Terms Limiting Waiver of a Contract’s Terms

A second fundamental way to limit “inadvertent” change of a contractual relationship is to limit the situations in which the conduct of the business can be interpreted as a waiver of the terms of a contract. The most common term will specify that a business’s decision not to enforce terms of a contract in one situation cannot be used as evidence of a waiver of those terms in another situation.

This kind of term essentially provides a party with flexibility in the enforcement of the contract. For example, in a lease agreement, a landlord may have the right under the lease to terminate the lease when there is a late payment. However, if the tenant is otherwise a good tenant, the landlord may want the flexibility to accept a late payment without canceling the lease that time. However, the landlord wants to know that the fact they may have accepted a late payment once without canceling does not mean they will be prevented from exercising their rights under the lease to terminate the lease if the tenant starts to make a habit of making late payments.

Contracts are generally put together at a time when the parties expect everything will work out. Many of the terms are there to give the parties rights which they hope to never have to use. However, when the situation starts to fundamentally alter the relationship as originally contemplated, then the parties want to have recourse to those rights. Everyone understands that difficulties arise, and most of the time, the parties will want to work together to overcome those difficulties rather than simply scraping the relationship. A limitation on waiver of the terms of the contract can be a useful tool to give parties the ability to work things out in a way that is not technically required under the contract, without making the exception the new rule.

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