Can Tenant Require Landlord to Indemnify It for Negligence Committed in the Common Areas?
When it comes to liability for accidents and injuries to third parties on shopping center property, the lines are pretty well established. Absent lease language to the contrary:
- Landlords are generally liable for injuries in the parking lots, storefronts, hallways, and other common areas; and
- Tenants are generally liable for injuries that occur within the leased premises that they maintain and control.
But effective risk management looks beyond liability. Thus, landlords run the risk of being sued by third parties who get injured inside the tenant’s space. And while landlords stand an excellent chance of mounting a successful defense in such suits, they’re also likely to incur tens of or even hundreds of thousands in legal fees and other costs to do so. As a result, landlords have a direct financial interest in requiring tenants to maintain their property and not commit negligence that can result in litigation.
As extra protection, landlords may also require the tenant to “indemnify”—that is, reimburse them for the losses they incur as a result of the tenant’s acts or omissions. But tenants may insist that indemnification be mutual and require landlords to indemnify them when the tenant gets sued for injuries in the common areas under the landlord’s control. This is particularly true of anchor and other large tenants that have significant negotiating leverage.
This all sounds good, but enforceability of indemnity clauses in commercial property settings is subject to some strict legal limitations, including an actual ban on their use in some states. In most states, indemnification clauses are enforceable as long as they don’t purport to indemnify a party against its own “active negligence.” Active negligence occurs when a person:
- Personally participates in an affirmative act of negligence;
- Knows about or goes along with another person’s negligent acts; or
- Fails to perform a precise duty that it agreed to perform.
The following cases illustrate how this important legal principle plays out in real-life situations.
The Scenario: A shopping center tenant gets sued for an injury that occurs in the common area controlled by the landlord.
The Question: Can the tenant enforce the clause requiring the landlord to indemnify for its legal costs?
Landlord Must Indemnify Tenant
Landlord shall save Tenant harmless from, and defend and indemnify Tenant against, any and all injury, loss or damage, or claims for injury, loss or damage, of whatever nature, to any person or property caused by or resulting from any act, omission or negligence of Landlord or its employees or agents.
Facts: A shopping center customer who trips and falls on cracked, defective pavement in the parking lot in front of a TJ Maxx store sues both TJ Maxx and the landlord for negligence. She contends that TJ Maxx had an active duty to maintain the ingress and egress to its store in safe condition. The court dismisses the case against TJ Maxx since the accident happened in the parking lot. It was the landlord and not TJ Maxx’s legal duty to maintain that part of the property, the court reasons.
The next chapter begins when TJ Maxx asks the landlord to repay the nearly $30,000 it shelled out to defend itself in the case, citing the indemnification clause above. The landlord refuses, contending that the clause is unenforceable because it indemnifies TJ Maxx for its own active negligence. The lower court sides with TJ Maxx, and the landlord appeals.
Decision: The New Jersey court rules that the clause is enforceable and tosses the landlord’s appeal.
Explanation: The customer’s case was all about whether TJ Maxx engaged in active negligence and whether it met its duty to provide safe ingress and egress to its store, according to the landlord. So, enforcing the clause would be tantamount to allowing TJ Maxx to indemnify itself from its own active negligence. The court didn’t buy it. That argument might have held water had TJ Maxx demanded indemnification before the negligence trial began. But that ship had now sailed. Courts apply an “after-the-fact approach” to determine whether a party has alleged active wrongdoing. “The starting point for the analysis is the pleadings, but the actual facts developed during trial should control,” explained the court. And since the case did go to trial, the court’s ruling that TJ Maxx did not commit negligence controlled. Result: The indemnification clause was enforceable.
- Tchikindas v. Basser-Kaufman Mgmt. Corp., 2021 N.J. Super. Unpub. LEXIS 786, 2021 WL 1749961
Landlord Doesn’t Have to Indemnify Tenant
Facts: Walmart’s lease included an indemnity clause much like the one in Tchikindas. And, as in that case, the clause’s enforceability came into play when a third party suffered an injury in an adjacent common area. But this time, the victim wasn’t a shopper but the employee of a pest control contractor that Walmart hired to do extermination work. The accident occurred while the employee was working around the exterior of the building. The victim sued both the landlord and Walmart for negligence. Since the exterior building areas were maintained and controlled by the landlord, Walmart moved to have the negligence case against it dismissed just the way TJ Maxx did in the Tchikindas case.
Decision: The same New Jersey case that would go onto decide Tchikindas in the tenant’s favor ruled that Walmart could, in fact, be liable for negligence.
Explanation: The difference in this case and the reason it proved of no avail to the landlord in Tchikindas is that Walmart had hired the contractor and directed the work, including in the perimeter areas where the employee slipped. Thus, while the landlord was responsible for maintaining these areas, in directing people to work there Walmart was “chargeable with a duty to be familiar” with any potential hazardous conditions it contained. Failing to meet that duty constituted active negligence, making Walmart potentially liable for damages and voiding the landlord’s indemnification duties under the lease.
- Nielsen v. Wal-Mart Store #2171, 429 N.J. Super. 251, 57 A.3d 1121, 2013 N.J. Super. LEXIS 3, 2013 WL 132467