Cure period: Overview, definition and example
What is a cure period?
A cure period is a specified amount of time given to one party in a contract to fix a problem or breach before the other party can take action, such as terminating the agreement or seeking penalties. It acts as a grace period, giving the breaching party an opportunity to resolve the issue and maintain the contract.
Cure periods are common in contracts like leases, loan agreements, and service contracts, where immediate termination or penalties might be too harsh for minor breaches.
Why is a cure period important?
A cure period is important because it provides a fair opportunity to address issues without immediately escalating to legal action or termination. For the breaching party, it offers time to correct mistakes, avoid penalties, and preserve the relationship. For the non-breaching party, it reduces the risk of disputes by formalizing a clear path to resolution.
In business, cure periods are especially useful for addressing common problems like late payments, missed deadlines, or minor contractual oversights. They ensure both sides have a chance to fulfill their responsibilities before more drastic steps are taken.
Understanding a cure period through an example
Imagine a landlord and tenant have a lease agreement requiring rent to be paid by the 1st of each month. If the tenant misses a payment, the landlord can’t immediately terminate the lease due to a 10-day cure period in the contract. This allows the tenant until the 10th to pay the overdue rent and avoid eviction.
Similarly, in a loan agreement, if a borrower violates a covenant by missing a financial reporting deadline, a cure period might allow them to submit the reports within a set timeframe before the lender declares a default. These examples show how cure periods provide flexibility and reduce the risk of abrupt contract termination.
An example of a cure period clause
Here’s how a cure period clause might look in a contract:
“In the event of a breach of this Agreement, the breaching party shall have ten (10) days from receipt of written notice to cure the breach. If the breach is not cured within this period, the non-breaching party may terminate this Agreement and pursue any remedies available under law.”
Conclusion
A cure period is a practical tool for managing breaches and preserving relationships in contractual agreements. It provides a clear process for resolving issues while avoiding immediate penalties or termination, benefiting both parties.
By including a cure period in a contract, you create a fair mechanism for addressing problems and maintaining trust. It’s a simple way to handle minor breaches without resorting to drastic measures, ensuring smoother business dealings.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.