Right to cure defaults: Overview, definition, and example
What is the right to cure defaults?
The right to cure defaults is a provision in contracts that allows a party to fix or remedy a default (breach or failure to perform) within a specified period of time before the other party can terminate the agreement or seek other legal remedies. This right provides the defaulting party an opportunity to correct their failure to meet contractual obligations, thereby avoiding termination or other penalties. The goal of the right to cure defaults is to offer a fair chance to resolve issues and maintain the relationship between the parties without immediately resorting to drastic measures like contract termination.
For example, if a tenant fails to pay rent on time, a lease agreement might grant the tenant a period of time to pay the overdue rent before the landlord can proceed with eviction.
Why is the right to cure defaults important?
The right to cure defaults is important because it encourages fairness and allows parties to remedy minor breaches or lapses without automatically terminating the contract. This provision can help preserve business relationships, reduce legal disputes, and prevent unnecessary losses. It ensures that a party isn’t penalized too harshly for an unintentional breach, especially when the breach can be corrected quickly. For businesses, the right to cure defaults offers flexibility and time to resolve issues before facing significant consequences.
For both parties in a contract, it offers a level of protection by providing a clear, structured process to resolve defaults in a way that is efficient and minimizes disruption.
Understanding the right to cure defaults through an example
Imagine a company has a contract to deliver goods to a customer by a certain date. If the company fails to meet the deadline, the contract may provide a "right to cure" provision, allowing the company a set period (e.g., 10 days) to deliver the goods before the customer has the right to cancel the contract or seek damages. This right to cure allows the company to resolve the issue and fulfill its obligations, rather than facing immediate penalties or contract termination.
In another example, a service agreement might grant a provider the right to cure if they fail to meet certain service levels. If the provider fails to respond to a customer request within the agreed time, they may be given the opportunity to resolve the situation within a certain period before any penalties or termination occur.
An example of a right to cure defaults clause
Here’s how a right to cure defaults clause might appear in a contract:
“In the event of a default under this Agreement, the Defaulting Party shall have [X] days from the date of notice of default to cure such default. If the default is not cured within the specified time, the Non-Defaulting Party may terminate this Agreement or pursue other remedies available under this Agreement.”
Conclusion
The right to cure defaults is a contract provision that gives a party an opportunity to fix a breach or failure to perform within a specified time frame before facing termination or penalties. This provision helps maintain fairness in contracts, offering a remedy for minor breaches and encouraging the preservation of business relationships. By incorporating a right to cure defaults, parties can resolve issues quickly and avoid unnecessary legal actions or contract terminations.
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.