed that on the construction of this particular lease, a third party might apply for planning permission to convert floors 1 and 2 for residential purposes, and succeed, leaving Hautford able to then use the premises for residential purposes. Indeed that was one of the reasons why the Court of Appeal had been of the view that the covenant could not be interpreted to permit the landlord to refuse consent on the grounds that it would make enfranchisement a stronger possibility.

Vauxhall Motors case

In Vauxhall Motors Ltd (formerly General Motors UK Ltd) v Manchester Ship Canal Co [2019] UKSC 46 the Supreme Court was asked to consider whether it was possible for Vauxhall, a licensee, to apply for relief from forfeiture; its landlord, MSCC, having terminated a perpetual license for a failure by Vauxhall to pay the annual licence fee of £50.

This decision is of relevance to surveyors and property managers because it makes clear that those granting commercial licences, such as for site compounds, sporting rights, or the use of commercial property, should not take it for-granted that they will be able to regain possession or terminate those rights for a breach of obligation by the licensee.

The matter appears worth arguing about, since the present day annual value of the rights conferred by the license was £300,000.

At the heart of the dispute was the established view that relief from forfeiture is not available to those who hold a licence, rather than a lease, or to put it more formally, a possessory right, rather than a proprietary right.

Lord Briggs, in his leading Judgment, conducted an extensive analysis of the roots of the equitable jurisdiction to grant relief from forfeiture and pointed out that the jurisdiction was available in agreements: "…over a wide range of different types of subject matter, including ships and (potentially) aircraft, trademarks and patents, video equipment and shares.".

Lord Briggs agreed with the view of Lord Justice Lewison, who had considered the case in the Court of Appeal, that an appropriate test for the type of situation where relief from forfeiture might be available could be found in the Appellate Committee of the House of Lord's case on adverse possession: JA Pye (Oxford) Ltd v Graham [2003] 1 AC 419:

"There are two elements to the concept of possession:

(1) a sufficient degree of physical custody and control (‘factual possession’);

(2) an intention to exercise such custody and control on one’s own behalf and for one’s own benefit (‘intention to possess’).

What amounts to a sufficient degree of physical custody and control will depend on the nature of the relevant subject matter and the manner in which that subject matter is commonly enjoyed. The existence of the intention to possess is to be objectively ascertained and will usually be deduced from the acts carried out by the putative possessor …"

In this case Vauxhall was considered to hold sufficient possessory title to avail itself of the right to apply for relief from forfeiture, and the decisions of the Courts below on granting that relief were upheld.

The only other speech in the case was delivered by Lady Arden, who agreed with the result of the speech of Lord Briggs, but applied her own reasoning. In her view the issue was whether the circumstances satisfy the doctrine not the type of interest. Lady Arden then set about explaining the various cases covered by Lord Briggs on the basis that the commercial situations in which the grant of relief arose were circumstances in which it was proper that the Court intervene to relieve a party from their strict position as a matter of contract. This alternative analysis would avoid a restrictive approach focussed upon the type of rights, and allow more freedom for the Court to look at the reason why it would be appropriate for the Court to intervene. The three other Lords preferred the (arguably) slightly more conservative approach of Lord Briggs.

The result was certainly a relief for whoever forgot to pay MSCC their fifty quid!