Business Law

Understanding Contract Terms (Post 12): The Waiver Clause

We continue the Understanding Contract Terms series by explaining waiver clauses. Most contracts include some form of a waiver clause. Waiver clauses are important to understanding when contract provisions can be enforced and when certain actions may forfeit your rights under the contract.

What is a waiver clause?

In basic terms, the word “waive” means to give up a right or interest by choosing (intentionally or not) to let the opportunity to enforce the right or interest pass. Simply put, to waive something means to not enforce it.

Waiver clauses, then, are clauses in a contract that govern (1) how a party to the contract can waive a right and (2) what happens when a party to the contract waives the right.

To highlight how a waiver clause might work by way of example, assume you are a service provider. You have a contract with a client for ongoing monthly services. Your contract states that payment is due by the first of each month, and that you are entitled to a late fee if payment is not received by the first. Your client pays on time for six months, but on the seventh, your client pays two days late. You decide not to collect the late fee because you like the client and the relationship has otherwise been great. Or, perhaps it’s a busy month for you, and you didn’t even notice the payment arrived late.

By not enforcing the right to the late fee, you may have effectively waived your right to collect the late fee on this occasion. But what if you change your mind and want to enforce the late fee a few months after it would have been due? And  what does your failure to enforce this one time mean in the future if your client pays late again? And what does it mean for your ability to enforce the other terms of the contract? The answer will depend on whether your contract has a waiver clause and on what type of waiver clause you have.

Waiver ClauseWhy Use Waiver Clauses?

Generally, “the law” says that a right that is not routinely enforced is a right that will not be enforced by a court selectively. And like any other contract provision, it’s generally better in the long term for both parties to be clear about what they can and can’t do under an agreement. If you are the party who is entitled to enforce a right, a waiver clause ensures that you don’t inadvertently forfeit your ability to do so. And if you are the party who would have a right enforced against you, a waiver clause clarifies how you will know if you are expected to strictly comply with the terms of the contract.

While our example used a relatively minor waiver of a late fee, a waived right can also be a significant right (including for example, the non-breaching party’s right to terminate the contract). While a discussion of waiver often seems to be a discussion of something that is unlikely to be material, the specific language of your waiver clause can have a significant impact on your rights.

Types of Waiver Clauses

There are several types of waiver clauses you’ll commonly see in contracts. It’s important to understand how they differ, and what obligations they create for you if you want to do your best to ensure your rights are enforceable.

1. The Affirmative Waiver

“Neither party’s failure or neglect to enforce any rights under this agreement will be deemed to be a waiver of that party’s rights.”

This means that to effectively waive your rights, you must expressly tell the other party that you are waiving that right.

 2. The General Waiver Prohibition

“A party’s failure or neglect to enforce any of its rights under this agreement will not be deemed to be a waiver of that or any other of its rights.”

An expansion of the affirmative waiver, this clause says that not only do you have to expressly tell the other party that you are waiving a right in order to actually waive it, but also that your statement that you are waiving a right will not also waive other rights. Essentially, this means that for every right you want to waive, you will need a separate express statement.

3. The Written Waiver

“A waiver or extension is only effective if it is in writing and signed by the party granting it.”

This means that unless you put a waiver in writing and sign that writing, you retain the ability to enforce your rights.

4. The Course of Dealing Waiver

“No single or partial exercise of any right or remedy will preclude any other or future exercise of any right or remedy.”

This means that even if you waive or partially waive a right once, you can still fully exercise that right on future occasions with the same party. This is the case whether the future occasion is under the same contract, or a under a similar, subsequent one in the case where you have an ongoing relationship with the other party. Note that this clause does not detail how you can or cannot waive the “first” right; it deals only with the fact that waiving that first right does not waive other rights.

5. The Complete Non-Waiver

“A failure or delay in enforcing an obligation, or exercising a right or remedy does not amount to a waiver of that obligation, right or remedy. A waiver of a breach of a term does not amount to a waiver of a breach of any other term in the agreement. A waiver of a particular obligation in one circumstance will not prevent a party from subsequently requiring compliance with the obligation on other occasions.”

This “catch all” waiver combines the affirmative waiver, general waiver, and course of dealing waiver into one provision. It is common to see waiver clauses incorporate multiple types of waivers, as this one does.

Waiver Clause

What waiver clause is right for my contract?

As is usually the case, it depends. It may be to your advantage to not have a comprehensive waiver clause, though it is often best to have a one. While this “boilerplate” term may seem inconsequential and it may seem that “any old clause” will do, you should ensure you understand your contract and why you are making the choice to include a particular waiver clause.

Are Waiver Clauses Always Enforceable?

Unfortunately, no. Even if a contract contains a complete non-waiver clause, extreme behavior on the part of the enforcing party may cause a court to find that the party waived its right to enforcement. This may involve actions taken in bad faith by the enforcing party, or a substantial (decades-long) delay in enforcement. (There have also been cases discussing how a party can waive the right to enforce a non-waiver clause itself; if you want to dig deeper on this issue, see here and here for additional reading.) Having a non-waiver provision is therefore only the first step in protecting your contractual rights.

Best Practices for Waiver Clauses

  • Know up front what type of waiver your contract contains and how it affects you.
  • If the other party breaches your contract, decide as soon as possible whether you plan to enforce your rights or waive them.
  • As the non-breaching party, consider putting your intention (to waive, reserve the right to waive, or terminate the contract) in writing and sending it to the breaching party.
  • If deciding to reserve the right to waive without immediate enforcement, request the breaching party sign an acknowledgment that your actions do not constitute a waiver.

If you’d like to learn more about waiver clauses, drafting contracts, or understanding contract terms, please contact us.

Photo| Ankush Minda|Unsplash

Photo | Bruno van der Kraan | Unsplash

        



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