Indemnification clauses are an important aspect of commercial lease agreements that tenants should not overlook. These clauses are designed to protect landlords from financial losses that may arise from the tenant’s use of the property.
What is indemnification?
Indemnification is an agreement in which one party promises to protect another party from financial loss or liability.
General Example: To understand indemnification, imagine you’re borrowing a car from a friend. Your friend asks you to sign an indemnification agreement stating that you’ll be responsible for any damage or accidents that occur while you’re using the car. In this case, you’re promising to indemnify your friend, meaning you’ll pay for any damages or expenses resulting from your use of the car.
Overall, indemnification is a way to shift financial risk from one party to another, and it’s commonly used in contracts and insurance agreements to protect against potential losses.
What is an indemnification clause in a commercial lease?
As a tenant under a commercial lease agreement, you have an obligation to indemnify the landlord against certain types of losses or damages. This means that if something happens on the property that results in a financial loss or liability for the landlord, you may be responsible for covering those costs.
Commercial Leasing Example: Let’s say there’s a fire in the building and the landlord incurs expenses for repairs and cleanup. If the lease agreement includes an indemnification clause, you may be required to pay for those expenses because you were using the property at the time of the fire.
Similarly, if someone is injured on the property and the landlord is sued for damages, the indemnification clause may require you to cover the costs of the lawsuit and any resulting settlement or judgment.
Sample Indemnification Clause: “The Tenant agrees to indemnify, defend and hold harmless the Landlord from any and all claims, damages, losses, liabilities, costs and expenses, including reasonable attorney’s fees, arising out of or in connection with the Tenant’s use of the leased premises, except to the extent caused by the Landlord’s negligence or willful misconduct.”
What is the purpose of a tenant indemnification clause in commercial leasing?
Tenant indemnification clauses in commercial leases are designed to protect a Landlord from financial losses that may arise as a result of your use of the property. As a tenant, it’s important to carefully review and understand the terms of the lease agreement, including any indemnification provisions, before signing on the dotted line.
Key Takeaways:
- Indemnification is an agreement in which one party promises to protect another party from financial loss or liability.
- Tenant indemnification clauses in commercial leases are designed to protect landlords from financial losses that may arise as a result of tenant use of the property.
- Indemnification clauses may require tenants to cover costs related to property damage or personal injury claims.
