Indemnity Provisions Are Never Boilerplate
Today's subject is indemnity provisions.
I know that sounds deadly boring, and you think to yourself, those are just as boilerplate provisions at the end of the contract.
But please, I beg you, do not gloss over them. They have meaning and they have ramifications. There is no such thing as boilerplate.
Every indemnity provision is different, and you need to read them and understand what they mean.
“Indemnity,” is a fancy term for when a third party sues somebody who didn't do anything wrong.
It comes up, for example, in a lease between a landlord and tenant. So you'll have a landlord who says, “You tenant, you're going to indemnify me against claims arising out of suits by third parties like people who walk into your store and trip and fall and injure themselves.”
Here, the landlord probably didn't do anything wrong if the landlord is not in control of the property. That would be the case for a ground lease, where the tenant is responsible for the entire property, including the building, roads and parking. In this situation, the tenant is responsible for that person who slips and falls, and would indemnify the landlord for claims.
That said, there are all kinds of wrinkles, because the landlord actually might have done something wrong. The landlord might have been negligent. Ideally, the indemnity provision will address the landlord’s negligence with a carve out. The provision might provide that normally, the tenant will indemnify the landlord, except if the landlord has done something wrong.
But even then, there are wrinkles because quite often, especially in the a commercial lease, the landlord might insist the carve-out is only for the landlord’s “gross negligence.”
This is a very problematic provision for a tenant. It doesn't sound reasonable, and it creates an uninsurable risk to the tenant.
As you can see, one can really get into the weeds with indemnity provisions because they truly are not boilerplate.
Nearly every commercial contract has an indemnity provision. They are ubiquitous. They mean something, and you really need to have an attorney review them so you know what you're getting into, what they mean, and don't find out the hard way once you get into a lawsuit.
An attorney can help you review these provisions so you can negotiate for what you need and make sure you understand the allocation of risks in your contracts and leases.
DISCLAIMER: This article does not constitute legal advice.
Please contact your attorney to discuss indemnity provisions and how they affect your contract risk.
Diane Wolfson is the managing partner of Sphere Law Firm. She specializes in real estate, business and commercial litigation.