[Landlords, REITs, property agents: this update is for you in particular.]

On indemnity clauses: do they confer invulnerability, or are they indefensible?

A tenant leased storage space from a landlord. A fire broke out,¹ which originated from the tenant's storage area. The landlord suffered loss as a result.

The landlord sued the tenant,² relying on the following indemnity clause:

"3.18 Indemnity by Tenant

To indemnify the Landlord against (i) all claims, demands, actions, proceedings, judgments, damages, losses, costs and expenses of any nature which the Landlord may suffer or incur as a result of or in connection with or caused by, and (ii) all penalties or fines imposed by any relevant authority resulting from:

3.18.1 any occurrences in, upon or at the Premises or the use or occupation of the Premises and/or any part of the Property by the Tenant or by any of the Tenant's employees, independent contractors, agents or any permitted occupier..."

---

Having considered the clause, you might consider the tenant's position to be hopeless. Isn't the clause wide enough to cover any and all loss suffered by the landlord due to the tenant's use of the premises?

Not quite.

The Court held that the clause was limited to 3rd-party claims only. If a 3rd party sued the landlord for loss from the fire, the landlord might be able to recover from the tenant under this clause. But the landlord could not, under this clause, sue the tenant for its own loss.

The landlord failed in its claim.³

---

I highlight 2 takeaways.⁴

1) Update your commercial agreements regularly.

Every month, there are thousands of commercial lease transactions. The majority of the lease agreements signed will have a similar clause. The Court's decision signals that such clauses should be relooked.

But this case highlights just 1 clause. If your precedents have been not updated in years, they may contain multiple clauses that may cause problems down the road. Reviewing your agreements - at least biennially⁵ - is like going for regular health check-ups: unexciting, but crucial.

2) Don't cheap out on advice.

Some stakeholders may bemoan the costs involved when sending documents for legal review. And yes, a proper legal review may not come cheap.

But you are not just paying for someone with a good command of English to eyeball your agreements for logic or consistency. You are paying for advice on how a particular clause may lead to unexpected consequences, or may be interpreted in a way that differs from your prediction.

For that, you need someone with experience, and who is prepared to put in the work. You need someone who can tell you that while that wide-ranging indemnity clause looks good at first glance, case law suggests that you may have problems enforcing that clause. This person may not be the one with the cheapest quote.⁶