Consider the following scenario: you just landed a new job in Baltimore and moved into a beautiful, dog-friendly apartment in the City to avoid a long commute. Your lease provides that rent must be paid by the first of every month, and that, although small dogs are allowed, dogs weighing over 40 pounds are prohibited.
Shortly thereafter, you discover that your new employer issues paychecks on the fifth of each month. Thankfully, the property manager of your apartment complex kindly agrees to let you pay your rent on the sixth of each month, after your monthly paycheck arrives.
After paying your rent on the sixth for several months, you learn your parents are moving into a condominium in Washington, D.C. They can no longer keep the family dog, an 85-pound German Shepherd named Idot. Determined to save Idot from being sent to the pound, you once more visit your friendly property manager. After some discussion, she agrees to let you keep Idot in your apartment, so long as you pay an extra $50 a month in rent. You happily agree and pay the extra “pet” rent on the sixth of each month for the rest of the year.
Unfortunately for you, the agreeable property manager accepts a promotion after the New Year and is replaced. When you stop by the leasing office on the sixth of January to pay your rent, the new property manager demands you pay a late fee for failing to pay your rent by the first. Further, he informs you that he has discovered from neighboring tenants that you are keeping Idot in your apartment, and you must immediately remove Idot or receive a notice of breach. Shocked, you object to the fees and the expulsion of Idot, and demand the former manager be called to verify your prior agreements. The new property manager refuses and instead points to a provision in your lease that requires any modification whatsoever of the lease terms be in writing and signed by the landlord and the tenant.
Contracts often include provisions that expressly prohibit oral amendment, modification or waiver of the terms of the contract – so-called “no-oral-modification” or “NOM” provisions. Nevertheless, Maryland courts will generally enforce a subsequent oral agreement to modify a written contract containing a NOM provision where the oral agreement to modify is established by a preponderance of the evidence. Freeman v. Stanbern Const. Co., 205 Md. 71, 106 A.2d 50 (1954). As the Court of Appeals explained in Freeman, and more recently reiterated in Hovnanian Land Investment Group, LLC v. Annapolis Town Centre at Parole, LLC, 421 Md. 94, 25 A.3d 967 (2011), the enforceability of a subsequent oral modification despite the existence of a NOM clause in the original contract is based on the inherent freedom to contract; parties cannot mutually agree to restrict their freedom to contract in the future.
To successfully enforce an oral modification or waiver of a term in a contract containing a NOM provision, a party must prove two things: one, the existence of an oral agreement to modify or intent to waive a contract term; and two, the mutual intent to waive the NOM provision. Hovnanian, 421 Md. at 123. The same evidence can satisfy both requirements. In other words, the actions that indicate a party intended to waive the substantive contract term at issue will also suffice to prove that party intended to waive the NOM provision.
Contracts required to be in writing under the Statute of Frauds are treated somewhat differently. Ordinarily speaking, contracts within the Statute of Frauds, including leases having a term of more than one year, may not be modified orally. However, the Court of Appeals in Bio-Ramo Drug Company, Inc. v. Abrams, 229 Md. 494, 184 A.2d 831 (1962), enforced an oral waiver of a condition precedent to the exercise of an option in a lease subject to the Statute of Frauds because the evidence “reasonably warrant[ed] the conclusion that there was a waiver.” Thus, although an attempt by the parties to orally modify a contract governed by the Statute of Frauds is typically unenforceable, it may be enforced as an oral waiver against the party alleged to have waived the term, condition, or requirement if there is reasonable evidence of the waiver. 10 Williston on Contracts § 29:48 (4th ed.); Hovnanian, 421 Md. at 116.
Counsel to borrowers of loans are frequently requested to provide enforceability opinions to the lenders. Loan documents often contain NOM clauses. If rendering an enforceability opinion when there is a NOM clause, an opinion giver should include a qualification that the parties may be able to orally modify the documents despite the NOM clause. The Maryland Opinion Report of 2007, revised in 2009, provides that such a qualification is implicit for opinion letters that are subject to the Maryland Report.
May the hero of our story pay rent on the sixth of the month without incurring a late fee? Will Idot be allowed to stay with our intrepid apartment dweller? Stay tuned….
For questions, please contact Caroline Sweet (410) 576-4275.