Last week, in dissecting the most commonly found style of lease audit clause, and not so favorably at that, we necessarily dragged in what a particular court thought about a landlord’s argument that its tenant had “waived” its right to get a refund of moneys already paid. To refresh your memory, and to implant a new memory into those who haven’t yet read last week’s posting, Ruminations postulated that lease audit clauses, as commonly written, are thought to result in outcomes that never come out. That’s even truer for “no-waiver” clauses in leases and other contracts and even for the defense of “waiver” built into the law.
There is no way that a simple blogger could say anything about the concept of “waiver” and satisfy law professors or other guardians of the law. So, if you haven’t looked at the disclaimer at the very bottom of this page, now might be a good time to do so.
While we’re laying out the background, don’t let us forget that we’re going to mention a cousin of “waiver,” and that relative is named “estoppel.”
Just because you have the right to do something, doesn’t mean that you have to do it. So, if someone is obligated to pay you $100, you don’t have to insist that you be paid. You can “waive” your right to be paid, just as you can waive your right to insist that the landlord repave the parking lot every 5 years or you can waive your right to insist that your tenant re-decorate every 10 years.
“Oh, I would never do that!” So you say. Almost all leases include a late payment provision. Many landlords never insist that their late-paying tenants pay the late fee. We know this because there are a lot of court decisions that go something like this. A tenant regularly pays its rent late. In fact, over the last four years, that happened 30 times. But, the rent always showed up (eventually). Every time a rent check came, the landlord rejoiced and cashed it. The landlord was so happy that it never even asked for the late fee. Let’s say that was 30 times late at $150 each time, or $4,500. Then, after four years of this, the tenant stopped paying anything and the landlord sought to evict its tenant for non-payment of rent – let’s say $10,000 in all. What did the landlord put down on the eviction papers? Yes, $14,500.
Now, in a lot of jurisdictions, even a commercial tenant has a statutory “right of redemption,” one that a lease, no matter what it says, can’t modify. Basically, that means if the delinquent tenant puts the overdue rent on the judge’s bench at the eviction hearing, its landlord has to take the money, the case is over, and the tenant gets to stay. It isn’t important if your jurisdiction handles this differently, because we’re just telling you this nugget of law so that our example has a little “drama.”
Knowing that rule, this landlord is resigned to the fact that if its tenant shows up with $14,500, the eviction suit is dismissed.
So, why does the eviction suit get dismissed when the tenant shows up with only $10,000? That’s right – “waiver.” The judge (and the law) say that the landlord “waived” its right to collect the late fee, at least with respect to whatever may have been due for late rent before the hearing. Basically, the law is saying that because the judge believes the landlord acted in a way that showed it didn’t really care to enforce its right to collect those 30 late fee payments, the landlord “gave up” or “lost” that right.
Hold your question. What question? – the one that goes like this: “But, my lease had this provision, why didn’t the judge read it?”:
The failure of Landlord or Tenant to insist upon the strict performance of any of the covenants of this Lease, or to exercise any option herein contained, shall not be construed as a waiver for the future of such covenant or option. No waiver by Landlord or Tenant of any provision of this Lease shall be deemed to have been made, unless expressed in writing, and signed by the other party.
Well – – – it’s pretty easy to understand that the judge did no injury to the first sentence. The court’s decision (in our hypothetical example, one that rings pretty true nonetheless) only spoke to the “old” late fees. Nothing precludes “our” landlord from insisting that late fees be paid, when applicable, going forward.
How about the “no waiver unless in writing” part? That’s pretty simple. Our hypothetical (but quite representative) court simply has ruled that the landlord “waived” that provision of the lease. Yes, the landlord, acting in a way that showed it didn’t really care about the “no waiver, but a written waiver” provision, lost the right to enforce it. Perhaps, we should say: it lost its right “to rely on it.” In fact, what is going on is that, because of the landlord’s demonstrated indifference, its tenant was given the “right” to rely on the landlord’s non-assertion of a right to demand a late fee. This is “estoppel,” a “legal principle that bars a party from denying or alleging a certain fact owing to that party’s previous conduct, allegation, or denial.”
Look at how far Ruminations has gotten without telling anyone exactly what constitutes “waiver” in a court of law! The time has come. We’ll steal its definition from a legal treatise that should be in the hands of every person who participates in the writing of leases: Friedman on Leases, edited by the late Milton R. Friedman and the recently deceased Patrick A. Randolph, Jr., our mentor. This three volume set is part of the Practising Law Institute’s Real Property Law Library. If you don’t already own it, get one now.
That definition goes as follows:
Generally, a waiver is defined as an intentional or voluntary relinquishment of a known right or such conduct as warrants an inference of the relinquishment of such right. [The underlining is ours.]
Few would have trouble with finding that a party has “waived” a right if that party “intentionally” has done so. But “waiver” isn’t merely the relinquishment of a right; it is the relinquishment of a “KNOWN” right. Hold onto that thought.
Some would “rightly” have difficulty with the concept of “voluntary relinquishment, and more with “intentional OR voluntary” relinquishment.
Even more of us understand the fluidity of the test for “conduct as warrants an inference of the relinquishment.”
Why aren’t the rules for finding a “waiver” more definite? Simply speaking, because “waiver” is an “equitable” principle. That’s an approach to enforcing rights and granting remedies designed to soften the sometime harsh results of “black letter law.” When the law allows an “equitable” principle to be applied to a given situation, it is often a superseding principle that can set aside whatever result a contract or other competing legal principle would have brought about. We have no intention of getting dragged into a philosophical debate over how “equity” makes that happen. For the purpose of today’s posting, we’ll just explain that equity doesn’t necessarily eliminate someone’s bargained-for right; it just eliminates the expected remedy. So, in the case of a “waiver,” as in our example, the court allows the right to survive “going forward”; it just won’t give the landlord a remedy for past late payments.
