Take care when varying a lease

While it is always better to record any variations to a contract or a lease in writing (and even better by deed), a recent Court of Appeal case has highlighted those verbal agreements to vary contract or lease terms can be just as effective, even where the original contract or lease itself states that any changes must be made in writing.

Renting office space

In this particular case, the tenant fell into arrears on the offices they rented. They agreed verbally with the landlord’s credit controller that they would pay a reduced rent for the first part of the tenancy and an increased rent later on when they hoped that their cash flow would have improved. Unfortunately, the landlord claimed that the credit controller did not have the authority to make the agreement, terminated the tenancy due to the arrears and locked the tenant out of the property.

The court found that the landlord’s credit controller did have sufficient authority to bind the landlord and that a valid agreement had been made and kept to by the tenant. Although the tenancy agreement contained a clause stating that any variations or additional agreements had to be in writing, this was not binding. Any clause which states that changes must be in writing will not be effective where there is clear evidence that a verbal agreement has been reached and complied with.

Powers of employers and employees

The clear lesson for landlords is to make sure that anybody negotiating with a tenant (including credit controllers dealing with arrears) is very clear as to the extent of their authority and what they can and cannot agree. Just because the employer believes that they have not given authority to an employee to agree to changes, it does not mean that a court will take the same view.

The clear lesson for tenants is that it is always best to make sure that there is clear evidence of the circumstances surrounding any unwritten agreement, such as a follow-up letter or email setting out the terms. The tenant must also stick to the terms of any verbal agreement to ensure that it is legally binding.

Speak to our commercial property team for legal advice on anything property-related.