The Supreme Court has ruled that an anti-oral variation clause in a property licence agreement for central London office space meant what it said.
The court overturned an earlier ruling in favour of the occupier, marketing company Rock Advertising, that the clause did not actually forbid subsequent oral variation of the contract.
Rock had sought to rely on an alleged oral variation of its licence fee payment arrangements made after falling into arrears, but MWB Business Exchange Centres has now secured a ruling that it was entitled to seek to recover arrears and exclude Rock from the premises in accordance with the terms of the original written agreement.
The case is one that could have had potentially wide-ranging effects, and Emma Humphreys, partner at Charles Russell Speechlys, said that the decision could be welcomed for not opening the “floodgates to uncertainty”.
Clarification
She said: “This decision by the Supreme Court clarifies the law in this area and gives real meaning and support to ‘no oral modification’ clauses within contracts.
“Although some will be concerned that it is too restrictive of parties’ contractual freedom and that commercial relations require greater flexibility when it comes to varying arrangements, any finding that the ‘no oral modification’ clause was ineffective would have created the potential for significant uncertainty for contracting parties and those advising them.”
She said that there may be concern arising from this judgment for those who agree to vary arrangements in good faith only to subsequently find the other party trying to avoid the revised agreement on the basis of a “no oral modification” clause.
But she said that the Supreme Court recognised this and “emphasised that the principle of estoppel still has a role to play in safeguarding against injustice in such situations”.
She added: “The Supreme Court has taken a course which ensures that parties have a good level of certainty about their contractual relations, recognising that parties can still follow the route required by the contract to achieve a variation and that there other legal rules in place, such as estoppel, which protect parties from broken promises.”
The case
MWB operates serviced offices in central London. In August 2011, Rock entered into a contractual licence with MWB to occupy office space at Marble Arch Tower, W1, for a fixed term of 12 months, with a licemce fee of £3,500 per month for the first three months and £4,333 per month for the rest of the term.
Rock fell behind on its payments. The parties discussed over the telephone rescheduling the debt and Rock paid MWB the first instalment due under this proposed schedule.
However, MWB then purported to exercise its right under the licence agreement to lock Rock out of the premises and gave notice to terminate the agreement.
MWB sued for the arrears, and Rock counterclaimed, seeking damages for wrongful exclusion from the premises.
MWB was initially successful at the county court, but Rock successfully argued at the Court of Appeal that the licence had been orally varied by telephone on 27 February 2012 so that it had not been in breach of the varied agreement.
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