Lease & Service Agreements: Protecting Yourself
As a property owner you may enter into a variety of contracts, including lease agreements, landscaping contracts, janitorial and general maintenance service contracts and others. All of these contracts can include language that provides potential protection to you from future claims and lawsuits. Claims and lawsuits may arise from a tenant that causes a fire in his/her apartment and part of the structure burns, a contractor performs work on the building and a tenant or workers gets injured in the course of the construction work. There are ways to protect yourself against potential losses. A properly written contract can help reduce costs of potential claims.
A. Tenant Liability Insurance. All lease agreements should contain a clause that requires a tenant to obtain liability insurance and that the property owner be named as an additional insured. This can provide protection to you from insurance purchased by the tenant. The following language is an example that can be used for your protection:
"Tenant is required to purchase and maintain liability insurance covering Tenant, Tenant’s occupants and invitees, for personal injury and property damage arising out of the use and occupancy of the premises by any Tenant, Tenant’s occupants and/or guests.
Landlord is to be named as Additional Insured on Tenant’s policy. Tenant is required to provide written proof of liability insurance and proof that the Landlord is an additional insured prior to execution and commencement of the Lease Agreement.
Tenant acknowledges that by not maintaining his/her own policy of personal liability insurance, Tenant may be responsible to others for the full cost of any injury, loss or damage caused by Tenant’s actions or the actions of Tenant’s occupants or guests.”
B. Avoid Replacements and Subletting. Each rental agreement should contain a paragraph that only allows replacement, subletting or assignment with written consent from the property owner. This way, you avoid a subtenant living at the property without the required renter’s insurance.
C. Contractor Liability Insurance. Similarly, all agreements with independent contractors, suppliers, vendors, etc. should include the requirement for the contractor to obtain liability insurance and add the property owner as an additional insured. The language below can be used as a sample:
Contractor shall procure and maintain for the duration of the contract insurance against claims for injuries to person or damages to property which may arise from or in connection with the performance of the work hereunder by the Contractor, its agents, representatives, or employees.
The Contractor shall name the Property Owner as an additional insured.
The Contractor shall provide proof of insurance and an endorsement adding the property owner as an additional insured.
D. Indemnification/Hold Harmless Clause. Your lease, as well all vendor agreements should contain an indemnification clause. If you use services of a contractor, i.e. and electrician, plumber, security company, landscaper, etc., an indemnification/hold harmless agreement is a helpful tool for risk transfer to the party that is actually rendering a service. Such an indemnification/hold harmless provision requires the indemnitor (the tenant or contractor) to agree to “indemnify and hold harmless” the indemnitee (you as the property owner) against liabilities arising out of the service or activity performed that is subject of the contract.
The clause should follow the example below for lease agreements:
Tenant will defend and indemnify Landlord and its property manager, and their respective owners, officers, directors, shareholders, affiliates, agents, employees, and representatives for and will indemnify, defend, and hold harmless Landlord from and against any and all loss or damage sustained by, liability or charges imposed on, and claims or causes of action asserted against Landlord arising in whole or in part out of or by reason of the tenant’s use and occupancy of the building, regardless of whether or not the tenant was negligent or otherwise at fault. Tenant’s reimbursement and indemnity obligations will include, but not be limited to, any and all penalties, assessments, fines, dam
ages, interest, settlement amounts, judgments, losses, reasonable attorneys’ fees, and other expenses, and will survive the expiration or other termination of this Lease.
For agreements with contractors, this language can be used as a sample:
Contractor shall indemnify, defend and hold harmless Landlord, its officers, directors, agents and employees from and against all claims, damages, losses, and expenses, including but not limited to attorneys’ fees and costs arising out of or result from any claim arising out of or related to the work of the Contractor, its agents, or employees and regardless of any fault or negligence by the Contractor.
Again, an endorsement showing that insurance is in place and the property owner has been added as an insured should be obtained.
In all cases, it will be best to have a template in place that was reviewed by a legal professional.