Business Law by Tom Ramsey

How To Waive An Unwaivable Right In A LeaseTom Ramsey - Business Law

It is not unusual for a lessor to protect itself by including what is known as an antiwaiver provision in a lease. Sometimes it applies to rent and provides that acceptance of a payment less than the amount then due is not a waiver of the lessor’s right to the balance.

B. Michael Gould owns a commercial building. He leased it to a Learning Tree University. Pursuant to the terms of the lease, Gould received a $24,165 security deposit. The lease provided that no part of the security deposit would be considered as prepayment for any monies to be paid to Gould by Corinthian.

Subsequently, Learning Tree assigned the lease to Corinthian Colleges, Inc. The assignment included an amendment to the lease permitting Corinthian to terminate the lease four years early. However, early termination required at least six months written notice from Corinthian to Gould, accompanied by $136,500 and the payment by Corinthian of an additional $136,500 to Gould by the early termination date.

Corinthian served its early termination notice on Gould and, with it, delivered the first $136,500 to him. However, the final payment by Corinthian to Gould was in the form of a $120,057.10 check and the application of $16,442.90 of the security deposit to reach the $136,500 sum. Corinthian made no claim to the balance of the security deposit, asking that it be applied to cover some disputed common area maintenance charges by Gould.

Gould did not return the partial payment. Instead, he sent a letter to Corinthian claiming that it had  breached the lease by failing to make the last installment in full. Corinthian refused to pay anything more.

Gould next initiated a lawsuit asking the trial court to declare that Corinthian had failed to exercise its right of early termination and is bound by the lease for the balance of the term and the rental that will become due during the balance of the term.

The trial court found in Corinthian’s favor. It found that Corinthian substantially complied with the obligation and that Gould waived any noncompliance by keeping the early termination payments.

Gould appealed.

The opening paragraph in the Court of Appeal opinion was as follows: “A lease contains an antiwaiver provision. Yet, we conclude the lessor waived certain rights under the lease, even if the antiwaiver provision applies. There is a simple explanation for this seeming paradox. Lessor, the party arguing waiver, waived the clause prohibiting waiver.” The court reasoned that the antiwaiver provision applied to Corinthian’s monetary obligations. The payment for early termination was not an obligation under the lease. Had Corinthian made no such payments, the lease would simply have continued. Nothing in the lease prohibits a waiver of defects in Corinthian’s performance of the early termination provision. It added, “For Gould to keep the money and claim it does not constitute waiver is absurd, not to mention unconscionable.”

Gould was also unhappy that the trial court failed to deal with a purported damage claim based on the assertion that Corinthian left the premises in less than exemplary condition. The Court of Appeal’s response: “It is quite understandable how the trial court and Corinthian could conclude Gould was not seeking damages.  His complaint is anything but a model of pleading and his Case Management Statement and trial brief are misleading at best. Nevertheless, Gould’s complaint, liberally construed, is sufficient to appraise Corinthian that he was seeking damages . . .”

The matter was reversed and sent back to the trial court for a trial limited to the issue of damages related to the condition of the premises when Corinthian departed. In all other respects, the judgment was affirmed. Corinthian was awarded its costs on appeal.   
This case is entitled Gould v. Corinthian Colleges, Inc. It was decided in 2011.

(Tom Ramsey is a Long Beach attorney who has specialized in business law for more than 40 years. He may be reached at bizlawwiz@aol.com.)