Make Tenant Pay When It's Responsible for Common-Area Accident

You're typically responsible for maintaining the common areas of your building or center. So if someone is injured in the common areas, you'll most likely get sued. But what if the tenant caused—or partly caused—the dangerous condition that led to the accident? In that case, you'll look to the indemnification clause in your lease to protect you. An indemnification clause generally lets you get reimbursed by the tenant for damages that you're forced to pay to an injured party because of something the tenant did or failed to do.

But if your lease is like many we've seen, it may have a loophole in its indemnification clause that could hurt you. It may require the tenant to reimburse you for damages caused by the tenant's negligence in its space, but won't protect you if the accident occurred in the common area.

This loophole could potentially create big problems for you, even in situations where you may not realize it applies—say, when your tenant has a store next to a public sidewalk, says Ohio attorney Abraham Lieberman. There appears to be a trend toward treating public sidewalks like common areas and placing more liability on owners for accidents on these sidewalks. For instance, New York City recently passed a law requiring owners to get liability insurance and pay damages if someone is injured by defective sidewalks adjacent to the owners' property, Lieberman says. You don't want to be in a situation where you're forced to pay damages because the tenant caused someone to get hurt on a public sidewalk, but your lease doesn't require the tenant to reimburse you, he notes.

California Lease Had This Loophole

This loophole hurt a California owner: The lease required the tenant to indemnify the owner for any claim arising out of an accident in the tenant's space. It also required the owner to indemnify the tenant against any claim arising out of an accident in the common areas. A man was injured when he slipped and fell on a wet common-area sidewalk outside the tenant's space. The man sued the owner and the tenant, among others. The owner argued that it was entitled to “equitable” indemnification from the tenant—that is, indemnification as a matter of fairness—for any damages it had to pay because the tenant's negligence contributed to the accident.

A California appeals court ruled that the owner wasn't entitled to equitable indemnification because the lease had an indemnification clause that specifically addressed both the owner's and the tenant's obligations. If the owner had wanted the tenant to indemnify it for accidents in the common area caused by the tenant's negligence, it should have spelled out such a requirement in the lease, the court said [Mission Valley Partnership v. Sport Chalet, Inc.].

Don't Limit Indemnification to Tenant's Space

To plug this loophole and avoid situations like that of the California owner, strengthen your indemnification clause to make the tenant responsible for common-area accidents that result from its negligence, says Lieberman.

To do this, add the following language to your lease's indemnification clause where it lists what it applies to, says Lieberman:

Model Lease Language

…all acts, failures, omissions, and negligence of Tenant, its agents, employees, contractors, licensees, or invitees, which occur in or relate to the Premises, Common Areas, or other parts or areas in or adjacent to the [Building/Center].

CLLI Source

Abraham Lieberman, Esq.: Member, Baumgartner & O'Toole, 5455 Detroit Rd., Sheffield Village, OH 44054; (440) 930-4001.