Throughout, the article draws on insights from Vivienne Westwood Ltd v Conduit Street Development Ltd [2017] EWHC 350 (Ch), System Floors Ltd v Ruralpride Ltd [1995] 2 EGLR 77, and relevant statutory provisions.

Definition and Purpose

A side letter is typically understood as an ancillary document that supplements the primary lease or operates as an independent, complementary agreement. Though not defined in law, side letters are commonly used to record temporary concessions or waivers—such as rent reductions, adjustments to payment schedules, or a temporary relaxation of a lease clause—without formally amending the lease.

Side letters can be useful when documenting minor or time-limited arrangements, but they should not be used for substantial or permanent changes, for which a deed of variation is better suited.

Risk and Compliance

While convenient, side letters come with inherent risks concerning their enforceability and potential for disputes. To be legally binding, a side letter must comply with established contract law principles:

• Offer and acceptance: A clear offer must be made and accepted.
• Intention to create legal relations: Both parties must intend for the document to be legally binding.
• Certainty of terms: The contents must be clear and unambiguous.
• Consideration: Each party must give something of value (even nominal consideration may suffice).

Failure to meet these criteria can leave a side letter vulnerable to legal challenge.

Side Letters vs. Deeds of Variation

Under Section 52 of the Law of Property Act 1925, leases and certain lease variations must be executed as deeds. Although a lease can be amended by a simple contract where consideration exists, no conclusive authority confirming that this rule applies when statute requires the form of a deed.

For permanent lease modifications, a deed of variation is generally preferred.

Deeds:

• Provide greater legal certainty.
• Can be registered at the Land Registry.
• Reduce ambiguity about successors’ rights and obligations.

The importance of this distinction is illustrated in Vivienne Westwood Ltd v Conduit Street Development Ltd [2017], where the court found that a side letter effectively varied a tenant’s core obligations, despite a statement that it did not vary the lease.

Binding Effect on Successors

Whether a side letter binds successors depends heavily on its drafting. This is particularly relevant, for example, if a tenant company is acquired via a share sale. To be sure of whether it is binding, a well-drafted side letter should explicitly state whether it is:

• Personal to the original parties; or
• Binding on successors and assigns.

If this is unclear, courts may interpret the document based on general principles of landlord and tenant law. For example:

• New leases: Under Section 28 of the Landlord and Tenant (Covenants) Act 1995, collateral agreements containing landlord or tenant covenants may bind successors.
• Old leases: The test is whether the covenant “touches and concerns” the land.

In System Floors Ltd v Ruralpride Ltd [1995], a successor landlord was bound by a side letter under Section 142 of the LPA 1925, even though the side letter did not explicitly mention successors. Similarly, in Vivienne Westwood, it was held that successor rights and obligations under side letters could pass on assignment.

Effective side letters should explicitly address these considerations by making concessions contingent upon the tenant’s compliance with their obligations. If the tenant fails to fulfil these obligations, the landlord must retain the right to withdraw the concessions.

However, caution is essential in drafting such arrangements. Recent case law, including Vivienne Westwood, illustrates that courts are willing to intervene if side letters are perceived as inherently biased in favour of the landlord. Therefore, careful drafting and the avoidance of onerous clauses are crucial to ensure enforceability and to avoid potential disputes.

Consideration

To be enforceable, a side letter generally requires consideration. While courts may infer this from conduct, it is safer to state it explicitly. Options include:

• Nominal consideration: Even £1 may suffice (if the side letter is executed simultaneously with the lease, the entry into the lease itself will be deemed sufficient).
• Executing the side letter as a deed: This eliminates the need for consideration but adds formality.

Practitioners should be cautious, as consideration may lead a court to interpret the side letter as a variation rather than a waiver (as in Vivienne Westwood), which would potentially increase the document’s legal weight beyond what was intended.

Common Uses

Side letters are often used to document:

• Temporary rent concessions or changes in payment frequency (e.g. switching from quarterly to monthly rent).
• Third party payments, such as from a parent company, while clarifying that no new tenancy is created.
• Minor corrections to lease wording, though not to extend terms or alter the extent of the demise.

Each use must be clearly documented to prevent misunderstandings or legal mischaracterisation.

Entire Agreement Clauses

Most modern leases include entire agreement clauses, which assert that the lease constitutes the full agreement between the parties. These can undermine the enforceability of side letters unless drafted with care.

• In Inntrepreneur Pub Co Ltd v East Crown Ltd, such a clause excluded collateral warranties.
• In contrast, Cheverny Consulting Ltd v Whitehead Mann Ltd recognised an unsigned side letter as part of the overall agreement, demonstrating that courts may look beyond the clause if conduct supports its existence.

To avoid ambiguity, parties may wish to reference the side letter within the main lease or incorporate its provisions formally.

Termination

A side letter should clearly specify the duration of the arrangement or concession and outline the conditions under which the concession will terminate, such as upon assignment of the lease. Where termination is permitted due to breach of the side letter or the lease,  it should generally be effected by notice from the landlord.

Limitations of Side Letters

Side letters are not appropriate for:

• Extending the lease term.
• Changing the demise.
• Making substantial, long-term changes to rent or use.

Such changes require a deed, not an informal agreement.

Guarantor Liability

Unintended changes introduced by side letters can inadvertently discharge guarantors from liability if made without the guarantor’s consent and to their detriment. This principle, established in Holme v Brunskill [1878], serves as a warning to landlords to notify or obtain the guarantor’s agreement before entering into side arrangements, in order to avoid unintended financial consequences.

Estoppel Considerations

Where parties act in reliance on a side letter—even if it is not technically enforceable— they may be able to argue estoppel, preventing the other party from denying its terms. Consistent conduct in accordance with the side letter may therefore be critical before a court.

Conclusion

Side letters can be a practical tool for landlords and tenants to document temporary or minor variations to lease arrangements. However, they must be used with caution. Legal practitioners should:

• Ensure that side letters comply with the principles of contract law.
• Use clear drafting, particularly regarding successors and duration.
• Recognise when a formal deed of variation is the more appropriate route.
• Consider the impact on guarantors, successors, and enforceability in light of entire agreement clauses.

By appreciating the limitations and legal nuances of side letters, parties can more effectively manage risk and preserve clarity in their leasing relationships.

For more information, please contact Timothy Mayer at timothy.mayer@haroldbenjamin.com