I will concede that discussing indemnification provisions in commercial leases is not the most riveting topic. However, this is a critical issue for landlords and tenants alike. Nearly every commercial lease I have reviewed, from small transactions (e.g. a boutique Boston restaurant) to larger, complex transactions (e.g. a state-of-the-art laboratory facility in Cambridge), has a provision discussing how and when a tenant or landlord must indemnify the other party. In layman’s terms, “indemnification” simply means that one party promises to pay the cost for possible future damages or claims. We discussed indemnification in the context of construction subcontracts and construction management contracts in our previous articles.
In the commercial leasing context, leases often state that the tenant will indemnify the landlord for any claims, injuries or damages that occur on the leased property. They will often go further and require that the tenant indemnify the landlord even for the landlord’s own actions, inactions or negligence. While these provisions seemingly offer landlords protection, landlords should proceed with caution: some of these provisions are completely unenforceable in Massachusetts.
Any provision of a lease or other rental agreement relating to real property whereby a lessee or tenant enters into a covenant, agreement or contract, by the use of any words whatsoever, the effect of which is to indemnify the lessor or landlord or hold the lessor or landlord harmless, or preclude or exonerate the lessor or landlord from any or all liability to the lessee or tenant, or to any other person, for any injury, loss, damage or liability arising from any omission, fault, negligence or other misconduct of the lessor or landlord on or about the leased or rented premises or on or about any elevators, stairways, hallways or other appurtenance used in connection therewith, shall be deemed to be against public policy and void.
Both Massachusetts and Federal Courts have held that the above statute applies equally to residential leases and commercial leases. The statute does not, however, preclude a landlord from requiring a tenant to obtain insurance protecting against the landlord’s own negligence. So what does this mean? In short, it means that commercial landlords cannot force tenants to indemnify or hold landlords harmless from the landlords’ wrongful actions. It does not prevent, however, landlords from requiring tenants to carry insurance to protect from such liability. As an example, imagine that a customer walking into a restaurant trips and falls in an entranceway. If the lease has language stating that the tenant has to indemnify the landlord from any injuries on the property, including those caused by the landlord, then the tenant would have to cover the customer’s injuries. Under Massachusetts law, however, such provisions are unenforceable and so the landlord may not escape liability (say, for example, the customer tripped because the landlord failed to fix the doorway). To protect against this liability, the landlord can obtain its own insurance and/or require the tenant to obtain insurance protecting the landlord.
The above is meant only as a brief summary. If you are a commercial tenant or landlord and have questions about your lease, you should contact a commercial real estate lawyer.