There are tons and tons of reported (and, certainly, unreported) court decisions that have found “waiver” and many, many others that have not found “waiver.” So many, in fact, that reading them gives little guidance (or assurance) to anyone arguing that there was or was not “waiver” in their own situation. Here’s how we reconcile them.
As we read those court decisions, it appears that the judges first decide what would be fair and equitable. That’s why they call them “judges”; they make judgments. [You can call it result-oriented justice, if you like.] This is allowed in our system because not every situation lends itself to resolution through application of a mathematical equation (with no more unknowns than variables). If relying solely on strict legal (e.g., contract) principles won’t get the “fair” result, then judges courts search for available “equitable” principles, such as “waiver” (or “estoppel”) to get that result.
In the case of “waiver,” even though courts have to work with “known” rights and with “conduct that infers” relinquishment of known rights, it’s not much different than giving a clean palette and a full set of blendable paint colors to an artist. If you have painting skills, you can make a convincing picture.
Is there a way to say this simply? We don’t know, but here’s our try. If you claim that someone else has waived a right, and can even present a document expressly saying so and signed by that person in the presence of the College of Cardinals, a court might feel bound by the words of such an intentional, written, well-witnessed waiver, but reject its applicability upon a finding that the waiving party really, truly didn’t understand the rights it was giving up. Yes, the question is: “did it give up a ‘known’ right?”
What if there is no overt, intentional waiver? Then, what did the ostensibly “waiving” party’s “conduct” say? Did it show “an inference of the relinquishment”? “Reasonable minds could differ, and so could reasonable judges.” [Carl Schmitt, in his Das Problem der Legalität”]
Where does this leave us? Societaly speaking, in a pretty good place (as Ruminations sees it). We all want fairness and equity, especially when, on a personal level, we and society would benefit, even if you wouldn’t. The problem is that “fairness and equity” aren’t the only principles that provide a benefit to society. As to leasing and other contracting issues, the key conflicting principle is the desirability of “certainty.” After all, when people make a deal, they’d like to rely on that deal. They’d like to predict its outcome. They aren’t always happy when a court’s idea of what is fair and equitable takes away what they thought was fair and equitable to them.
Ruminations doubts that even the strictest contractarian among us would eliminate all aspects of “equity.” [The opposite of a contractarian is a paternalist.] Everyone would concede that relief outside of a contract’s expressed provisions is sometimes warranted. The issue is really about “whose petard is being hoisted.” And, whatever side of the spectrum you come from, the equitable principle of “waiver” isn’t going away.
[Here’s one of our “hallmark” asides. It seems that, in leases, especially residential leases, courts find waiver more often when granting relief to a tenant, but as between lenders and borrowers, courts very often reject claims that a lender has waived a right.]
Is there a solution? On a micro-level, we think there is a partial one; on a macro level, we’re not at all sure. In our late fee example, courts have favored landlords who, though accepting a late payment, always follow-up with a letter saying: “although we are waiving our right to collect the late fee this time, be aware that we do not waive our right to insist on its payment in connection with future late payments.” That might not protect against loss of prior late fees, but it will likely allow a landlord to immediately impose the fee on the very next late payment. Why do we hedge by writing, “likely”? That’s because if a landlord sends 30 such letters, why wouldn’t a tenant be able to successfully claim that it reasonably relied on its landlord’s conduct to show that the landlord would waive the late fee every time?
On the macro-level, would the following, never-seen, “no-waiver” provision be enforced as written?
The failure of Landlord or Tenant to insist upon the strict performance of any of the covenants of this Lease, or to exercise any option herein contained, shall not be construed as a waiver of that covenant or option in any instance, either in the case at hand or with respect to the same or any similar covenant or option, unless the allegedly waiving party has expressly and unequivocally waived its right to insist upon such strict performance in a writing signed by that party. Regardless of any principle of law, Landlord and Tenant agree that the provisions of this paragraph may not be waived or modified or eliminated other than in a writing signed by each of them and expressly agree that all equitable or legal principles of law that would permit or result in a finding of waiver or modification or elimination of the provisions of this paragraph, other than by such a writing, will not be applicable and each party agrees that it will not assert otherwise. Further, each party expressly represents to the other that in giving up the right to assert that the provisions of this paragraph can be waived, modified or eliminated, it has consulted with an attorney of its own choosing and absolutely knows of the rights it is giving up and that the other party may reasonably rely on that intentional waiver of a known right.
We have little doubt that this would influence many, perhaps most, courts should they be faced with a non-written waiver situation. We also know that courts, if not sufficiently influenced, say in a particularly egregious situation, will find a way around such a provision and that appellate courts, though likely to strike down some efforts to do so by a trial court, also don’t like the toll of “equity” taken out of their hands. [Take note of our use of the weasel-word, “influence.”]
But, EVEN MORE IMPORTANTLY, one immutable law still needs to be considered, with credit to sociologist Robert K. Merton – “the law of unintended consequences.” That’s a “natural” law, and even courts can’t get around it. Nor can we, those of us who create leases and other contracts.
War stories and rebutting arguments are cheerfully accepted as comments. So, if any reader is inclined to do so, just hack away below and “Speak Your Mind.”