A California commercial lease had an early termination provision. One requirement to exercise was to pay $136,000 on the date of termination. The tenant terminated, and made this payment partly by check, and applied the security deposit for the balance. The landlord kept the check, but claimed the lease was not properly terminated, and filed suit. The trial judge concluded that the landlord, in keeping the partial payment, waived the requirement, and ruled for the tenant.
On the appeal of Gould v. Corinthian Colleges, Inc., the landlord claimed the lease had an anti-waiver clause, stating “acceptance of a payment which is less then the amount due shall not be a waiver of lessor’s rights to the balance of such rent”; and all monetary obligations “are rent”
The appellate court found that the termination payment was not an obligation under the lease, but was payment for exercise of a right or privilege. If they had made no such payment, they would not be in breach of the lease. Besides, there is no prohibition from a lessor waiving an anti-waiver provision, which is what happened here.
The lessor here was greedy; it is always necessary to return a non-conforming payment. In my experience as a California real estate attorney, it is usually necessary for lessors to not deposit non-conforming payments, but rather to notify the lessee of the rejection. In the opinion, the court actually joked that the lessor said ‘gotcha’, and the tenant responded ‘no yadon’t.’