Tailor Indemnification Clause for Specific Tenants

When you lease space to a tenant, it’s impossible to predict whether you’ll experience the unpleasant repercussions of accidents, injuries, or criminal acts that can be attributed to the tenant. These events can be costly, but as with most other risks involved in leasing space, you can plan for the worst and hope for the best. An airtight indemnification clause can ensure that you won’t be left paying the price for the events caused by your tenant.

Plan for Risky Business

Typically, a commercial lease contains a standalone provision entitled “Indemnity,” although sometimes indemnity is covered in the insurance provision. However, various clauses through the lease typically address some form of indemnity as well, including, but not limited to, the brokerage provision, the holdover clause, and the environmental clause. Although indemnity provisions might appear in several sections of your lease to address specific issues, such as responsibility for environmental damage or the ramifications of the tenant holding over its space, consider also tailoring indemnity provisions to the tenant’s particular type of business. After all, some businesses are more likely to experience dangerous situations. For example, an indemnity clause could include criminal actions directed against a bank tenant or other tenants open beyond typical operating hours.

Consider Nature of Space

Special or unusual indemnity clauses for risky tenants can help you avoid the risk of using a so-called boilerplate indemnity clause that you’ve used with typical tenants at your center. But owners should think carefully about not only the type of business, but also what the tenant is leasing. For example, if the tenant is leasing an entire outparcel, and as a result has more extensive obligations in the lease, the indemnification clause should be broad enough to cover a wider variety of acts or omissions because the tenant’s obligations are typically greater than the landlord’s obligations.

For more tips for protecting yourself from paying for your tenant’s mistakes, and a model indemnity clause, see “Draft Airtight Indemnity Clause,” available to subscribers here.