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Anti-oral variation not effective if parties override

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Summary: The Court of Appeal has ruled that a clause requiring contract variations to be in writing and signed did not preclude a variation by oral agreement if that was valid and effective.

Background

Rock Advertising Ltd occupied managed office space as licensee from MWB Business Exchange Centres Ltd.  Rock fell into arrears with its licence fee (having extended the amount of space it was occupying).  MWB terminated the licence, locked Rock out of the premises and sued Rock for the arrears.  Seemingly an open and shut case of debt recovery. 

However, Rock disputed the claim and counterclaimed for wrongful exclusion.  Rock maintained that an oral agreement existed to reschedule the licence fee payments between MWB, acting by its credit controller, and Rock, acting by its managing director.  MWB argued there was no oral agreement, but simply a proposal (despite Rock making immediate payment of the first instalment in the revised payment schedule which MWB accepted and did not return).  The court ruled on the facts that an oral agreement had been reached.  MWB then argued that:

  • the oral variation was not enforceable because there was no consideration for it; and
  • the express terms of the original agreement stipulated ‘all variations to this licence must be agreed, set out in writing and signed on behalf of both parties’.

The Court ruled that there was a fresh commercial benefit to MWB in the revised payment schedule; it was not simply a case of MWB agreeing to accept a lesser sum in satisfaction of a greater one.  MWB derived the practical benefit of avoiding a letting void of the space occupied by Rock.  Accordingly, the oral variation was valid and enforceable. 

Notwithstanding this, did the express term in the original agreement purporting to preclude oral variations operate? 

Answer: no

  • the principle of freedom of contract and of party autonomy prevailed;
  • parties to a contract are free to include terms regulating the manner in which their contract may be varied but they are also free to vary those terms at any point.

Conclusion

‘Boilerplate’ anti-oral variation clauses of the type encountered here are very common in both commercial and property documentation.  They are of value in promoting certainty, in regulating how variations should be made, and in minimising false claims based on informal communications.  However, their efficacy should not be overestimated.

If contracting parties have genuinely agreed a fresh enforceable arrangement, albeit orally, a boilerplate of this nature will not impeach it.

Parties should:

  • ensure their internal approval procedures are clear at every authority level;
  • ensure informal dialogue is clearly labelled ‘subject to contract’ / ‘without prejudice’; and
  • record agreed variations in writing.

Case: MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553

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