Protecting Against Liability for Personal Injury, Property Damage

Q: If my tenant causes damage to the space it rents from me, or is responsible for accidents or injuries that happen there, it’s only fair that the tenant should pay for them. Is there a way to make the tenant pay for damage it causes and also help me to avoid responsibility for damages I suffer as a result of my actions?

A: Yes, you can try to negotiate lease provisions that help you avoid responsibility for damages you suffer as a result of either a tenant’s or your actions. The “indemnity clause” in your lease should spell out which party is responsible for a tenant’s damage to the space you own, or accidents and injuries that take place there that are caused by the tenant. It should also specify who is financially responsible—the tenant or you—for damages you suffer as the result of any party’s actions—including yours.

For example, let’s say the space you rent to a retail tenant at your shopping center is damaged as a result of its plumber’s negligence. If you’ve included an indemnity clause that imposes financial responsibility for the damage on the tenant, regardless of the fact that the damaged property ultimately belongs to you, the courts in many states are likely to support imposing liability on the tenant.

Your indemnity clause—and state law—will determine whether you get stuck footing the bill for these types of damages that you might cause. (Rules surrounding indemnity clauses can be very state-specific, so it’s important to consult your attorney to find out what the laws governing indemnity clauses are in your state.)

Gross negligence, intentional misconduct. There are certain types of damage that the courts in most states will not allow owners to pass off, no matter what their leases say. For example, almost all states prohibit a commercial property owner from protecting itself from liability for its own “gross negligence” or “intentional misconduct.” Courts typically look unfavorably on someone whose gross negligence caused damage. That’s because it seems clearly unfair to allow a person to escape liability for gross negligence or intentional misconduct simply because he has been able to negotiate and include an indemnification clause in a lease.

Personal injury. In most states, courts would probably refuse to uphold an indemnity clause that makes a tenant responsible for any personal injury caused by the owner—for example, if a shopper is injured in the tenant’s space, but the injury is the result of the owner’s maintenance team’s negligence. The lease between the owner and its tenant may include a clause that imposes financial responsibility for the personal injury on the tenant, regardless of the owner’s involvement, but it would be hard in those states for owners to escape liability for the personal injury that they cause.

Use Insurance as Compromise

While a tenant most likely will balk at your request to be indemnified for both the property damage and any personal injuries that occur in its space, regardless of whose fault it is, you can compromise by agreeing that you’ll pay for damages beyond the tenant’s insurance policy coverage. Your lease language should, in essence, say, “If the loss is caused by the owner, and it exceeds the amount of the tenant’s insurance coverage, the owner pays the excess.” This language could be enough to persuade a court that it’s not really the tenant that bears any risk for an owner-caused loss; it’s the tenant’s insurer that’s being paid to assume that risk.

But don’t limit your attempt to secure indemnity rights to the language in the lease’s indemnity clauses. Ask to include yourself as a “named” insured, instead of just an “additional” insured, on the tenant’s insurance policy. That way, your risk is clearly covered because it’s an insured risk in the policy. The idea behind this is that the tenant should bear the risk of anything that happens on or about its premises, even if the loss is caused by the owner. Show the following language to your attorney before using it in your leases.

Model Lease Language

Tenant shall procure and maintain policies of insurance, at its own cost, which insures Landlord, its partners, shareholders, members, agents, directors, officers, and employees (the “Landlord Protected Parties”) (as “named insureds”), and Landlord’s mortgagee, if any, of which Tenant is given notice, and Tenant, its officers, employees, or agents (the “Tenant Protected Parties”), from all claims, demands, or actions made by or on behalf of any person, persons, or entity and arising from, related to, or connected with the Leased Premises, for bodily injury to or personal injury to or death of any person, or more than one person, or for damage to property, in an amount of not less than [insert amt., e.g., $3 million] combined single limit per occurrence/aggregate. That insurance shall be written on an “occurrence” basis and not on a “claims made” basis.

If Tenant is unable, despite reasonable efforts in good faith, to cause its liability insurer to insure the Landlord Protected Parties as “named insureds,” Tenant shall nevertheless cause the Landlord Protected Parties to be insured as “additional insureds,” and Tenant will protect, indemnify, and save harmless the Landlord Protected Parties from and against any and all liabilities, obligations, claims, damages, penalties, causes of action, costs, and expenses (including reasonable attorney’s fees and expenses) imposed upon or incurred by or asserted against the Landlord Protected Parties, or any of them, by reason of any bodily injury to or personal injury to or death of any person or more than one person or for damage to property, occurring on or about the Leased Premises, caused by any party including any Landlord Protected Party, to the extent of the amount of the insurance required to be carried under this Section, or such greater amount of insurance as Tenant actually carries. Tenant shall cause its liability insurance to include contractual liability coverage fully covering this indemnity.