Does Your Unusual Lease Have a Liability Loophole?

Your lease with a tenant might have provisions that aren’t typical but were negotiated to serve a specific purpose. While provisions that are tailored to you and your tenant’s deal can certainly work in your favor, unusual lease provisions can leave you open to liability in some instances. For example, they can change the standard “duty of care” you would have to protect your tenant and its employees. That loophole can leave you open to litigation. That was the case for an Iowa owner whose duty of care stemmed from 'unusual' lease provisions.

There, the employee of a tenant who rented retail space from the owner was injured when a light fixture fell on her upper back and neck while she was working. The employee sued the owner. The owner asked a trial court for a judgment in its favor without a trial. The trial court granted the owner’s request. The tenant appealed. An Iowa appeals court reversed the ruling and sent the case back to the lower court for a trial.

The appeals court said that the issue in this case was whether the owner of the space had a duty of care to its tenant’s employees—that is, a duty to protect the employees from harm that could foreseeably happen on its property. The lower court concluded that the owner wasn’t responsible for the safety of the tenant’s employees. But the appeals court determined that the imposition of a duty of care was justified because the owner “retained control over the employee’s workspace because of the ‘unusual’ lease arrangement.” Under the lease, the owner did not demise a specific portion of the property to the tenant; it reserved the right to impose a definite demarcation if additional tenants moved in. Further, although the tenant agreed in the lease to take the property “as is,” the owner agreed in the lease to keep the structural parts of the building (including the ceiling and the lighting) in good repair, and, by taking on that contractual responsibility, the owner owed a duty of reasonable care to the employee. So before agreeing to atypical lease terms, talk with your attorney about drafting them so they won’t expose you to a situation like this one [Benson v. 13 Associates, L.L.C., February 2015].