The effect of forfeiture and surrender on sub-leases and derivative interests

In Great Western Railway Company v Smith (1875 – 76) L.R. 2 Ch.D. 235, CA (Eng)) a railway company owned the land on which its line lay but not the minerals beneath. The owner of the minerals granted a lease to H. The railway company paid H not to work the minerals (for safety reasons concerned with the line). H then surrendered the lease to the landowner who began to work the minerals. The railway company sought, and obtained on appeal, a perpetual injunction restraining the working of the minerals.

The outcome depended entirely on the construction of the Railway Clauses Act 1845 but the court also addressed the question of the operation of the surrender on the rights of the railway company derived from the lessee. It held that these derivative rights were not affected by a surrender:

‘It is a rule of law that if there is a lessee, and he has created an underlease, or any other legal interest, if the lease is forfeited, then the under-lessee, or the person who claims under the lessee, loses his estate as well as the lessee himself; but if the lessee surrenders he cannot by his own voluntary act in surrendering, prejudice the estate of the under-lessee or the person who claims under him.’ (Mellish L.J. at 253)

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