No waiver by lender: Overview, definition, and example
What is no waiver by lender?
The "no waiver by lender" clause in a loan agreement ensures that if the lender overlooks or temporarily accepts a violation of the loan terms, it does not mean they have permanently waived their right to enforce those terms in the future. In simple terms, just because the lender does not immediately act on a breach of the agreement, such as a missed payment, it doesn’t mean they are giving up their right to take action later. The clause protects the lender by maintaining their legal rights despite any temporary leniency shown during the life of the loan.
Why is no waiver by lender important?
The no waiver by lender clause is important because it provides flexibility for the lender to work with the borrower without losing their ability to enforce the terms of the loan. For example, if a borrower misses a payment but the lender chooses not to take immediate action, this clause ensures that the lender can still take appropriate action later if the breach continues. It allows the lender to preserve their legal rights even when they exercise leniency.
For borrowers, this clause serves as a reminder that the lender’s acceptance of late payments or breaches doesn't mean they can stop paying attention to the contract’s terms. It keeps both parties aware of the ongoing obligations and responsibilities.
Understanding no waiver by lender through an example
Imagine you’ve taken out a loan for your business. You miss a payment due to unforeseen circumstances, and the lender decides not to take immediate legal action. They might even allow you a few extra days to make the payment. However, because of the no waiver by lender clause, this leniency doesn’t mean the lender has waived their right to act if you miss another payment in the future. If you miss payments again, the lender can still enforce the terms of the loan, including charging late fees, accelerating the loan, or even initiating foreclosure if necessary.
Example of a no waiver by lender clause
Here’s an example of how a no waiver by lender clause might be referenced in a contract:
“No waiver by the Lender of any breach of this Agreement shall be deemed a waiver of any other or subsequent breach, and the Lender’s failure to exercise any rights under this Agreement shall not be construed as a waiver of such rights. Any waiver must be explicitly made in writing and signed by the Lender.”
Conclusion
A no waiver by lender clause is crucial for both lenders and borrowers, ensuring that the lender’s rights are protected even if they temporarily overlook or accept a violation of the loan agreement. For lenders, it provides flexibility in handling minor breaches while preserving their ability to enforce the loan terms when necessary. For borrowers, it acts as a reminder that their obligations remain in place, even if the lender is willing to offer temporary leniency. Understanding this clause ensures both parties are clear on their rights and responsibilities throughout the life of the loan.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.