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Nonwavier Clauses Trump Landlord Conduct in Accepting Late Payments

Mon, 12/18/2017 - 10:39 -- admin25

by Martin Camp

When does the Texas Supreme Court get involved in a commercial lease forcible-detainer eviction law suit? When the underlying facts allow it to set forth some bright line rules about how Texas courts should interpret an important concept—the enforceability and interpretation of nonwaiver clauses.

Lovers of fern bars and Karaoke will soon have to find a new venue as it looks like the old staple on Lower Greenville, The San Francisco Rose bar will soon be closed as a result of the ruling in Shields Limited Partnership v. Boo Nathanial Bradberry and 40/40 Enterprises, Cause No. 15-0803, May 12, 2017. A subtenant/assignee (Tenant) was occupying restaurant/bar space under a lease which granted a series of renewal rights at favorable rent rates, tied to CPI index increases and sharing of taxes. The Tenant had occupied the premises for several years and had invested significant sums in decorating and remodeling. The Tenant also had a history of slow and late payment of rent which the landlord accepted without protest and also without reservation of rights notifications. The Tenant’s right to exercise its renewal options was contingent upon it not being in default.

The lease contained a clear nonwaiver clause which stated that the Landlord’s acceptance of late payments would not be a waiver nor estop the Landlord from enforcing the lease provisions in the future. The lease also provided that all waivers must be in writing and signed by the waiving party and forbearance of enforcement would not constitute a waiver.

The tenant attempted to exercise a renewal by sending the required notice to the Landlord. At the time this notice was sent, the Tenant was not in default, but the Tenant continued to make late payments, which were accepted by the Landlord. On the date of the lease expiration, when the renewal term would have commenced, the Tenant was a month late. The Tenant continued thereafter to make rent payments at the old rent rate and to be late in rent from time to time. The landlord accepted the payments. The Landlord subsequently informed the Tenant that the lease was month to month and offered a new lease as a much higher rent. Upon failure to pay the new rent, the Landlord terminated the lease and sought to evict the Tenant.

The Tenant argued that the extension was validly exercised despite the nonwaiver clause language because they were not in default at the moment they exercised their extension and the conduct of the landlord in accepting the late rent without protest constituted a waiver by course of dealing. The Tenant additionally argued that the doctrine of estoppel should apply to prevent the Landlord from terminating the lease, since the Landlord was aware of the expenditures of the tenant in remodeling, etc.

The Landlord countered that the nonwaiver clause was valid and that the exercise of the extension was not effective because of the multiple defaults. Instead, the lease had become a month to month tenancy, a position supported by the fact that the Tenant had continued to pay rent at the old rent rate after the lease expiration.

The tenant won at the trial court and on appeal. The Supreme Court reversed. The Court framed the issue this way: “The decisive issue is whether waiver of a nonwaiver provision can be anchored in the same conduct the parties specifically agreed would not give rise to a waiver of contract rights. We hold it cannot. A contrary conclusion could not be squared with Texas’s strong public policy favoring freedom of contract or with the notion that waiver required intentional relinquishment of a known right or intentional conduct inconsistent with claiming that right.”

The Court did not hold that nonwaiver provisions can never be waived. Rather, the Court said “there must, at a minimum, be some act inconsistent with its terms.” In addition, the Court said that the Tenant “had not identified any false or misleading representation supporting an equitable estoppel bar to eviction.”

The take away for practitioners? Well drafted nonwaiver clauses are going to be enforced even when the Landlord accepts late rent payments without protest. Absent acts or representations by the Landlord that satisfy the elements of equitable estoppel, the Landlord will be able to continue to enforce a lease as written.

Martin L. Camp is an Assistant Dean for Graduate and International Programs and Professor of Practice at SMU Dedman School of Law. He can be reached at mlcamp@mail.smu.edu.

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