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Case law: A clause stipulating procedure for varying agreement must be followed

Parties to commercial contracts now have certainty that if an agreement requires a variation of its terms to be in writing, or to follow some other formality, they must comply with it, otherwise the purported variation will be invalid – a recent ruling makes clear.

June 2018

This update was published in Legal Alert - June 2018

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

A term in a licence agreement to occupy a property required that the agreement could only be varied if the variation was written and signed by both the licensor and the licensee.

The agreement set out when licence payments should be made. The licensee had an oral conversation with the licensor, over the phone, when the licence payments were in arrears. The licensee alleged that during this call the licensor agreed to change the payment schedule in the agreement.

The licensor argued that any variation of the schedule would only be binding if it was in writing, as required by the agreement. It barred the licensee from entering the premises and ended the licence.

The Court of Appeal previously held that an agreement could be varied orally, even if the agreement required variations to be in writing and signed. This was because, paradoxically, the general power to vary agreements orally included the power to orally vary the clause saying variations had to be in writing.

However, this has been overturned by the Supreme Court, which says that parties to an agreement were free to restrict how they could change that agreement in future. For example, they could provide in the agreement that any variations had to be agreed in writing.

Variations to an agreement are only legally binding if each party delivers something of value ('consideration') to the other. Here, the Supreme Court did not need to rule on whether there would have been proper consideration from the licensee in return for a variation of the payment schedule by the licensor.

Operative date

  • Now

Recommendation

  • Parties to commercial agreements can now be certain that, if an agreement requires a variation of its terms to be in writing, or follow some other formality, they must comply – they cannot vary the agreement orally, irrespective of what the agreement itself says about variation

Case ref: Rock Advertising Ltd v MWB Business Exchange Centres Limited [2018] UKSC 24

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