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Landlord Indemnity Protection in Commercial Leases
Author: Will G. Bassham
For most landlords trying to finalize a commercial lease, indemnity is probably the least favorite negotiation topic – one most often left to the lawyers to handle alone while other essential business points get pinned down. Indemnity provisions often include dense language packed into overly long sentences. And the scenarios addressed in these provisions can seem too conceptual or abstract to warrant much focus.
It may be that once the lease is executed no one will ever read the indemnity section again. But the savvy commercial landlord will pay attention to indemnity during negotiations and push for provisions that limit exposure.
Generally speaking, a landlord will try to secure broad indemnity rights in lease negotiations, sometimes even pressing for the tenant to indemnify the landlord from the consequences of landlord’s own negligence. The rationale for this lopsided approach is that the tenant is the one generally occupying the space and carrying on day-to-day business. While the landlord may have some presence onsite (or lease rights allowing it to enter the premises in certain circumstances), the tenant is the more constant presence. As a result, the landlord may try to shift the risk of mishaps onto the tenant, even covering scenarios where the landlord is also at fault.
When trying to secure indemnification against even its own negligence, however, a landlord must be mindful of certain fair notice requirements under Texas law – namely, the “express negligence” doctrine and the “conspicuousness requirement”. Under the express negligence doctrine, a party cannot obtain contractual indemnity for its own future negligence unless the written contract expressly states that intention in clear, unambiguous terms. See, e.g., Quintana v. CrossFit Dallas, L.L.C., 347 S.W.3d 445, 450 (Tex. App. – Dallas 2011); Atl. Richfield Co. v. Petroleum Pers., Inc. 768 S.W.2d 724, 725 (Tex. 1989). The conspicuousness requirement is that “something must appear on the face of the [contract] to attract the attention of a reasonable person when he looks at it”. Storage & Processors, Inc. v. Reyes, 134 S.W.3d 190, 192 (Tex. 2004) (citing Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 509-10 (Tex. 1993).
In summary, a landlord should pick its words carefully when trying to shield itself from its own negligence, specifically stating the circumstances under which indemnification applies, and using the words ‘landlord negligence’ or other words with clear meaning. And the language should call attention to itself in some way, whether through the use of all-caps, bold letters, isolated paragraphs or otherwise. See Dresser, 853 S.W.2d at 511.
It should also be noted, however, that the outcome of an indemnity claim can be impacted by the separate “additional insured” clause contained in a lease. While a court may refuse to enforce a poorly-drafted indemnity provision (for failure to comply with the fair notice requirements), a Landlord may still be covered by tenant insurance so long as the lease contains appropriate language requiring that the landlord be listed as an additional insured under the tenant’s insurance policy. See Travelers Lloyds Ins. Co. v. Pacific Employers Ins. Co., 602 F.3d 677, 681(5 th Cir. 2010).
In summary, both the indemnity and insurance provisions of a commercial lease should be carefully drafted to provide optimal protection for the landlord. For more information or assistance with indemnity provisions or any other commercial lease issue, please contact me at 214-560-1705 or at email@example.com.