Waiving Non-Waiver Provisions By Waiving Such Provisions (Again)

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We’ve written about the legal concept of “waiver” too many times to warrant furnishing any links to earlier blog postings. To sum it up succinctly, we’ll start with an example of a pretty familiar provision found in most agreements such as leases and mortgages (to keep us within the real property family). It reads as follows:

All waivers must be in writing and signed by the waiving party. A party’s failure to enforce any provisions of this [lease] will not be a waiver and will not estop that party from enforcing that provision or any other provision of this [lease] in the future.

If an English-speaking visitor arrived from outer space and, after completing its abduction of one or more of the world’s inhabitants, read this, it would think there could be no waiver if it were not given in writing. It would be wrong. Likewise, native-born earthlings should always have some doubt as to whether to rely solely on the ability to read. Context (and established law) matter.

Generally speaking, at least under United States jurisprudence, the Texas Supreme Court, in a clarifying (for Texas) May 12, 2017 decision, wrote the following:

The contractual doctrine of waiver, whether express or implied, rests on a similar conceptual policy of individual self-determination — “an idea no more complicated than that any competent adult can abandon a legal right and if he does so then he has lost it forever.” [Emphasis by Ruminations] To the extent there has been any doubt up to this time, we affirm that a party’s rights under a nonwaiver provision may indeed be waived expressly or impliedly. On this point, there is much agreement.

[To see the entire court decision, click: HERE.]

There are two “giants” when it comes to explaining contract law. One is Samuel Williston and the other is Arthur Corbin. Here is how Corbin explains the “rule”:

Parties to a contract cannot, even by an express provision in that contract, deprive themselves of the power to alter or vary or discharge it by subsequent agreement. ․ [A] provision that an express condition of a promise or promises in the contract can not be eliminated by waiver, or by conduct constituting an estoppel, is wholly ineffective. The promisor still has the power to waive the condition, or by his conduct to estop himself from insisting upon it, to the same extent that he would have had this power if there had been no such provision.

But, are there any iron-clad “no oral waiver” provisions? Unfortunately, some say no and some say yes. Basically, different states have different rules and, in many states, the rule is: “It depends.” Yes, that’s unhelpful and unsatisfying. That’s why we were pleased to see how the Texas Supreme Court dealt with a particular case. We are ambivalent as to the “rule” expressed by that court, but thankful that it promulgated a rule that offers (or suggests) predictability of result.

The Texas court looked at a set of facts most readers will have seen before or pondered before. Before May 12, 2018, Texas courts, including the one whose decision was being reviewed by the Texas Supreme Court, thought the described situation created a waiver of the lease’s non-waiver provision. Then, the Texas Supreme Court upset the applecart and created the rule that will be revealed as we roll on today.

Here’s the story. A tenant had the right to extend the term of its lease as set forth in this provision of this lease:

If Tenant has fulfilled all of the terms and conditions of the initial lease period …], he shall have the option to extend the lease for an additional 5-year period at the rate of $3,000/month [expiring …]. Tenant will notify Landlord’s Agent in writing of his intention to exercise this option no later than ninety (90) days prior to the expiration of the initial lease period.

Other than to keep the flow of this posting going, there would be no reason to tell you that, absent a “waiver,” the tenant had not fulfilled “all of the terms and conditions of the initial lease period.” Readers can guess that the tenant’s problem was that it wasn’t very good about paying its rent on time.

Please don’t write to Ruminations about the various uncertainties in what should have been a simple lease provision. We know that it doesn’t spell out the “date” upon which that “test” is to be applied. We don’t know if an election by the tenant to extend the lease’s term was “good” if it was “in compliance”: (a) on every day of the lease term; (b) just on the day it sent its extension notice; (c) just on the last day of the otherwise expiring term; or (d) on both that day it sent its notice and on the last day of the otherwise expiring term. Our thoughts about this are expressed in these three “old” blog postings: THIS ONE and then THIS ONE.]

 

We’re pretty sure that the justices on the Texas Supreme Court missed those because the court’s entire discussion was about whether the tenant had any outstanding rent on the last day of the otherwise expiring term. And, the facts were that the tenant had not yet paid that month’s rent. It made that rent payment a few days into what would have been the “extension” term had the Court ruled there was to be no extension term. [Yes, it seems pretty dumb of the tenant, one who had made significant improvements to the restaurant it operated in the leased space, not to have found the rent money on time.]

The only other important background information, as Ruminations sees it, is that the tenant was almost always late with its rent and the landlord had always accepted the rent without expressly reserving its rights under the lease. Basically, to the tenant and the outside world, it looked like the landlord consistently “waived” the tenant’s obligation to make timely rent payments. So, why should the tenant, without receiving any indication beforehand that the landlord was no longer going to accept late rent, think that it was perfectly safe to make late payment of its last month’s rent? After all, isn’t it true that, “any competent adult can abandon a legal right and if he does so then he has lost it forever”?

The answer is here, and it forms the basis the Texas Supreme Court used to create a rule for when a required written waiver cannot be bypassed. This is the actual lease provision in front of the Court (with some omissions of no consequence). We’ve underlined what was in it beyond what we reproduced at beginning of today’s posting. That additional text is underlined by us.

