149: ‘No oral modification’ clauses are effective

The Supreme Court has held that a ‘no oral modification’ clause is legally effective. This type of clause prevents the terms of a written contract being varied orally, but the validity of such a clause was recently questioned by the Court of Appeal.

The no-oral modification clause in this case was contained in a licence granted from Rock Advertising to MWB Business Exchange permitting occupation of managed office space in Central London. The clause stated that ‘All variations to this Licence must be agreed, set out in writing and signed on behalf of both parties before they take effect’.

Rock was in arrears of the licence fee payable under the licence to occupy. It proposed a revised payment schedule to MWB and a discussion took place on the telephone between MWB’s credit controller and Rock’s managing director. Following the telephone call, Rock believed that the licence had been orally varied by the conversation and a different payment schedule for the licence fee had allegedly been agreed.

MWB disputed this variation of the licence terms and took the phone conversation to be only part of continuing negotiations. MWB terminated the licence, locked the premises to prevent Rock getting access and commenced proceedings for the outstanding arrears.

In a strange decision, the Court of Appeal had initially found that the oral agreement to vary the payments was valid and dispensed with the no-oral modification clause in the licence. The Supreme Court disagreed, upholding the trial judge’s decision that ‘no oral modification’ clauses are valid and effective. The licence could only be amended in writing.

This is the correct decision at law. No oral modification clauses are common in written contracts because:

• they prevent attempts to undermine written agreements by informal means; and
• they avoid disputes about whether a variation was intended and about its exact terms.

If you do wish to vary a contract then you should make sure you enter some form of written supplemental contract. You must also be careful not to inadvertently vary a contract or inadvertently enter into a contract through correspondence. This can be an issue in correspondence sent from a landlord to a tenant about an application for consent to assign, underlet or change use in a commercial lease, where unequivocal consent may be deemed to be given in an informal letter or email.