Does Owner Waive Eviction Rights by Accepting Late Rent?

An owner’s right to evict a tenant for not paying rent on time is a staple of any commercial lease. But like any other lease right, it can be waived. One way to do that is by formal, written agreement with the tenant. But more often than not, waiver of the right to timely rent is the result not of bilateral agreement but of action on the part of the owner that leads the tenant to infer that the right is being waived. The most common example of waiver by action: accepting a tenant’s late rent payments.

Of course, this puts you in a tight spot: You want to have the flexibility to accept late rent because of tight cash flow, difficulty in finding replacement tenants, etc. But you don’t want to give up your future rights to enforce the lease. To avoid the dilemma, you may include a “non-waiver” clause in the lease stating that waiver of lease rights must be by written agreement and may not be inferred by actions such as accepting late rent.

It seems like the perfect solution. The problem is that it doesn’t always work. Accepting late rent may still constitute a waiver even if the lease contains a non-waiver clause. The following cases illustrate the principles courts consider in deciding whether to enforce a non-waiver clause.

ACCEPTING LATE RENT IS NOT A WAIVER

Facts: A New York City parking garage notifies the owner that it wants to exercise the option to renew its lease for another five years. The owner nixes the renewal, citing the tenant’s repeated failure to pay rent on time. It also gives the tenant 15 days to “cure” the default or face termination of its lease. The deadline passes, but the owner doesn’t bring an eviction suit. A few weeks later, the tenant sends the owner a check. It continues to pay rent late through the remaining 16 months of the lease. While repeatedly asking the tenant to cure, the owner accepts each late payment and doesn’t try to evict until the lease term expires. But the tenant wants to renew and claims that by accepting late payments the owner waived its right to terminate its lease.

Decision: The New York Court of Appeals (the highest in the state) disagrees and rules that the owner can terminate the lease.

Explanation: Accepting rent from a tenant that it knows to be in violation of the lease is normally a waiver of the owner’s right to terminate for the violation, said the Court, citing an old English case: “A landlord may not treat a man as a tenant, and then treat him as a trespasser.” But, the Court continued, accepting rent doesn’t amount to a waiver if such an inference would “frustrate the reasonable expectations of the parties” as set out in the express terms of the lease. The lease in this case specifically said that “receipt by [Owner] of rent with knowledge of the breach of any covenant in this lease shall not be deemed a waiver.” The language was “clear and unambiguous” and accepted by both sides. Result: The owner didn’t waive its termination rights by accepting late rent payments from the tenant and the tenant couldn’t renew [Jefpaul Garage Corp. v. Presbyterian Hospital, April 1984].

ACCEPTING LATE RENT MAY BE A WAIVER

Facts: A Rochester, N.Y., factory pays rent late 11 times during its four-year tenancy. And during its five-month holdover period, the tenant doesn’t pay rent at all. For 52 months, the owner doesn’t say a word. But in the final month, as the tenant is getting ready to move out, the owner puts its foot down and bills the tenant $7,900 in late fees, $40,000 in unpaid holdover rent, and lots of other charges. The tenant claims the owner waived its rights to timely rent by accepting late payments. The owner denies the charge and notes that the lease includes a non-waiver clause. So it asks the court to order the tenant to pay up.

Decision: The New York trial court refuses, saying that the non-waiver clause is unenforceable.

Explanation: The case looks a lot like the Jefpaul case above. But the court noted some significant differences:

• Lease was ambiguous: Unlike the lease in Jefpaul, the non-waiver clause in this case didn’t specifically mention acceptance of rent payments;
• Owner was passive: The owner in Jefpaul objected to the late payments and demanded that the tenant cure; the owner in this case didn’t call attention to the tenant’s lateness or demand late fees until the very end of the lease term; and
• Late fees had to be collected right away: The wording of the lease made it sound as though the late fees had to be added to the subsequent monthly rent payment as additional rent for that month rather than at the end of the lease as a lump sum.

Result: Even though the lease had a non-waiver clause, the owner might have waived its rights and a trial would have to be held to determine if it actually did [Fedder Industrial Park v. R.P. Fedder Corp., August 2007].

IN A NUTSHELL

You may be able to accept late payment of rent from a tenant without forgiving the violation or waiving your rights to enforce the lease in the future if:

• The lease includes a non-waiver clause;
• The non-waiver clause clearly and specifically allows you to accept rent payments without waiving your rights; and
• You demand that the tenant cure or otherwise make it clear to the tenant that you object to the violation even though you’re accepting the late payment.