In a decision last week (16 May 2018), the Supreme Court held that a variation clause (also known as a no oral modification (NOM) clause) is legally effective, restoring the order of the County Court which had been overruled by the Court of Appeal.

Variation or NOM clauses are commonplace in contracts for various reasons and restrict variations of an agreement to those agreed in writing. There are no formal requirements for the validity of a contract at common law, and, by association, no formal requirements for varying a contract. This flexibility can give rise to uncertainty so, principally, NOM clauses add certainty to the mechanism by which contractual variations can be agreed. As well as adding certainty, NOM clauses also operate, in theory, to avert misunderstandings and disputes as to what was orally agreed, as well as the prospect of informal variations undermining written agreements.

In the case in question, Rock v MWB, MWB, as operator of offices in London, granted Rock a contractual licence to occupy office space for a term of 12 months. The licence contained a NOM clause stating: “All variations to this Licence must be agreed, set out in writing and signed on behalf of both parties before they take effect.” Rock had accumulated arrears of a few months’ worth of licence fees and proposed a revised payment schedule, deferring certain payments.

A dispute arose as to whether MWB had accepted Rock’s proposal orally, thereby effectively varying the payment terms under the licence. MWB considered the schedule simply as a proposal and locked Rock out of the premises for failure to pay the arrears. They then terminated the licence and sued for the arrears. Rock counterclaimed for damages for wrongful exclusion from the premises.

In the county court, the judge found that Rock and MWB had agreed orally to adopt the revised schedule, but as it was not in writing, it did not satisfy the variation requirements of the NOM clause. The judge ruled that MWB could claim the arrears.

Rock appealed to the Court of Appeal successfully. It was held that the oral variation had also amounted to an agreement to dispense with the NOM clause, meaning that MWB was bound by the oral variation.

MWB appealed to the Supreme Court where the appeal was unanimously allowed; the NOM clause precluded the agreed oral variation.

NOM clauses therefore operate to provide certainty to contracting parties. Where oral variations are arguably unclear and the interpretation of what was agreed by the individuals involved can be misunderstood, NOM clauses ensure that, by recording any variation, the parties can know exactly what the variation was intended to be. They stop the hinging of an intended variation, in the event of any future dispute, on the recollection of individuals, where mistakes can certainly be made.

Whilst the judgment could be perceived as limiting the freedom of contract, a NOM clause does not invalidate oral variations, it simply forbids them in accordance with the parties’ own intentions at the outset  of their contractual relationship.

The judgment also spells good news for the courts insofar as avoiding unnecessarily escalating litigation costs by parties alleging oral variations, where a NOM clause exists, as a defence. Likewise grounds for summary judgments will rise in such circumstances, bringing down the length and costs of litigation.

Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24 (Rock and MWB respectively) – appeal from [2016] EWCA Civ 553

To find out more, click here to speak to Michael Lewis. 

Break clause can greatly assist with a tenant’s portfolio management. It is a potential opportunity for the tenant to relocate to cheaper premises or renegotiate new terms and can be a valuable provision, particularly in this volatile market.

However, it is not an entirely straightforward process and there can be various conditions attached to break clauses which can be difficult to satisfy.

Ideally, you will only want one condition, that is, a condition of service of notice to break – this is often 6 months’ notice but sometimes it can be 12.

A condition with any uncertainty such as vacant possession should be avoided at all costs – every property lawyer knows the sack of coal story (more on this in a future article!)

Notice

Most break provisions do not specify a certain form of notice but some do and the tenant must comply with the terms. If no specific form of notice is mentioned, notice must be clear regarding who it is directed to, which provision it relates to and what it is intended to do.

It must be served by the date specified in the break clause and served on the right party at the correct address. The party is usually the landlord but for the avoidance of any doubt, it is usually advisable to serve a copy of the notice on the landlord’s agents and solicitors to cover all bases.

All other terms of the break must be fully complied with (e.g. paying outstanding rent by the break date) in order to have a realistic chance of breaking. The break clause should specify whether the conditions must be satisfied at the date of service of the break notice or at the break date, or both.

If there is a condition, for example, that all rents are paid, it is important to determine how the lease defines rent. If the lease provides for default interest on late rent payments, and the tenant had sometimes paid rent late, although the landlord had never demanded this interest during the tenancy, the landlord can resist the break clause by highlighting the interest “technically” due.

Seeking advice from us early on is essential to manage the process successfully, making sure the notice is properly drafted and served and that the tenant fully understands their obligations. Where there is an obligation to deal with dilapidations, an independent surveyor should also sign off works as being compliant before the break date.

When advising tenants, we always push hard to get written confirmation from the landlord that the break has been waived.

Contact Mike for more information.

In recent years, there has been a surge in articles produced on Japanese Knotweed, a highly invasive and fast growing bamboo-like plant which seems to be haunting many gardens in Britain. It was introduced to the UK in the 1820s for its ornamental qualities but has since proved to be a hot topic as it is extremley costly for landowners and developers, causing structural damage, growing between concrete and blocking drainage systems. It is nearly impossible to eradicate and requires professional Japanese Knotweed contractors who have access to very powerful weed killers.

