Colorado Real Estate Journal - August 19, 2015
A side from confirming that indemnification and waiver clauses are contained in a lease, many landlords and tenants pay little attention to the language of the clauses themselves and their down-the-road implications. With an indemnification, the indemnifying party (i.e., the indemnitor) assumes responsibility for the claims of injury or property damage asserted by third parties against the party being indemnified (i.e., the indemnitee). The indemnitor insures the indemnitee and substitutes its liability for the indemnitee irrespective of fault, unless liability arising from the indemnitee’s own fault is carved out from the clause or not permitted under applicable law (e.g., in Colorado, a lease requiring a tenant to indemnify a landlord for the landlord’s gross negligence or willful misconduct in not enforceable; however, a lease can require a tenant to indemnify a landlord for the landlord’s own negligence). With a waiver and release, the landlord and the tenant agree to bear the risk of loss of their property if the loss is caused by the other. The theory here is that because each party knows the value of its property at lease inception, each party should be expected to look to its own property insurance for recovery, regardless of fault. The landlord and tenant are in the same positions as they were before the lease except that they have agreed to waive claims against each other and agreed to bear their own losses or insure them. The careful review and drafting of indemnification and waiver clauses should not be overlooked by landlords and tenants and their respective attorneys, as the consequences of not doing so can be significant. In one Colorado case, the Colorado Supreme Court determined that a tenant was contractually required to indemnify its landlord against damages suffered by a patron who slipped on ice in a shopping center’s parking lot, this despite the fact that the landlord was contractually obligated under the lease to maintain the parking lot. Because the l a n d l o r d ’ s actions did not amount to gross negligence or intentional misconduct, which acts were specifically excluded from the tenant’s indemnification obligations, the court held that the indemnification clause did not violate public policy and sufficiently expressed the parties’ intent that the tenant would indemnify landlord for accidents and losses occurring in the parking lot, even those caused by landlord’s negligence. In another case, the 5th Circuit Court of Appeals interpreted a lease provision whereby the tenant released the landlord from any and all damages to both person and property and agreed to hold the landlord harmless from all such damages during the term of the lease as not requiring the tenant to indemnify the landlord for damages for personal injuries suffered on the premises by a third party. Despite the landlord’s argument that the clause was intended to include the tenant’s indemnification of third-party claims, the court found otherwise, stating that there was a significant difference between a waiver and release, such as the lease contained, and an agreement to indemnify the landlord and hold it harmless from claims of third parties. Assuming the parties, and their respective attorneys and insurance providers, have reviewed and understand the obligations created in a lease’s indemnification and waiver clauses, the primary consideration becomes how risk is allocated. Most landlord lease forms, as initially drafted, will attempt to shift to the tenant, in the form of an indemnification obligation, all responsibility for losses and accidents on the landlord’s property, not just occurring in the premises, and inclusive of those losses and accidents resulting from the negligent actions of landlord and its agents, contractors or employees. In addition the landlord lease form will require the tenant to waive all claims against the landlord, but there is no reciprocal waiver by the landlord in favor of the tenant. Depending on the tenant’s negotiating strength, a tenant should not agree to indemnify the landlord for its own negligence, or the negligence of landlord’s agents, contractors or employees, or for losses and accidents occurring outside the premises unless the tenant’s insurance already insures against such occurrences. Moreover, depending on the tenant’s insurance coverages, the tenant should push back and insist that the indemnity be a cross-indemnity, not just one way from the tenant to the landlord. The waiver should only extend to property damage and not personal injury, and it is appropriate for the tenant to require a cross-waiver by the landlord, especially since the tenant generally pays for a portion of the landlord’s property insurance through operating expenses. Pragmatically, while not always the case, the parties’ negotiation of the indemnification and waiver clauses should ultimately be guided by the parties’ reciprocal insurance obligations and the laws of jurisdiction in which the premises are situated. By way of example, if the landlord already intends to insure occurrences in the tenant’s premises caused by landlord’s own negligence, it is likely unnecessary to get held up over whether the tenant should also indemnify the landlord for such occurrences. Similarly, if the tenant’s insurance already covers claims arising from the negligence of its employees, there is likely no need for the tenant to request that the landlord also insure against the same in the common areas. Finally, there is no point in spending time and money negotiating a clause that will ultimately be invalidated by law.