USLAW-Magazine_FallWinter2018

U S L A W www.uslaw.org 1 3
goes, “You do not get, unless you ask.” So,
when it comes to negotiating leases that will
have far-reaching premises liability implications,
retailers should always be prepared to
ask the landlord for concessions in those
areas.
Here are five types of provisions involving
retail leases and service contracts that
are critical in determining whether the
landlord will have a good-faith basis to tender
a claim for defense and indemnification
to the retail tenant, or whether the retail
tenant will have sufficient legal grounds to
reject that tender or to tender its own claim
to a service contractor:
1. Description of the Demised Premises.
During lease negotiations, retail tenants
must ensure that the “demised premises”
are accurately described in a lease, which
should always include exhibits that contain
detailed and clear diagrams or
schematics pinpointing the exact location
of the demised premises (as distinct from
other portions of the common areas that
are deemed to be the landlord’s responsibility).
If this is accurately described in
the lease, then the question of which
party would ultimately bear responsibility
for an incident that occurred two or three
feet from the entrance to the store is
readily answered. Such a clear demarcation
in the lease will facilitate a decision
regarding which party should defend and
indemnify the other if both parties are
named as defendants in the lawsuit.
2. Insurance / Liability & Indemnity. A lease
might contain the following provision:
“The Tenant covenants and agrees to
hold Landlord harmless and to defend
and indemnify Landlord from all claims
brought by any third party arising out of
the use of the Demised Premises.” Absent
statutory prohibitions, most jurisdictions
that have addressed exculpatory clauses
will most likely determine that it is not
against public policy to allow a landlord
to contractually shift its own negligence
to a tenant, provided it is expressly stated
in the lease. For this reason, a retailer
should not agree to hold harmless and to
defend and/or indemnify the landlord
for the landlord’s own negligence, wherever
the incident occurred. To reflect this
clear intent, the lease should expressly
state that the landlord shall be held responsible
for its own negligent conduct.
3. Landlord’s Gross Negligence and/or
Willful Conduct. Leases usually contain
the following provision: “Tenant agrees to
hold Landlord harmless from all claims
except for actions due to Landlord’s gross
negligence and/or willful acts or conduct.”
This provision can be a trap because
“gross negligence” and “willful
conduct” are legal terms that carry much
higher burdens of proof than does “negligence.”
So, any provision in a lease that
states that the landlord should be
deemed liable only if its conduct is
“grossly negligent or willful” should be
stricken and replaced with a provision
specifying the “negligence” standard.
4. Responsibility for Common Areas.
Common areas are the landlord’s domain.
Among the many reasons why the
tenant is paying common area maintenance
(CAM) charges in a triple-net lease
is to ensure that the tenant is protected
by the landlord from any liability arising
out of incidents that occur in areas that
are shared in common with other tenants
in the shopping center or property (i.e.
parking, sidewalk, or walkway areas that
are not part of the demised premises)—
even for claims brought by the tenant’s
patrons and/or business invitees. The
lease should never contain any provision
that exposes the tenant to liability for any
incident that might occur in these common
areas. The only exception is if the alleged
injury or incident in the common
area was directly caused by negligent conduct
by the tenant or the tenant’s agents
or employees. The lease should make it
crystal clear that incidents that are not
within the tenant’s demised premises are
the responsibility of the landlord, aside
from the above exception. If a tenant intends
to hire security contractors, the
lease should be clear about what specific
area outside of the demised premises is
deemed to be within the security contractor’s
scope of surveillance, and which portions
remain the landlord’s responsibility.
5. Certificates of Insurance (COIs) and
Indemnity in Service Contracts. Almost
all retail leases (1) require the tenant to
obtain certificates of insurance (COIs)
naming the landlord and/or its affiliates
as additional insureds under the tenant’s
insurance policy, and (2) place the burden
on the tenant to notify the landlord
in the event of any changes and/or cancellation
to the underlying commercial
general liability policy. A retailer must
take care in negotiating service contracts
with any contractors, and ensure that
these contracts place the contractors
under the same obligations as listed
above for the tenant. In the event that the
retail tenant contracts with a snow removal,
landscape, or security contractor,
the contract must state that the contractor
will agree to hold harmless, defend,
and indemnify the retail tenant from any
claims arising out of the contractor’s work
or performance. Further, as is the case in
retail leases, a COI naming the retail tenant
and the landlord as additional insureds
under the contractor’s policy
(using the exact names of the tenant and
landlord entities in the current lease)
must also be attached to the service contract.
To the extent that COIs are often
renewed by insurers annually, the service
contract should also state, for example,
that the contractor must provide a copy
of any renewals of COIs to the retail tenant
“no later than five (5) days after renewal”
and that the contractor and its
insurer must immediately notify the retail
tenant of any cancellation in the policy.
Further, the service contract must state
that failure to comply with these provisions
will be considered a material breach
of the contract, for which the contractor
will be subject to monetary damages and
attorney’s fees.
One of the primary objectives between the
landlord and retail tenant is to develop a
symbiotic business relationship over the
course of the lease term. Addressing tender
issues in good faith during the lease negotiations
will reduce future conflicts and help
strengthen this business relationship.
Noble F. Allen is a partner
at Hinckley Allen. Noble’s
litigation practice focuses in
the areas of civil and business
litigation, premises liability
and insurance
claims defense, and commercial
landlord/tenant
law, including commercial lease litigation and
evictions. He regularly counsels retail developers,
retailers, and other commercial landlords
and tenants.
Diane E. Rojas is an associate
at Hinckley Allen.
Diane’s practice focuses on
general real estate law. Her
experience includes assisting
clients in the sale, acquisition,
and financing of
real property, as well as leasing
for both tenants and landlords, including
a recent acquisition of a large shopping center.