Reservation of rights: Overview, definition, and example
What is reservation of rights?
Reservation of rights refers to a provision in a contract or a formal statement made by a party that preserves their legal rights or claims, even if they do not take immediate action to enforce them. It ensures that the party retains the ability to assert their rights in the future without being deemed to have waived them.
For example, a landlord may send a letter to a tenant stating that they are reserving their rights to claim unpaid rent, even though they are allowing the tenant to remain on the property temporarily.
Why is reservation of rights important?
Reservation of rights is important because it provides flexibility and protection in legal and contractual relationships. It allows a party to delay enforcement or action without forfeiting their ability to assert those rights later. This can help preserve relationships while avoiding unintended waivers of rights.
For businesses, a reservation of rights clause or statement ensures that they can address disputes or breaches at an appropriate time while maintaining their legal position.
Understanding reservation of rights through an example
Imagine a supplier delivers goods to a retailer but includes an invoice marked “under protest” because the supplier disputes the pricing terms. By reserving their rights on the invoice, the supplier signals that they disagree with the terms but will fulfill the order while retaining the right to dispute the pricing later.
In another example, an insurance company sends a letter to a policyholder stating that it is investigating a claim but reserves the right to deny coverage if the claim is found to fall outside the policy’s terms. This allows the insurer to continue its investigation without waiving its right to deny the claim.
An example of a reservation of rights clause
Here’s how a reservation of rights clause might look in a contract:
“No failure or delay by any Party in exercising any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or privilege preclude any other or further exercise thereof. Each Party expressly reserves all rights and remedies available under this Agreement and applicable law.”
Conclusion
Reservation of rights ensures that parties retain their legal claims or enforcement options without being considered to have waived them. It protects flexibility and accountability in contractual and legal relationships while allowing disputes or actions to be addressed at the appropriate time.
By including a reservation of rights clause in agreements, businesses can safeguard their interests, minimize risks, and maintain legal clarity in their transactions and communications.
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.