Protect Yourself from Liability Stemming from Your Approval of Contractors

Almost all leases require commercial property owners to approve the contractors that will be making improvements on the property that owners lease to tenants. Most people who deal in commercial property consider the provision necessary to protect the owner; without it, a tenant could hire an incompetent contractor, resulting in damage to the owner's property.

However, by approving the contractor, a commercial property owner actually can expose itself to liability if that contractor winds up damaging any of the building's inhabitants or tenants' property, says Marc L. Ripp, an attorney at Mack-Cali Realty Corp. To address this problem, Ripp has developed a Model Letter (see p. 2) that should help owners to approve the contractors tenants want to hire to renovate the property, without unnecessarily exposing owners to liability.

“The last thing you want is for the contractor to do a poor job and for the tenant to subsequently try to hold you—the owner—responsible for the damages resulting from that bad job because you approved the contractor,” says Ripp. “Therefore, send the tenant a letter that explains that, by giving this approval, you're not guaranteeing the quality of the work,” he suggests.

Your letter, like our Model Letter, should emphasize that the owner is not in any way responsible for damages resulting from the contractor's work, says Ripp.

Courts May Hold Owners Liable

A New York appeals court refused to throw out a case in which a tenant drugstore, Duane Reade, sued its commercial property owner for damage caused by the contractor's failure to properly cover holes in the roof. This case demonstrates that when an owner approves a contractor, and damages result from the contractor's work, the owner stands a chance of being held legally responsible for the tenant's damages.

Even if a court in your jurisdiction ultimately determines that an owner's approval of a contractor does not, in itself, make the owner potentially liable for damages resulting from that contractor's actions, it makes sense to send the letter. Even a baseless case can cost an owner legal fees just to have it thrown out of court before it goes to trial. In the best-case scenario, the letter would discourage a disgruntled tenant from including you in its lawsuit against the contractor.

A contractor's mistakes can be devastating, without the added costs of defending against a tenant's lawsuit. “What if a contractor cuts off power in the building, and other tenants experience power outages and start withholding rent? If an inept contractor cuts power in the whole building or causes water damage or injures people or destroys computer equipment, an onslaught of litigation could ensue,” warns Ripp.

Editor's Note: If the tenant asks you to attach a list of preapproved contractors to the lease, add language to the lease based on the language in the Model Letter to protect you against potential claims.

• Duane Reade, etc. v. Reva Holding Corp., June 2006

Insider Source

Marc L. Ripp, Esq.: Senior Associate Gen'l. Counsel, Mack-Cali Realty Corp.; Edison, NJ