Contract Waiver: A Straightforward Legal Guide

Waiving a Breach of Contract

What is a Waiver?

Waiver means a person giving up some or all of their legal rights under a contract. There is more than one way by which a right may be waived, and a waiver can happen either intentionally or unintentionally.

1. Waiver by contract or deed

This occurs where a party expressly agrees to abandon their legal rights. Such an agreement will be binding provided the normal requirements of a contract have been met.

Examples of this type of waiver include settlement or compromise agreements, variations to an existing contract, or a new contract replacing an older one.

It is worth recognising and remembering that it is possible to unintentionally waive a breach in writing. A statement, for example in an email, letter or other communication, even verbal perhaps can result in a waiver of a breach.

2. Waiver by election

This applies where a breach of contract has occurred and the “innocent party” has a choice between two alternative rights or remedies. Waiver by election usually occurs where the contract contains an express right or option to terminate or rescind it in certain situations, or where one party commits a serious breach which gives the “innocent” party the right to terminate the contract immediately. In such cases, the “innocent” party may choose either to terminate the contract immediately or to waive the breach and continue with the contract. However if the innocent party chooses to waive the breach he cannot change his mind later.

3. Waiver by estoppel

This is the broadest form of waiver, and often the most difficult to identify. A waiver by estoppel can occur when one party acts in such a way as to suggest that they have agreed to waive their contractual rights. There need not be a breach of contract by the other party for a waiver to occur.

A party can waive:-

a. Any obligation which another party owes to them, e.g. a date for delivery or method of payment;

b. Any right which the innocent party has as a result of a breach by the other party, e.g. the right to terminate the contract or to claim damages; or

c. Any right which they may enjoy under the contract, e.g. the right to withhold delivery of goods until payment is made.

For a waiver by estoppel to occur, two elements must be present. First, one party must notify the other party that they will do something, or agree not to do something, that they would otherwise be entitled to do under the contract. Secondly, the other party must rely on this. Proving whether or not a waiver by estoppel has arisen is often difficult, and will depend on the facts in each case.

A waiver by estoppel can also be withdrawn. For example if a buyer of goods waives his right to demand that the goods are delivered by a certain date, he may subsequently change his mind and demand that the goods be delivered within a reasonable period of time.

Example

It can sometimes be easy to inadvertently waive a breach of contract – take as an example a commercial landlord and tenant situation. The commercial lease stipulates that rent must be paid quarterly in advance. The tenant has been late in making payments for the last 2 or 3 quarters – in that situation, the landlord may be considered not to have waived his or her right to be paid rent generally but may be considered to have waived the right in future to take immediate action if rent is not paid on time. It is therefore common, where there is an ongoing contract relationship, such as a lease, where a party is considering granting some leeway or forbearance, to do so only after making it clear, preferably in writing, that his or her agreement is not to be considered a waiver of rights to strictly enforce the contract in the future.

Potential dilemmas with breach of contract claims – don’t act hastily but don’t waive a breach

One of the more difficult aspects of many breach of contract situations is in balancing the need not to act precipitously as against the risk of being seen to waive a breach. It can be very tempting, in a situation where the other party is in breach of contract, to consider that the breach entitles you to terminate the contract and claim all your losses. However, most breaches of contract are not fundamental breaches, which in turn means that the party in breach should be given the chance to remedy his or her breach. However, sitting back and not doing anything for too long, in order to give the party in breach the chance to put things right may constitute a waiver.

Such situations often involve a fine balancing act, good advice and solid protection of your interests by appropriate and well drafted communication to the party on breach. That’s why it’s a good idea to get legal advice as soon as possible with a breach of contract situation.

In summary, the law in this area is complex and we would recommend that independent legal advice should always be sought for any given situation.

To find out more about our property dispute resolution service for both commercial and private clients, call us today on 01895 207988 or email propertydisputes@ibblaw.co.uk.