Waiver of past defaults: Overview, definition, and example
What is a waiver of past defaults?
A waiver of past defaults refers to an agreement by one party to overlook or forgive breaches or failures by another party to meet contractual obligations that occurred before a specified date. This waiver prevents the defaulting party from being penalized for those specific breaches, provided the waiver is explicitly granted and does not waive future compliance with the agreement.
For example, a lender may waive a borrower’s failure to make a timely loan payment, allowing the loan to remain active without triggering default penalties or acceleration clauses.
Why is a waiver of past defaults important?
A waiver of past defaults is important because it provides flexibility in contractual relationships, allowing parties to address and resolve past issues without terminating the agreement or resorting to litigation. For businesses, granting such waivers can help preserve valuable relationships, avoid disruptions, and facilitate renegotiation or restructuring of terms.
However, these waivers must be carefully drafted to ensure they apply only to specific defaults and do not inadvertently waive rights to enforce other provisions of the agreement.
Understanding waiver of past defaults through an example
Imagine a tenant misses two rent payments under a commercial lease agreement. The landlord, instead of pursuing eviction or legal action, agrees to waive the tenant’s past defaults on the condition that all future rent payments are made on time and the missed payments are repaid over the next three months. This waiver allows the tenant to continue operating and the landlord to maintain a long-term rental relationship.
In another example, a lender agrees to waive a borrower’s missed loan installment due to temporary financial hardship. The lender includes a clause clarifying that the waiver applies only to the missed payment and does not affect the borrower’s obligation to comply with future payment terms.
An example of a waiver of past defaults clause
Here’s how a waiver of past defaults clause might appear in a contract:
“The Party hereby waives any claims arising from defaults that occurred prior to [Insert Date], provided that this waiver shall not be construed as a waiver of any future defaults or other obligations under this Agreement.”
Conclusion
A waiver of past defaults allows parties to move forward from prior breaches while maintaining the overall agreement. It provides flexibility and helps preserve relationships, ensuring disputes are resolved amicably without jeopardizing the underlying contract.
By including a carefully worded waiver of past defaults clause, businesses can clarify their intentions, protect their rights, and ensure the agreement’s enforceability for future obligations.
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.