If you are a party to a contract and a term of the contract is breached, the innocent party may waive the breach. This can happen inadvertently in some cases, so it is important to understand how waivers work and how to avoid this and enforce your rights, should you wish to do so.
Summary
This article includes:
- What is a waiver of a breach of contract?
- Types of waiver of breach of contract
- What are the implications of waiving a breach of contract?
- Non-waiver clauses in contracts
- Best Practices for Avoiding Unintended waiver of breach of contract
- Frequently asked questions on waiver of breach of contract
What is a Waiver of a Breach Of Contract?
Following the breach of a contract, the innocent party has the option to take enforcement action. This can give them the opportunity to seek damages or other remedies for the breach.
However, if they wish, they can decide to waive the breach and continue with the contract.
Problems can arise when a breach is not either clearly enforced or waived. The innocent party may allow the situation to continue for a while, but then decide to take enforcement action. However, by not taking steps to deal with matters straightaway, the defaulting party may be able to claim that the right to make a claim for breach of contract was waived.
Even if the innocent party wishes to waive their rights, care should be taken over the extent to which their interests are affected. A waiver is not the same as a variation to the contract, and it may be preferable to renegotiate terms at this point to put a new contract in place that adequately sets out new terms and conditions.
Types of Waiver: Breach of Contract
The waiving of rights to take enforcement action following a breach of contract can occur in different ways, principally:
- Waiver by election
- Waiver by estoppel
- Contractual waiver
- Course of dealing waiver
Waiver By Election
This occurs when the innocent party has the right to end the contract, but instead decides to affirm the contract. This can be implied by conduct, for example, accepting the breach and continuing in performance of the contract.
For election to take place, the affirming party must know the facts relating to the breach and that they have the right to end the contract if they wish. If they choose to affirm the contract, their decision is final, and they cannot later change their mind and decide to terminate it.
Waiver By Estoppel
If the innocent party leads the defaulting party to believe that the innocent party will not enforce their rights and the defaulting party relies on this to their detriment, the innocent party will be estopped (prevented) from later taking enforcement action.
This is to prevent unfair or inconsistent enforcement of a contract.
In order for estoppel to be an option, the innocent party must act in a way that implies they do not intend to enforce their rights. This could be by allowing a deadline to be missed or by accepting late payments. The defaulting party must show that they relied on this action, and as a result, their position has been changed, for example, they have incurred costs that they would not otherwise have incurred.
Where it would be unfair to allow subsequent enforcement, the court will prevent the innocent party from taking action.
If you have inadvertently waived contractual rights, you may be able to reinstate these going forward by giving the defaulting party notice. You are advised to speak to an expert commercial contract solicitor to ensure that your position is adequately protected.
Contractual Waiver
A contractual waiver is a formal, written waiver of rights by the innocent party. If you wish to formally waive your rights, you might wish to consider putting a new or varied contract in place, setting out what you are prepared to agree to in future dealings with the other party.
Course of Dealing Waiver
Where the innocent party continues to allow breaches of the contract and otherwise carries on with the contract, the defaulting party can claim that the innocent party impliedly accepted the breach and waived their rights to take enforcement action.
For the defaulting party to claim a course of dealing waiver, the innocent party must have been aware of the breach and taken action that demonstrates their intention not to enforce their rights, such as accepting late payments.
The Implications of Waiving A Breach Of Contract
Waiving the right to enforce a breach of contract can have wide implications. You could lose the chance of ending a contract or claiming damages.
It is commonly the case that waiving rights of enforcement is permanent. This means that you would not later be able to make a different decision.
Non-Waiver Clauses In Contracts
A contract may include a non-waiver clause in respect of breaches. This clarifies that if a contract is breached, the innocent party does not waive their rights by implication.
However, it is still important to take advice on contracts before relying on a non-waiver clause, as they can be overridden if subsequent conduct makes it inequitable to later enforce the contract terms. For example, if the breaching party acts to their detriment in relying on the innocent party not taking enforcement action, the court could find that the non-waiver clause cannot, in all fairness, be upheld.
Best Practices for Avoiding Unintended Waiver Of Breach Of Contract
It is unfortunately easy to unintentionally waive your rights following the breach of a contract. If you continue with the contract, particularly if the breach occurs on several occasions, the other side could claim that you have waived your right to take enforcement action. Similarly, not taking action straightaway may compromise your position.
Even treating the breach leniently could, in some cases, be held to amount to a waiver. To avoid an unintended waiver, you need to clearly communicate to the other party that they have breached the contract and that you are not waiving this breach.
You should avoid any action which could imply acceptance of the breach, such as continuing in your performance of the contract without objecting to the breach.
If you are prepared to temporarily accept the breach, for example, allowing a delay in performance, you should send a precisely worded notice to the other party stating that your rights are reserved. You should avoid making verbal agreements or allowing the situation to continue without complaint.
A commercial contracts solicitor can advise you on the best course of action to enable you to protect your position while continuing to conduct business, and you are strongly advice to take expert legal advice if a contract to which you are a party is breached.
Advice on Commercial Dispute Resolution
If you need advice on the implications of waiving a breach of contract, contact us today. Our experts can advise you on your position and ensure that your rights and interests are observed. Where necessary, we can represent you in resolving a contract dispute.
To speak to one of our experienced commercial dispute solicitors, ring us on 0330 303 2071, email us at info@witansolicitors.co.uk or fill in our contact form, and we will talk through your situation with you and discuss how we can assist. We have offices in Birmingham, Northampton, London and Wellingborough.
FAQs on Waiving a Breach Of Contract
How does waiving a breach affect a contract?
Waiving a breach of contract can cause uncertainty unless it is handled carefully. Ideally, you should consider what you want the contract terms to be in the future, and consider renegotiating, then put a new or varied contract in place for clarity. This will reduce the risk of a contract dispute and ensure all parties have a clear understanding of their obligations.
Where a breach of contract is waived, the innocent party will no longer be able to end the contract or claim damages. This means that the contract will continue, and is likely to be less advantageous for the innocent party.
Can a waiver of a breach of contract be implied?
A waiver of rights following a breach of contract can be implied by the conduct of the innocent party. If they act as though they will not be enforcing the contract terms, the breaching party may be able to rely on their actions, particularly if the breaching party relies on the implied waiver to their detriment.
Can you rely on a waiver if you breach a contract?
If you wish to rely on a waiver following the breach of a contract, you are strongly advised to take legal advice. While you may be able to rely on a waiver, it is essential to clearly establish your legal position before acting.
How can you avoid unintentionally waiving a breach of contract?
If you believe that a contract has been breached, you should speak to a solicitor straightaway before taking any further action under the contract. They will be able to discuss your options with you and protect your rights and interests.
Taking enforcement action or putting the other side on notice of the breach may be recommended to ensure that you do not end up losing out.
If you wish to continue to do business with the other party, you can consider having a new contract drafted, setting out terms that you are prepared to agree to.
It is crucial not to ignore a potential breach, as you could lose the right to claim damages or end the contract.
