In this second blog of our series on a commercial real estate tenant’s concerns with the AIR form lease, we focus specifically on the allocation of liabilities and risks between the landlord and tenant.
Indemnification: The standard language provides that the tenant indemnifies the landlord from and against all costs or expenses relating to the leased premises. This broad allocation does not first allocate recovery from insurance and only provides an exception in the case of the landlord’s gross negligence or willful misconduct.
Reciprocity: There are times when a landlord is, or should be, liable for damages but which the tenant may be sued. Just as the landlord requires the tenant’s indemnification, the landlord too should indemnify the tenant for any item the landlord is liable.
Limitations of Landlord’s Liability: Should the landlord breach the lease or otherwise be liable under the lease terms, the AIR form substantially limits the assets of the landlord from which the tenant may recover. The broad standard language may effectively mean that the tenant has no recovery in these instances.
Environmental Indemnification: Mismatched environmental indemnification provisions could leave the tenant with extended liability and damages with no recovery for the landlord’s hazardous material contamination.
Careful negotiation and drafting can better and more equitably allocate risks and costs between the landlord and tenant. An experienced attorney can provide invaluable assistance. In the case of commercial real estate lease drafting, “an ounce of prevention saves a pound of pain” – or here, saves an unknown amount of potential liability.