The limitation on liability clause sets out to minimize the amount of liability a landlord can be exposed to. The clause determines:
1. The types of liability.
2. The assets subject to liability.
3. The time period for liability.
Optional Additional/Alternative Clauses
1. Environmental Clause. If there are any environmental concerns involved in the Premises covered in the lease, the Tenant can include a clause to specifically lay out what damages would be covered.
Example: Landlord shall hold Tenant free and harmless from any penalty, fine, claim, demand, liability, cost, or charge whatsoever which Tenant shall incur, , by reason of Landlord s failure to comply with Landlord s Environmental Responsibilities prior to the Commencement Date, including but not limited to:
2. Equitable Remedy. The Landlord can try to further limit their liability in regards the Tenant by having them waive their right to money damages in a dispute. This would minimize litigation but could be difficult to get the Tenant to agree to this clause.a. The cost of full restoration of any contamination and into full compliance with all Environmental Laws;b. The reasonable cost of all appropriate tests and examinations of the Premises to confirm that the Premises and any other contaminated areas have been restored and brought into compliance with all Environmental Laws; andc. The reasonable fees and expenses of Tenant s attorneys, engineers, and consultants incurred by Tenant in enforcing and confirming compliance with Tenant s Environmental Responsibilities.
Example: Tenant shall not be entitled to any damages because of Landlord s failure or refusal to consent or approve of any matter requested by Tenant. Tenant s sole remedy shall be an action for specific performance or injunction.
1. The types of liability. The two types of liability discussed in this clause are general defaults and intentional acts or negligence. A general default does not attribute liability for property damage or personal injury to Tenant. However, intentional acts and negligence are not covered in the clause and can lead to liability. Trying to limit these would probably be unenforceable and illegal. Explicitly stating that the Landlord would be liable for these acts helps define both parties’ responsibilities under this clause.
2. The assets subject to liability. The main purpose of the clause is to prevent any personal liability of the landlord. Landlords do not want to expose their personal assets such as any bank accounts or other real property. By explicitly preventing any personal liability the Landlord is much better protected. Furthermore, the clause limits any liability to the interest the Landlord has in the Premises. This not only keeps the Landlord’s personal property off limits but protects other business assets as well. This allows the Landlord to keep any other business interests separate from the Premises. The clause also looks to prevent punitive or special damages. By getting the Tenant to agree, Landlord can try to avoid severe and possible business ending penalties for any liability.
3. The time period for liability. Another way this clause helps protect the Landlord is by limiting the time the Landlord is liable to the period he actually owns the Premises. This keeps the Landlord from being liable for any previous or future owners’ acts. This can help prevent over-reaching litigation and keep the Premises attractive for any potential new owners in the event of a sale.
“The limitation of liability against all individuals affiliated with the landlord should be of primary concern. Often, a tenant will want evidence that a landlord has an equity investment in the project before agreeing to the concept. In other situations, a tenant may insist on having recourse against future rents or other proceeds that a landlord may collect. The landlord should make certain these amounts have not already been pledged to a lender before agreeing to commit them to a tenant.” Five Deadly Sins: Lease Clauses a Landlord Should Refuse to Negotiate Under Any Circumstances, Ira Fierstein and J. Kelly Bufton (Seyfarth & Shaw), Law Journal Newsletters, August 2003
“Leases create liability for more than rent. For example, leases can create liability for slip-and-fall injury to other tenants or third persons. Leases also create liability for failure to maintain the leased premises and for damage or destruction to the leased premises. The amounts of these liabilities can be extraordinary. Guarantors should strive to limit the guarantee merely to the obligation to pay base monthly rent, and not the other liabilities under the lease. If the landlord has enough clout to hold out for a broader guarantee, the guarantee could be limited to the only the specific liabilities included in the guarantee.” Limited Guarantees, Jonathon Goodman, Frascona, Joiner, Goodman and Greenstein, P.C.