Some of you may recall that in March, 2012, I wrote Part 1 of this Article, dealing with the Notice, Entire Agreement, Severability and Governing Law clauses that are common to virtually every agreement – and not just leases.
In this article I will address three more boilerplate clauses typically found in agreements;
1. No Waiver: A sample clause reads like this: “No waiver of any of Tenant’s obligations under this Lease or of any Landlord’s rights in respect of any default by Tenant hereunder shall be deemed to have occurred as a result of any condoning, overlooking or delay by Landlord in respect of any default by Tenant or by any other act or omission of Landlord save and expect where such waiver is clearly and expressly in writing”.
Waiver clauses are inserted into leases by parties to prevent the automatic surrender of a party’s rights under a lease by act or omission to act which inadvertently result in a loss of the rights sought to be protected.
Although the clause clearly states that any waiver must be in writing, be aware that there is case law that holds that a landlord’s actions in accepting rent late will be a waiver of the rent default even if there is nothing in writing. So, one suggestion is to make sure that any correspondence or actions following a default are sent or clearly taken on a “without prejudice” basis to the strict compliance with the lease terms, including the acceptance of late rent, and not to be construed as a waiver.
2. Unavoidable Delay/Force Majeure: The aim of such clauses is to absolve the party that fails to meet an obligation as a result of an unforeseeable third-party event or act of God, from being in default and thereby subjecting itself to the rights and remedies afforded under the lease. If it is not in the agreement, there is no common law right that affords the same protection.
For example: “in the event that either the Landlord or the Tenant should be delayed, hindered or prevented from the performance of any act required hereunder by reason of any unavoidable delay, including strikes, lockouts, unavailability of materials, inclement weather, acts of God or any other cause beyond its reasonable care and control, then performance of such act shall be postponed for a period of time equivalent to the time lost by reason of such delay. The provisions of this Section shall not under any circumstances operate to excuse the Tenant from prompt payment of Rent and/or any other charges payable under this Lease.”
Here are some points to consider for these clauses:
➢ an obligation on the party relying on the clause to notify the affected party of the expected delay and cause immediately upon becoming aware of the event;
➢ Is the clause broad enough to cover issues peculiar to your business or location? If you have multiple locations then an industry strike in other locations can impact performance of obligations at the premises;
➢ Should there be an outside date for the maximum delay and then, absent agreement otherwise, the agreement will end at the other party’s option? Some clauses set a 2 year outside date but it is very case dependent.
➢ There should be a positive obligation on the party delayed to, take commercially reasonable steps to still try and comply with its lease obligations so as to minimize the delay.
3. Time is of the Essence: The inclusion of a clause providing for “time to be of the essence”, transforms those provisions that must be performed within a certain time period from mere warranties (a breach of which leads only to damages) to actual conditions of the agreement (a breach of which can result in termination of the agreement (or loss of rights) in addition to and not merely damages).
Ontario Courts have held that “time is of the essence” clauses indicate clearly that a breach of any obligations calling for performance at a specified time amounts to a breach of an essential element of the contract meaning potentially at the end of the agreement. For example, a failure to exercise a renewal within the time period provided for exercise, results in the loss of the right, (subject to other arguments like unavoidable delay). In one case, a 10-minute delay in payment of a deposit amounted to a fundamental breach of a sale agreement, and the vendor was entitled to rescind the contract.
The Lessons: As I noted in Part 1 of this Article in March, 2012, you need to consider what general clauses are needed for your agreement and why, and then tailor them to you situation. These clauses can be used as “shields” (e.g. unavoidable delay to prevent a default claim) as well as “swords” (e.g. time of the essence to deny the late exercise of a right). Don’t automatically assume that all the boilerplate clauses in form of agreement are needed or sufficient in the form presented. Treat them like other clauses that require review and amendment.
Disclaimer: This article is for general information purposes only and not intended as or to be relied upon for legal advice. Consult with a lawyer for your unique situation.
[*If there is a general real estate or leasing related question you would like to see addressed in a future article in “The Legal Corner”, please contact me directly by e-mail at [email protected] with your suggestion. Not all requests can be accommodated.]