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What Is a Waiver?
The word "waiver" means to forgo an interest or right by intentionally or unintentionally choosing to give up the opportunity to enforce it. Simply put, waiving something means not enforcing it. Therefore, a waiver clause in a contract is a clause that governs the way a contractual party can waive a right and the consequences of the waiver.
To a certain extent, most contracts have a waiver clause. It's important to clearly understand a wavier clause because it specifies the circumstances in which a contractual provision becomes enforceable and the specific actions that may lead to a forfeiture of your rights.
How a Waiver Clause Works
To gain a clearer understanding of a waiver clause, let's take a look at an example. Suppose you're a service provider who has entered into a contract with a customer to provide ongoing services on a monthly basis. The contract states that you should receive payment by the first day of each month, and you're entitled to charge a penalty for late payment.
Your client manages to pay on time for the first five months but pays three days late on the sixth month. You decide not to charge the late fee because you have a good relationship with the customer, or maybe you've been so busy that you didn't even realize the payment was late.
By choosing not to impose a penalty, you're essentially waiving your right to charge the late fee on this particular occasion. However, this decision may have an impact on your rights in the future. Take the following questions into consideration:
- Can you still enforce the late fee if you change your mind several months after the due date?
- What does your failure to impose the penalty mean in the future if the same customer pays late again?
- Does your decision to waive the late fee affect other terms of your contract?
The answers to these questions depend on whether you've included a waiver clause in your contract and what kind of waiver clause you have.
What Is the Purpose of a Waiver Clause?
In general, the law states that a right that hasn't been regularly enforced is a right that a court won't enforce selectively. Usually, parties of a contract will both benefit in the long term if they have a good understanding of what they are and aren't allowed to do under the agreement.
If you're the party who can enforce a right, you should include a waiver clause to ensure that you won't unintentionally lose your ability to do so in the future. Conversely, if your contractual partner is entitled to enforce a right against you, having a waiver clause clarifies whether you're expected to strictly abide by the terms of the contract.
The example above relates to a somewhat minor waiver of a late payment penalty. Nonetheless, in some cases, a waived right can be a more important right, such as the right of the non-breaching party to end the contract. Although the discussion of a waiver usually seems to be something that isn't likely to be significant, bear in mind that the specific language of the waiver clause may significantly affect your rights.
What Are the Different Types of Waiver Clauses?
If you want to make sure your rights will remain enforceable, you need to understand the different kinds of waiver clauses and the obligations they create. Here are several types of waivers commonly seen in contracts:
- Affirmative waiver: In an affirmative waiver, your neglect or failure to enforce your rights won't be considered a waiver of your rights. This means that you must expressly let the other party know that you're waiving your right to make the waiver effective.
- General waiver prohibition: This type of waiver clause builds on the affirmative waiver. You not only have to expressly inform the other party that you're waiving a right in order to enforce it, but you should also state that the waiver of one right won't automatically result in the waiver of your other rights. In other words, you need to have a separate expressed statement for every right you intend to waive.
- Written waiver: Under this agreement, a waiver or extension is valid only if the party who grants it writes it down and signs it. If the waiver isn't written and signed, you won't be able to enforce your rights.
- Course of dealing waiver: With this kind of waiver, you're able to exercise a right with the same party even if you had partially or fully waived that right before. This is the case regardless of whether you enforce the right while you're under the same contract or a subsequent one as you continue to have a relationship with the other party. Keep in mind that this waiver clause doesn't specify how you can or can't waive the "first" right. Instead, it only focuses on the fact that the waiver of that first right doesn't waive other rights.
- Complete non-waiver: The complete non-waiver clause is a combination of the affirmative waiver, the general waiver prohibition, and the course of dealing waiver. It isn't uncommon for waiver clauses to incorporate more than one type of waiver, such as this one.
How to Determine the Right Waiver Clause for Your Contract
Your choice of waiver clause depends on your contract and situation. It's usually best to use a clause that includes multiple types of waivers, but it may not be necessary for you to do so.
While they may seem inconsequential to some people, waivers can help you retain your ability to enforce your rights. To choose the right waiver clauses for your contract, you have to make sure that you have a good understanding of your agreement and the reasons you're using any particular clause. Here's an article about understanding a legal contract .
Are Waivers Always Enforceable?
No, waiver clauses aren't always enforceable. Even if you have a complete non-waiver clause in your contract, a court may find that you waived your right to enforcement if you demonstrated extreme behavior. For instance, you may have taken actions in bad faith or delayed enforcement for a long time, such as years or decades. Therefore, including a non-waiver provision is only the first step toward protecting your rights in a contract. Learn more about your contractual rights in this article.
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Best Practices for Incorporating Waiver Clauses
Once you're able to use waiver clauses effectively, you'll have more options available if the other party breaches a contract. Use the tips below to take full advantage of waivers:
- Know beforehand what kinds of waiver clauses are included in your contract and how they affect you.
- In the event of a breach of contract , you have to immediately decide whether you want to waive your rights or enforce them.
- As the non-breaching party, you should put your intention in writing and send it to the other party. You may intend to waive, reserve your right to waive, or end the contract.
- If you choose to reserve your right to waive, make sure you ask the breaching party to sign a document acknowledging that your decision doesn't constitute a waiver.
If you want to know more about waiver clauses in contracts, contact us today to speak with the friendly and helpful experts at ContractsCounsel.
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