It has now reached the point where those affected by Knotweed are applying to the courts for compensation. The latest position adopted by the courts is to provide compensation in circumstances where there has been a loss of amenity but not where homeowners claim diminution in value.

This position follows a case that has been widely circulated in the news – Williams & Waistell v Network Rail Infrastructure Ltd. In 2017, two adjoining bungalow owners brought a claim against Network Rail for allowing knotweed to spread from the railway land up to the boundary and under their properties. The knotweed had not caused any physical damage to the bungalows so there was no basis for a claim in that sense. However, the bungalow owners alleged it had caused the properties to suffer a diminution in value and had stigmatised them. Mortgage lenders are very careful and are hesitant to lend on such properties.

The pair claimed that the presence of the knotweed had encroached on their properties, interfering with their quiet enjoyment and causing a loss of amenity by reducing market value. The judge found that Network Rail’s breach of duty and failure to properly manage the situation once they had become aware of the risks, had led to damage and continuing nuisance. The court awarded each claimant £10,000 for diminution of value and £4,320 for treating the knotweed to prevent further ingress.

Network Rail sought to challenge this decision at the Court of Appeal. The original judgment was upheld but it is important to highlight that the Court of Appeal based their decisions on different reasons to those given by the judge last year. The court determined that the parties affected could not succeed in a claim solely for private nuisance as a result of diminution in value. They could, however, be successful in a claim for nuisance caused by encroachment of the knotweed because of a reduced ability to enjoy the amenity of their respective properties.

To find out more information, click here to contact Michael Lewis. 

Partner Mike Lewis, examines the blue Manchester v North West Ground Rents Ltd case where the landlord was in breach of its repairing covenant. This is the first of several case studies he covered in his recent talk at Heathrow Airport for 80 surveyors as part of their CPD training.

Being the largest skyscraper outside London, Beetham Tower is Manchester’s most iconic building. It’s 47 stories comprise of a Hilton Hotel, and residential apartments. The external part of the building is made up of a mixture of single and double glazed shadow box units (SBU’s). However, questions were raised when the windows started to fall out!

The Landlord of the building, North West Ground Rents Limited purchased the freehold reversion of the building from Carillion Construction Ltd for £400,000 in 2010. The lease for the hotel was granted to Blue Manchester Ltd for a premium of £60 million. Under the terms of hotel lease, the Landlord covenanted to keep the common parts “in good and substantial repair and when necessary as part of repair to reinstate replace and renew where appropriate…”. The parties agreed that the external face of the building (including the frame and SBUs) were within the common parts.

In 2014, it was discovered by Carillion that the sealant holding the SBU’s into place was starting to fail. As a result, and as a temporary measure, they screw-stitched pressure plates to the frame panels, to hold the 1,350 SBU’s in place. This temporary fix was not meant to last for more than three years pending a full investigation. However, in 2018, Carillion went into liquidation, and no solution had been found.

The tenant bought a case against the landlord for specific performance, seeking to compel the landlord to carry out the works under the repairing covenant in the lease.

The landlord disagreed with the claim – it argued that although the external façade of the building was its responsibility, it had already taken sufficient steps to comply with its repairing obligation.

The Court had to consider whether the external façade of the building was in disrepair – and it was held that it was. Because the stitch plates were only meant to be in place for three years, whilst a permanent solution was found, meant that the SBU’s were not in “good and substantial repair”. The SBU’s were only able to be regarded as safe if a full investigation and report had been commissioned from a qualified consultant, and this had not been done. The landlord was therefore in breach of its repairing covenant and the landlord was required to repair the SBUs by arranging for their like-for-like replacement.

The recent case of Blue Manchester Ltd v North West Ground Rents Ltd is interesting because it is not often that an order will be granted for specific performance, requiring compliance with a repairing covenant in a lease. Even though steps had been taken to ensure the SBU’s were fixed, this was only a temporary measure, and the Court felt no sympathy for the landlord. Even though the costs for the repairing works were not proportionate to the premium paid for the freehold reversion, the responsibility for inherent, or design and construction defects was with the landlord under the terms of the lease.

To find out more, please contact Michael Lewis. 

Following the UK’s decision to leave the EU, the medicines regulator, the European Medicines Agency (EMA), decided to relocate from its Canary Wharf premises to Amsterdam. The EMA tried to bring their lease at to an end, maintaining that the 25 year lease, granted in October 2014, would be ‘frustrated’ by the potential withdrawal of the UK from the EU.

Key to the court rejecting their argument was the length of the lease (25 years), the absence of a break clause and the ability to assign and underlet the premises.

The court’s decision would clearly have had a significant impact, if it had gone the other way.  Whilst it has prevented the floodgates opening for now, it is also unlikely that this is the last we will hear of this type of argument.  Some commentators have suggested that, where parties can show a common purpose to the signing of the lease, specifically it being dependent on the UK remaining within the EU, judges may have a more sympathetic ear. The EMA have sought leave to appeal …. watch this space.

This was the one of two cases covered by Michael Lewis, head of property disputes at Sherrards, and Ben Walters who were guest speakers at a recent CPD training day run by South of England Surveyors for over 100 surveyors based on the south coast.

To find out more, please contact Mike Lewis.