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MWB Business Exchange Centres Ltd owned service office space in central London and let Rock Advertising Ltd into occupation under the terms of a licence to occupy.
The licence contained a clause stipulating that any variations to its terms would only be effective if set out in writing and signed by both parties. This type of clause, known as a "no oral modification" or "NOM” clause, is common and useful as it can help to prevent:
Within six months of entering into the licence, Rock found itself in arrears and proposed to MWB's credit controller a revised schedule of payments over the remaining licence period which took the arrears into account. Rock was subsequently excluded from the premises for non-payment of the arrears.
Rock took action against MWB in the County Court, contending that the exclusion from the premises was unlawful on the basis that the terms of the licence had been varied by the credit controller's perceived approval of the proposed revised payment schedule. It was MWB’s position that the revised payment schedule had never been agreed but that it would not amount to an effective variation anyway given the existence of the NOM clause. It therefore fell to the Court to look at the alleged variation in the context of the NOM clause contained in the licence.
For a variation to be effective, in addition to complying with any necessary formalities set out in the relevant document which is the subject of the variation, either (i) consideration must be given for the variation, or (ii) the variation must be set out an agreement which is executed by the parties as a deed. The County Court found that Rock’s revised payment proposal amounted to an oral agreement to vary the licence and that consideration had been provided for the variation in that the payment of the arrears was of benefit to MWB. The Court held that the variation was, however, ineffective on the basis that it had not been backed up in writing, as required by the NOM clause in the licence.
Rock appealed the County Court’s decision. The Court of Appeal found in Rock’s favour, overturning the County Court judgment to find that the parties had, in addition to orally agreeing to vary the payment schedule, also agreed to dispense with the NOM clause. The effect of that decision was therefore that MWB was bound by the revised payment schedule and the exclusion of Rock from the premises was unlawful.
MWB subsequently and successfully appealed to the Supreme Court, effectively establishing that the NOM clause in the licence could not have been overridden by any oral agreement between the parties. Various reasons were given for the decision including that the NOM clause had not been mentioned in the negotiations between the parties about the revised payment schedule and consequently it was not possible to imply a term into that agreement that the parties intended for the NOM clause not to apply.
The overall decision was therefore in MWB’s favour and the oral variation was found not to be effective due to the existence of the NOM clause.
It is important for contracting parties to ensure not just that that they are fully aware of the extent of their obligations in contractual agreements, but the basis upon which and how the terms of those agreements may be modified. It is important to also note that as a matter of law, there are additional, statutory, formalities which apply to variations of property contracts; it is essential that these formalities are considered to avoid unintended consequences.
We would therefore recommend that legal advice is sought at an early stage to avoid situations where one party may have relied upon a variation to its detriment if it later transpires not to be effective, and to avoid unintended consequences where required legal formalities have not been met.
Our solicitors at Myerson are well versed in dealing with and advising upon contract variations so please do not hesitate to contact us should you require assistance in this area. If you would like to speak to one of our expert commercial property solicitors, please contact us on 0161-941-4000 or email us firstname.lastname@example.org.