Indemnity Clause in Lease Puts Commercial Tenant on Hook for Accident on Stairs Outside Tenant’s Premises

September 12, 2014

One of the more important disputes that can arise between a tenant and a landlord regards which party has to compensate a person injured on the property. The answer to this question often lies within the specific language contained in the lease agreement. One commercial landlord recently escaped liability for an injury occurring on a staircase outside a tenant’s space, due to the language contained in the lease. Even though the stairs were outside the tenant’s space and were within the control of the landlord, the tenant had agreed to indemnify the landlord for incidents “arising out of the use of” the tenant’s space. Since the stairs leading into the tenant’s space fit that description, the Appellate Division ruled that the tenant’s insurance, not that of the landlord, had to pay the injured man.

The tenant, Elite Fitness, ran a gym in a space it leased in a shopping mall owned by Trans Equity Realty, LLC. The parties’ lease agreement required the gym to carry liability insurance “insuring against all liability arising out of the use or occupancy of” the premises. Additionally, like many leases, the lease contained a “save harmless” clause, in which the gym agreed to indemnify the landlord for any personal injuries “occurring on or about the demised premises.”

In January 2008, one of the gym’s owners, Brett Pessel, fell after stepping on a broken stair on an exterior steel staircase located at the rear exit to the rented space. Pessel sued the landlord for his back injuries, arguing that the staircase was the landlord’s responsibility and that the landlord was negligent because it knew of the problem with the stair but had not repaired it. The case settled for $135,000.

The landlord’s insurer contacted the tenant’s insurer, demanding that the tenant’s insurer provide coverage. The tenant’s insurer was obligated to pay for the man’s injuries based upon the “save harmless” clause in the lease, it claimed. The tenant’s insurer refused, arguing that the lease placed responsibility for the staircase in the hands of the landlord.

Ultimately, the landlord’s insurer sued the tenant’s insurer and won at the trial court level. The tenant’s insurer appealed, but to no avail. The Appellate Division looked to the insurance coverage term in the parties’ lease to resolve the matter. That provision’s use of the language “arising out of the use of” was revealing. New Jersey interprets that language broadly, meaning that it includes anything “growing out of the use” of the lease space.

In a similar 1994 case, a man suffered injuries on a set of steps outside a tenant’s leased space. The Appellate Division ruled in favor of the landlord because, even though the steps where the injury occurred were not part of the leased space, using the steps was essential to using the space, which meant that the “arising out of the use” provision covered them. Just like the 1994 case, the staircase at the rear of the gym was essential to the use of the gym, meaning that Pessel’s injuries arose out of the use of the leased space, and the tenant’s insurance was responsible for paying.

Commercial lease agreements may be lengthy and complicated documents, but, regardless of length, each term and provision requires careful attention, since a single word or phrase may hold vital protection or open a potentially expensive pitfall. Contact the real estate attorneys at Samuel C. Berger, P.C. for advise and representation about your commercial lease. Our New Jersey real estate attorneys can help you ensure the lease you sign has all the terms and language you need to protect your business. Reach us online or call (201) 587-1500 or (212) 380-8117.

Contact us through our website or call to schedule your free, confidential initial consultation today.

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