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Oral agreement ineffective in dispute over serviced offices

Posted: 19th June 2018   In: Commercial Property

The Supreme Court has ruled that an oral agreement to vary the terms of a licence for serviced offices was ineffective because the contract specified that all changes had to be in writing to be valid.

The long running dispute involved Rock Advertising Ltd, who rented premises from MWB Business Exchange Centres Ltd.

The contract between them contained a No Oral Modification (NOM) clause saying: "All variations to this Licence must be agreed, set out in writing and signed on behalf of both parties before they take effect".

Rock accumulated arrears of licence fees and proposed a revised schedule of payments, which led to a dispute.

Rock contended that MWB orally agreed to vary the licence, but MWB said it considered the revised schedule merely a proposal. It locked Rock out of the premises for failure to pay the arrears and terminated the licence. It then sued for the arrears

Rock counterclaimed for damages for wrongful exclusion.

The judge found that an oral agreement had been made to vary the licence. However, he found that the variation was ineffective because it had not been in writing, as the NOM clause required.

The Court of Appeal overturned that decision saying that the oral agreement to vary the payments also amounted to an agreement to dispense with the NOM clause, meaning the operator was bound by the variation.

The Supreme Court has now found in favour of MWB. It held that NOM clauses prevented attempts to undermine written agreements by informal means. They avoided disputes about whether a variation had been intended and about its exact terms; and formality in recording variations made it easier for corporations to police internal rules. Those were all legitimate commercial reasons for NOM clauses.

Please contact Sonia Dad if you would like more information about the issues raised in this article or any aspect of commercial property law.

Posted by: Sonia Dad
Commercial Property
Luton Office