USLAW-Magazine_FallWinter2018
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U S L A W www.uslaw.org 1 3<br />
goes, “You do not get, unless you ask.” So,<br />
when it comes to negotiating leases that will<br />
have far-reaching premises liability implications,<br />
retailers should always be prepared to<br />
ask the landlord for concessions in those<br />
areas.<br />
Here are five types of provisions involving<br />
retail leases and service contracts that<br />
are critical in determining whether the<br />
landlord will have a good-faith basis to tender<br />
a claim for defense and indemnification<br />
to the retail tenant, or whether the retail<br />
tenant will have sufficient legal grounds to<br />
reject that tender or to tender its own claim<br />
to a service contractor:<br />
1. Description of the Demised Premises.<br />
During lease negotiations, retail tenants<br />
must ensure that the “demised premises”<br />
are accurately described in a lease, which<br />
should always include exhibits that contain<br />
detailed and clear diagrams or<br />
schematics pinpointing the exact location<br />
of the demised premises (as distinct from<br />
other portions of the common areas that<br />
are deemed to be the landlord’s responsibility).<br />
If this is accurately described in<br />
the lease, then the question of which<br />
party would ultimately bear responsibility<br />
for an incident that occurred two or three<br />
feet from the entrance to the store is<br />
readily answered. Such a clear demarcation<br />
in the lease will facilitate a decision<br />
regarding which party should defend and<br />
indemnify the other if both parties are<br />
named as defendants in the lawsuit.<br />
2. Insurance / Liability & Indemnity. A lease<br />
might contain the following provision:<br />
“The Tenant covenants and agrees to<br />
hold Landlord harmless and to defend<br />
and indemnify Landlord from all claims<br />
brought by any third party arising out of<br />
the use of the Demised Premises.” Absent<br />
statutory prohibitions, most jurisdictions<br />
that have addressed exculpatory clauses<br />
will most likely determine that it is not<br />
against public policy to allow a landlord<br />
to contractually shift its own negligence<br />
to a tenant, provided it is expressly stated<br />
in the lease. For this reason, a retailer<br />
should not agree to hold harmless and to<br />
defend and/or indemnify the landlord<br />
for the landlord’s own negligence, wherever<br />
the incident occurred. To reflect this<br />
clear intent, the lease should expressly<br />
state that the landlord shall be held responsible<br />
for its own negligent conduct.<br />
3. Landlord’s Gross Negligence and/or<br />
Willful Conduct. Leases usually contain<br />
the following provision: “Tenant agrees to<br />
hold Landlord harmless from all claims<br />
except for actions due to Landlord’s gross<br />
negligence and/or willful acts or conduct.”<br />
This provision can be a trap because<br />
“gross negligence” and “willful<br />
conduct” are legal terms that carry much<br />
higher burdens of proof than does “negligence.”<br />
So, any provision in a lease that<br />
states that the landlord should be<br />
deemed liable only if its conduct is<br />
“grossly negligent or willful” should be<br />
stricken and replaced with a provision<br />
specifying the “negligence” standard.<br />
4. Responsibility for Common Areas.<br />
Common areas are the landlord’s domain.<br />
Among the many reasons why the<br />
tenant is paying common area maintenance<br />
(CAM) charges in a triple-net lease<br />
is to ensure that the tenant is protected<br />
by the landlord from any liability arising<br />
out of incidents that occur in areas that<br />
are shared in common with other tenants<br />
in the shopping center or property (i.e.<br />
parking, sidewalk, or walkway areas that<br />
are not part of the demised premises)—<br />
even for claims brought by the tenant’s<br />
patrons and/or business invitees. The<br />
lease should never contain any provision<br />
that exposes the tenant to liability for any<br />
incident that might occur in these common<br />
areas. The only exception is if the alleged<br />
injury or incident in the common<br />
area was directly caused by negligent conduct<br />
by the tenant or the tenant’s agents<br />
or employees. The lease should make it<br />
crystal clear that incidents that are not<br />
within the tenant’s demised premises are<br />
the responsibility of the landlord, aside<br />
from the above exception. If a tenant intends<br />
to hire security contractors, the<br />
lease should be clear about what specific<br />
area outside of the demised premises is<br />
deemed to be within the security contractor’s<br />
scope of surveillance, and which portions<br />
remain the landlord’s responsibility.<br />
5. Certificates of Insurance (COIs) and<br />
Indemnity in Service Contracts. Almost<br />
all retail leases (1) require the tenant to<br />
obtain certificates of insurance (COIs)<br />
naming the landlord and/or its affiliates<br />
as additional insureds under the tenant’s<br />
insurance policy, and (2) place the burden<br />
on the tenant to notify the landlord<br />
in the event of any changes and/or cancellation<br />
to the underlying commercial<br />
general liability policy. A retailer must<br />
take care in negotiating service contracts<br />
with any contractors, and ensure that<br />
these contracts place the contractors<br />
under the same obligations as listed<br />
above for the tenant. In the event that the<br />
retail tenant contracts with a snow removal,<br />
landscape, or security contractor,<br />
the contract must state that the contractor<br />
will agree to hold harmless, defend,<br />
and indemnify the retail tenant from any<br />
claims arising out of the contractor’s work<br />
or performance. Further, as is the case in<br />
retail leases, a COI naming the retail tenant<br />
and the landlord as additional insureds<br />
under the contractor’s policy<br />
(using the exact names of the tenant and<br />
landlord entities in the current lease)<br />
must also be attached to the service contract.<br />
To the extent that COIs are often<br />
renewed by insurers annually, the service<br />
contract should also state, for example,<br />
that the contractor must provide a copy<br />
of any renewals of COIs to the retail tenant<br />
“no later than five (5) days after renewal”<br />
and that the contractor and its<br />
insurer must immediately notify the retail<br />
tenant of any cancellation in the policy.<br />
Further, the service contract must state<br />
that failure to comply with these provisions<br />
will be considered a material breach<br />
of the contract, for which the contractor<br />
will be subject to monetary damages and<br />
attorney’s fees.<br />
One of the primary objectives between the<br />
landlord and retail tenant is to develop a<br />
symbiotic business relationship over the<br />
course of the lease term. Addressing tender<br />
issues in good faith during the lease negotiations<br />
will reduce future conflicts and help<br />
strengthen this business relationship.<br />
Noble F. Allen is a partner<br />
at Hinckley Allen. Noble’s<br />
litigation practice focuses in<br />
the areas of civil and business<br />
litigation, premises liability<br />
and insurance<br />
claims defense, and commercial<br />
landlord/tenant<br />
law, including commercial lease litigation and<br />
evictions. He regularly counsels retail developers,<br />
retailers, and other commercial landlords<br />
and tenants.<br />
Diane E. Rojas is an associate<br />
at Hinckley Allen.<br />
Diane’s practice focuses on<br />
general real estate law. Her<br />
experience includes assisting<br />
clients in the sale, acquisition,<br />
and financing of<br />
real property, as well as leasing<br />
for both tenants and landlords, including<br />
a recent acquisition of a large shopping center.