Here’s a scenario our cannabis lawyers and litigation team have experienced countless times: A client calls and wants to take immediate action for breach of a cannabis contract. They want to terminate the contract. Or evict a tenant. Or file a lawsuit. The first question I always ask these clients is whether the contract contains any notice and cure provisions. In almost all cases, the answer will make things more complicated.
What are Notice and Cure Provisions?
“Notice and cure” is a legal term of art that can be really difficult for laypeople to wrap their heads around. It means that a party is not in breach of a contract until they:
are told they are in breach (i.e., notice); AND
are given a specific amount of time to fix the breach (i.e., cure); AND
don’t fix the breach in that amount of time.
This can throw a lot of non-lawyers off because it’s not often consistent with reality. If a contract says that one party can’t do X and they do X, they are in breach, at least according to normal conceptions of what it means to breach.
But the law has evolved over time to make going to court, kicking tenants out, and awarding damages the absolute last measure where possible. So what that means in practice is that parties often get the chance to fix their wrongdoing.
What Counts as Notice to Cure?
Good notice and cure terms require written notice. Not doing so can lead to all kinds of crazy scenarios where one party claims it gave notice by phone or in person, which is impossible to actually prove definitively.
The noticing party always has to provide a minimum level of detail for notice to have any meaningful effect. Imagine the other party to your contract said “you’re in breach of section X, fix it in 5 days or I’ll sue.” How could you know what you allegedly did wrong, let alone comply? That kind of notice is not legally effective and could lead to a host of issues. Beyond the minimum notice thresholds though, some notice and cure provisions require the noticing party to provide a specific and detailed information.
How to Give a Notice
Contracts almost always contain detailed notice procedures in the miscellaneous section. They can allow notice by mail, in-person, by fax, by email, or whatever other way the parties like. A lot of folks just gloss over these terms when reviewing a contract, and some even skip them when analyzing a notice and cure provision after a breach. These are both bad ideas. It’s good to be very aware of how notice will be given if a dispute arises. Sometimes, contracts also fail to include notice terms (also bad!), which can make the process for notice much more complicated.
How Long Does the Other Side Have to Cure?
If there’s no notice and cure provision, there’s generally no chance to cure. If the parties want to have a cure period, they have to define the length of it otherwise it’ll be perpetual. Contracts often have different cure periods for different breaches. Rent or other payment obligations usually have tight cure periods, and non-financial breaches usually have longer ones. That’s because paying money and curing is a lot easier to do than fixing the consequences of failing to act. In some cases there may not even be a cure period – it is completely up to the parties. And depending on the type of contract and type of breach, the “market” cure period length can be very different.
How a Party Cures
After getting notice, a party can either try to cure or not (more on that below). Curing a financial breach is pretty easy procedurally: you pay money. But curing a non-financial breach can be complicated. If the other side says you breached a property lease by failing to meet certain tenant improvement benchmarks, that can be a challenge to meet. If a notice and cure term does not give the breaching party enough time to cure, a common tactic is to commence curing and reach out to the other side to get more time. Some notice and cure provisions even let parties that commence curing within a cure period and finish the cure as quickly as possible off the hook.
What Happens if a Party Does not Cure on Time?
If a party does not cure in time or at all, it is in breach or default. That allows the other side to exercise whatever remedy it has available under the contract or at law – termination, eviction, damage claims, etc. Once that happens, a party that tries to cure too late will be out of luck contractually. If a party cured a little late and was still hauled to court, a judge or jury may be sympathetic and deny the other side relief. But sympathy from a court or jury is never something anyone should hang their hat on.
What if a Party Disputes a Breach?
Most of the time, a party that gets a notice of breach or default does not agree with it. They claim it’s a lie. Or that it’s wrong. Or that they actually didn’t have to comply because the other side breached first. The list goes on.
In any case, once a termination letter comes in, the clock starts ticking. Some contracts may allow a party to pay a disputed amount under protest. In other cases, a party could sue. Or it could reach out to the noticing party and try to negotiate or explain why their position is false. The possibilities are many, and it depends on the facts.
Notice and cure provisions are complicated, but essential. Our lawyers have seen too many situations where parties in pre-dispute mode have botched the notice and cure process, or where they failed to think notice and cure provisions through when drafting a contract. Either way, bad things can happen and a lot of money can be unnecessarily spent.