All waivers must be in writing and signed by the waiving party. A party’s failure to enforce any provisions of this [lease] or [landlord’s] acceptance of late installments of Rent will not be a waiver and will not estop that party from enforcing that provision or any other provision of this [lease] in the future.

The question raised is whether this underlined test makes a different, to wit, could the tenant still get its desired lease extension when it, once again, paid its rent way out of time. Had the landlord already abandoned its legal right to be paid on time? Lots of courts, including many in Texas before this May 12, 2017 decision came out, would have ruled: “Yes.” That’s no longer the case in Texas. And, the logic of the Texas Supreme Court applies to more than just rent.

Here is the way that court explains the “new” rule (in Texas):

We agree a nonwaiver provision absolutely barring waiver in the most general of terms might be wholly ineffective. But we cannot agree that a nonwaiver provision is wholly ineffective in preventing waiver through conduct the parties explicitly agree will never give rise to waiver. Such a contract-enforcement principle would be “illogical, since the very conduct which the clause is designed to permit [without effecting a waiver would be] turned around to constitute waiver of the clause permitting [a party to engage in] the conduct [without effecting a waiver].”

Basically, the issue of “waiver by inaction” turns on “intent.” The question asked by all courts is whether, by not objecting, the party holding the right is showing its intent to ignore what would otherwise have been a breach of the agreement. That rule is expressed by (that other “Dean” of contract law) Samuel Williston as follows:

[The] general rule [] that a party to a written contract may waive a provision despite the existence of an antiwaiver or failure to enforce clause, is based on the view that the nonwaiver provision itself, like any other term in the contract, is subject to waiver by agreement or conduct during performance”; however, “[i]n order to establish that an antiwaiver clause is not enforceable, the party asserting a waiver must show a clear intent to waive both the clause and the underlying contract provision”)

We’ve underlined the crux of the rule. In our words, here is what the Texas court said: “If an agreement expressly sets forth a specific obligation that cannot be waived (other than by its written permission), the party relying on the non-waiver clause has irrevocably said that its subsequent behavior can never be interpreted as any change in its initial intent. That party can rest safe that the “deal” is the “deal” when it comes to that very specific obligation.” So, if accepting late rent is expressly stated as never showing the landlord’s intent to waive its rights, the landlord does not have to worry about never objecting to late payments.

All of that having been said, Ruminations has two pieces of advice. First, if there is something that a party never wants to be construed as waived by reason on that party’s non-action, say so in the agreement. Second, even if you do, always send a response letter when you know the obligation has been waived (such as when accepting late rent payments) by writing that even though you are letting this violation “go,” it can’t be taken to show any intent on your part to waive your rights for any future violations. That’s an easy form letter for the common occurrence – late rent – and it is easy to send. You don’t have to like sending such a letter, but you’ll be happy down the road when you no longer want to put up with repeated bad behavior.

Again, and this can’t be emphasized enough, not every state is Texas. That’s why we strongly recommend that you send “we don’t intend to waive this behavior in the future” letters. Doing that, you should be able to get the same result this landlord got in Texas, even in states where the law is a lot more paternalistic and a lot less contractarian. Of course, that’s just our informal guess, not a guaranty. And, as we think we’ve learned, some judges don’t subscribe to Ruminations.

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Comments

  1. Stephen Carr Anderson says:

    Why doesn’t a waiver or release of a right in real estate (the right to regain possession of land) require a writing signed by the party to be charged?

    • I hope I’m neither misunderstanding the question nor misdirecting you and others with my response. Leases and other occupancy agreements are hybrid creatures in the law. They are a combination of contract and conveyance theories and the law has evolved very differently for each characterization. Basically, conveyance theory hasn’t evolved very much over the years, though it has been “softened” by an evolving sense of equity. Generalizing, conveyance theory has a rigid set of rules, probably to give certainty in determining the rights of the parties to possess land using objective standards, ones that do not look into the minds of the transferor or transferee. Contract theory looks to the perceived intent of the parties and has evolved to where it is influenced by their reasonable expectations. One might think of contract law as being a little on the subjective side.

      So, conveyance theory is harsher when it comes to interpreting what the parties are thinking or whether someone’s action or inaction might reasonably be a basis for another to act upon. Contract theory seems to recognize that the free flow of commerce needs a system where people who may imperfectly state the terms of their bargain can still get what those particular parties intended rather than what some other people might have intended by using the same words or acting in the same way.

      There are a lot of different implications arising out of the differences between the way the law treats conveyances and the way it treats contracts. Combing the two “systems” in a single agreement requires sorting out which is which. For example, possession is governed by conveyance theory; options are governed by contract theory.

      Without doubt, Ruminations has readers far better versed in these matters. If anyone wants to pitch in, especially if any of our real property professor-followers wishes to do, please do.

  2. Jeremy J. Deeken says:

    On a related point-The Contract v. Conveyance Theory divide flows to produce the Privity of Estate v. Privity of Contract divide. When leases are nakedly assigned, the provisions must be taxonomized into those which have conveyance ancestory and those which have contract ancestory. From there, you can determine the rights and obligations of the naked assignee.

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