Include Common-Area Accidents in Indemnification Clause

An owner is typically responsible for maintaining the common areas of its building or center, so if someone is injured in these areas, the owner is the party that will most likely have to pay for damages from an accident. If the accident was caused by a condition stemming from the actions of your property manager or its employees or some other condition that could have been controlled, this might seem fair to you. But if the tenant caused—or partly caused—the dangerous condition that led to the accident, should you still have to shoulder the burden and cost of litigation over the incident? After all, it doesn’t seem fair that if you make the effort to keep your center safe, a tenant that doesn’t do the same would be able to pass the cost of a lawsuit on to you. Your lease can protect you from this result—if its indemnification clause plugs a common loophole.

Typical Clause Creates Vulnerability

An indemnification clause generally lets you get reimbursed by the tenant for damages that you’re forced to pay to an injured party because of something the tenant did or failed to do. But some clauses require the tenant to reimburse the owner for damages caused by the tenant’s negligence in its space, but won’t protect the owner if the accident occurred in a common area. If you have that type of indemnification clause, it could potentially create big problems for you, even in situations where you may not realize it applies—say, when your tenant has a store next to a public sidewalk, says Ohio attorney Abraham Lieberman.

Trend Highlights Need for Careful Drafting

There has been a trend over the past several years toward treating public sidewalks like common areas and placing more liability on owners for accidents on these sidewalks, says Lieberman. For instance, a New York City law requires owners to get liability insurance and pay damages if someone is injured by defective sidewalks adjacent to the owners’ property. A good indemnification clause can help you avoid a situation where you’re forced to pay damages because the tenant caused someone to get hurt on a public sidewalk, but your lease doesn’t require the tenant to reimburse you if you’re sued as a result, he advises.

A California mall owner learned this lesson the hard way, after an appeals court ruled that it wasn’t entitled to indemnification from its tenant after a slip-and-fall accident on the sidewalk outside the tenant’s space resulted in a lawsuit against both the owner and the tenant. The lease required the tenant to indemnify the owner for any claim arising from an accident in the tenant’s space. It also required the owner to indemnify the tenant against any claim arising from an accident in the common areas. The owner argued that it was entitled to “equitable” indemnification from the tenant—that is, indemnification as a matter of fairness—for any damages it had to pay because the tenant’s negligence contributed to the accident.

The appeals court noted that the owner wasn’t entitled to equitable indemnification because the lease had an indemnification clause that specifically addressed both the owner’s and the tenant’s obligations. If the owner had wanted the tenant to indemnify it for accidents in the common area caused by the tenant’s negligence, it should have spelled out such a requirement in the lease, the court said [Mission Valley Partnership v. Sport Chalet, Inc., December 2003].

Make Tenant Responsible

When drafting your indemnification clause, make sure it doesn’t limit indemnification to the tenant’s space, says Lieberman. The key is to strengthen your indemnification clause to make the tenant responsible for common-area accidents that result from its negligence. To do this, add the following language to your lease’s indemnification clause where it lists what the clause applies to, recommends Lieberman:

            Model Lease Language

Tenant shall indemnify, defend, and save Landlord harmless from and against any and all claims, actions, demands, damages, liability, and expense, including attorneys’ and other professional fees, in connection with loss of life, personal injury, and/or damage to property arising from or related to, wholly or in part, directly or indirectly, the construction, occupancy, or use by Tenant, its officers, agents, contractors, invitees, licensees, or employees of the Premises or any part thereof or any other part or area of the of the [Building/Center], or arising from or related to, wholly or in part, directly or indirectly, any act, failure, omission, or negligence of Tenant, its officers, agents, contractors, invitees, licensees, or employees, which occurs in or relates to the Premises, the Common Areas, or any other part or area of, in, on, or adjacent to the [Building/Center].

Insider Source

Abraham Lieberman, Esq.: Stumphauzer O’Toole McLaughlin & Loughman Co., LPA, 5455 Detroit Rd., Sheffield Village, OH 44054; www.sheffieldlaw.com.