How to Limit Your Liability for Negligence and COVID-19 Infection

Although premises liability and the risk of negligence litigation are perennial concerns for commercial property owners, COVID-19 infuses these issues with a new immediacy. The nightmare scenario: Tenants and/or their employees, customers, vendors, or other invitees who get COVID will claim they contracted the virus on the premises and sue you for negligently failing to maintain the property in a clean, safe, and sanitary condition.

One of the things you can do to protect yourself from potential liability is to include a so-called exculpatory clause in your lease. We’ll explain how to do that, and give you a Model Lease Clause: Have Tenant Agree to Exculpate Owner for Negligence Liability, that you can adapt for your own situation.

What the Law Requires

As with any other parcel of land, landlords who lease property have a legal duty of care to the tenants and others who use it. If they fail to exercise reasonable care and somebody gets sick or injured as a result, victims can sue for negligence and money damages. An exculpatory clause attempts to contract away this liability by securing the tenant’s express agreement not to sue for any injuries and illnesses they suffer on the property as a result of the landlord’s negligence.

Understandably, clauses purporting to shield landlords from liability for their own negligence are disfavored as violating public policy, namely, the requirement that landlords show reasonable care to keep their properties safe. Even so, exculpatory clauses in a commercial lease are enforceable in all but three states—Louisiana, Montana, and Virginia. However, limits apply. While rules vary slightly by state, there are five basic parameters courts will consider in negligence cases involving exculpatory clauses:

1. There must be reasonable balance in bargaining power. The first thing a court will consider is the relative bargaining power between the landlord and tenant that negotiated the exculpatory clause. If the landlord has a decided advantage, the court will be on the lookout for overreaching and abuse. Result: It will scrutinize the clause more closely and may refuse to enforce it at all when the landlord has a decided advantage. According to one court, exculpatory clauses violate public policy when one party is “at such obvious disadvantage in bargaining power that the effect of the [clause] is to put him at the mercy of the other’s negligence” [Heil Valley Ranch v. Simkin, 784 P.2d 781 (Colo. 1989)].

2. Clause must be clearly drafted. The general rule is that to relieve a landlord from liability for its own negligence, the lease clause must be conspicuous and completely unambiguous. Some states go a step further and require the word “NEGLIGENCE” to appear in the clause in all caps. However, other states are much less picky and require that exculpatory clauses meet just the normal standards of clarity that apply to any other lease provision.

3. Clause can’t cover gross negligence or willful conduct. While allowing landlords to contract out of liability for negligence, states generally draw the line at gross negligence, recklessness, and willful conduct. Some states, like California, distinguish between passive negligence—that is, the landlord’s failure to discover a dangerous condition—and active negligence—that is, the deliberate refusal to do something to fix a dangerous condition that the landlord knows about. But while a landlord can exculpate itself from both types of negligence, it still can’t contract out of liability for gross negligence, recklessness, and deliberate misconduct.

To make sure your clause doesn’t overreach, consider the following examples of how to draft and not draft such a clause:

Not OK: “Tenant hereby waives any and all claims of any kind against Landlord arising in any way from the lease or Landlord’s acts or omissions. Tenant further agrees Landlord shall not be liable for any damages to Tenant for failure to repair or for any other act of nonfeasance.”

OK: “Except due to the gross negligence, recklessness, or willful misconduct of Landlord, Tenant waives any claim, right, or cause of action it has or may have under any statute, common law, or theory against Landlord arising from acts or omissions on or about the part of the leased property under Tenant’s exclusive control.”

4. Clause can’t cover liability that can’t be waived by statute. Federal, state, and local statutes may specifically ban parties from contractually waiving the liability that the law establishes. This is very likely to be the case with negligence for COVID-19 infection. So, it’s important to draft your exculpatory clause as a general provision rather than one specifically covering COVID-19 or any other particular hazard or liability.

5. Exculpatory clauses are strictly construed. Because exculpatory clauses are so unpopular with judges, they’re strictly construed against the party that drafts them. Thus, for example, even though some states don’t require the clause to use the word “negligence,” when that word doesn’t appear, courts will interpret the clause narrowly as covering only passive and not active negligence. The implications of this are explained below.

How These Principles Play Out in Real Life

To see how these principles play out in the real world, consider two parallel cases involving a landlord’s attempt to enforce an exculpatory clause against a tenant in a negligence lawsuit. In one case, the landlord won; in the other, the landlord lost. And while both cases come from California, the parameters they illustrate apply in most parts of the country.

Landlord Wins: Exculpatory Clause Bars Tenant’s Negligence Claim

Facts: The owner of a furniture store banged his head on the beam over a doorway and toppled down a flight of stairs. The tenant seemed to have a solid case for negligence against the landlord. All agreed that the beam was dangerously low and that the stairway handrail was loose. But the lease also included an exculpatory clause purporting to relieve the landlord of liability for injury to the tenant’s person. The tenant claimed the clause was unenforceable. The California state court granted the landlord’s motion to dismiss the tenant’s negligence claim without a trial. The tenant appealed.  

Ruling: The appeals court upheld the ruling that the clause was enforceable.  

Explanation: Clauses designed to exempt a party from responsibility for the injury they cause, whether willful or negligent, go against the policy of the law. However, the court continued, public policy isn’t implicated when the clause is part of a commercial lease between business entities, provided that it doesn’t purport to exempt a party from liability for committing an intentional wrong or gross negligence. In such cases, the clause must be read narrowly against the party that drafted it.

The exculpatory clause in this case didn’t actually use the word “negligence.” Accordingly, the court interpreted it narrowly as covering only the landlord’s “passive negligence.” Luckily for the landlord, the negligence it allegedly committed—namely, failure to inspect the stairway and discover the dangerous condition of the beam and handrail—constituted passive negligence. As a result, the clause was valid and blocked the tenant’s claim [Garcia v. D/AQ Corp., 2020 Cal. App. LEXIS 1117].

Landlord Loses: Exculpatory Clause Doesn’t Bar Tenant’s Negligence Claim

Facts: Tenants who leased space in a hotel for use as a perfume store and gift shop claimed that mold on the property made them physically sick, destroyed their products, and interfered with their business. The tenants blamed the mold problems on the landlord’s failure to maintain the property and sued for negligence. Once again, the California state court dismissed the claims based on the exculpatory clause in the lease. And once again, the tenant appealed.  

Ruling: This time the appeals court sided with the tenant and found the exculpatory clause unenforceable.

Explanation: As in Garcia, the exculpatory clause in this case didn’t use the word “negligence.” As a result, the court read it narrowly as covering only passive negligence. The difference is that unlike the landlord in Garcia, the landlord in this case was aware of a mold problem on the property and failed to take measures to fix it. Consequently, it committed active negligence, meaning the exculpatory clause didn’t apply and the landlord had to pay the tenant money damages and $108,000 in attorney’s fees [Burnett v. Chimney Sweep, 123 Cal. App. 4th 1057 (Cal. Ct. App. 2004)].