Tenant Didn't Waive Right to Collect Damages for Medical Equipment

If you’ve signed a lease with a tenant that contains a “subrogation” clause, you might think that you’re off the hook for damage caused in the space. That’s because most subrogation clauses include a waiver from the tenant stating that the owner isn’t liable for damage. But that’s not always the case. For example, a Louisiana court took into account the fact that the owner’s handling of a plumbing problem in the space it rented to a tenant was intentional and, therefore, it was responsible for damage.

In that case, the space that a medical office tenant leased for its operations was flooded several times due to leaks in the building’s roof. Each time a flooding incident happened, the tenant informed the owner, who refused to make repairs. The tenant lost over $1.5 million in equipment due to water damage. It sued the owner, claiming that the owner had breached the lease by not making repairs, and demanded that the owner pay for the damage to the equipment and release the tenant from the lease. The owner asked a trial court for a judgment in its favor without a trial. A Louisiana trial court would not dismiss the claims. It ordered a trial.

The owner argued that the tenant waived any claim for property damage against the owner in the “subrogation” provision of the lease—regardless of any alleged negligence on the part of the owner. That provision stated that:

neither the Lessor nor the Lessee shall be liable to the other for the loss arising out of damage to or destruction of the Premises or the building or improvements of which the Premises are a part thereof, when such loss is caused by any of the perils which are or could be included within or are insured against by a standard form of fire insurance with extended coverage, including sprinkler leakage insurance, if any. All such claims for any and all loss, however caused, hereby are waived. Said absence of liability shall exist whether or not the damage or destruction is caused by the negligence of either Lessor or Lessee or by any of their respective agents, servants or employees.

According to the owner, this clause prevents recovery as the tenant’s losses (destruction of medical equipment) arise out of water leakage damage to the space and the loss was caused by a peril that could be insured “against by a standard form of fire insurance with extended coverage, including sprinkler leakage insurance, if any.”

But the mutual waiver clause didn’t protect the landlord from the intentional failure to fix the structural issues that continued to damage the space over a period of time. The court noted that the tenant didn’t claim that the damage was caused by a single episode of severe weather. Rather, the owner’s persistent refusal to repair the roof was the primary cause of the damage. The court added that the roof defects and failing to make repairs are not “perils” that can be included in the fire policy referenced in the lease anyway.

The failure to repair the roof did constitute a breach of the lease because the landlord was required to maintain and repair the roof under a separate section of the lease that stated:

Lessor shall be responsible only to maintain the roof, foundations, and outside walls (not including doors and floors). Lessor shall not be liable for any damages or loss in consequences of defects in the Premises causing leaks, stoppage of water, sewer or drains or any other defects about the building and Premises, unless it shall have failed to repair defects for which it is responsible within a reasonable time following written demand of Lessee to do so.

Here, the tenant had made repeated demands over a period of time that the owner repair the conditions that were damaging its equipment, and the owner failed to take action [Hiram Invs., LLC v. Howmedica Osteonics Corp., April 2018].