What is waiver?
When a party to a contract has a legal right and chooses not to exercise it, the party makes a legally enforceable choice: an election of the legal rights they want to have.
The party is prevented from going back on the choice and changing its mind later.
A waiver of a right usually means that the contracting party loses the right to assert a breach of contract claim. With that, the consequential claim for damages and other remedies which may have been available are lost.
The law views the situation as one where there has been no breach of contract, due to the waiver.
A waiver is not a variation to a contract. Variations:
- are a legally binding agreement in their own right, and
- change the terms of a contract.
Waiver leads to the loss of an entitlement to enforce an existing legal right.
Waiver Clause
A waiver clause in a contract seeks to limit the effect of the general law of waiver.
Doing so is intended to prevent a loss of legal rights. But they are not always successful in doing so.
Whether prevention of a waiver is effective in any particular case depends on:
- the terms of the waiver clause
- the events giving rise to the waiver
- whether there have been previous waivers
- whether the party seeking to rely on the waiver has done anything to reassert its rights
- whether an express reservation of rights has been communicated
Elements of Waiver
In order for an effective waiver:
- A legal right must be renounced, disclaimed or abandoned by words or conduct.
The words or conduct must be inconsistent with asserting the legal right
- The waiver may be express (spoken or written) or implied.
In the case of implied waiver, the person waiving the right must know of all of the facts relevant to the right being waived - The statement or conduct waving the right must be unequivocal
- The other party (who would otherwise be in breach of contract) acted on the statement or conduct, and changed their circumstances as a result to their detriment as a result
- It would be inequitable (basically, unfair) for the other person to enforce the legal right.
Also waiver doesn’t need to be supported by contractual consideration.
If there is contractual consideration, then it may also be a variation of the contract. In that case, it can’t be a breach of contract, because there was a contractual right to do what was done.
Also, a party to a contract can’t waive a right that it does not know about.
Example of Waiver
A landlord and tenant have a lease between one another. Rent is payable monthly.
The tenant is required to pay rent on the 1st day of each month. If the rent is not paid at that time, the landlord may terminate the lease.
The tenant is late paying the rent. The tenant says that it will pay rent in instalments over the month. The landlord says, “OK” and says nothing further. The tenant makes instalments to catch up on the late rent.
Rather than terminating the lease for late payment of rent, the landlord accepts instalments.
The landlord has waived its right to terminate the tenancy for late rent.
But then the law of waiver sometimes goes further.
The landlord would want to tell the tenant that if rent was late again, the lease will be terminated. The first waiver may set a precedent for future late payments of rent: that rent will not be insisted upon on the 1st day of the month on future occasions.
The latter warning could be said to correct the previous waiver, and stop the continuing presumption of waiver coming about.
Another example:
This time with a software as a service contract:
A customer has a right to receive software as a service for a suite of software applications.
The SaaS supplier has a service break down at the beginning of a calendar month. One of the software applications forming part of the suite isn’t working.
The supplier tells the customer it will be fixed soon.
The customer says that they weren’t planning to use the service for 3 months, and tells the supplier not to worry about fixing it in a hurry (the customer had a legal right to receive those services and has waived its right to insist on the services. By not supplying the services for the entire suite, the supplier is in breach of contract).
The SaaS supplier says, well if that’s the case, we won’t prioritise a fix until the end of the month (the SaaS supplier has changed its position).
The waiver prevents the customer coming back at a later date and recovering damages for the breach of contract. The company waived its rights to the remedy of damages.
Example Waiver clause
Any delay, omission, indulgence or forbearance by either party to exercise any of the rights nor any non-compliance by a party under this agreement shall not be construed as a waiver of that right, not shall it impair such right on future occasions.
Related: Boilerplate Clauses