How can you protect your clients from liability and risk with common lease clauses?

1 Indemnity clause

An indemnity clause is a provision that specifies who is responsible for paying for any damages, losses, or claims that result from the actions or negligence of one party. For example, if a tenant causes a fire in the leased premises, an indemnity clause can protect the landlord from being sued by other tenants or third parties. Conversely, if a landlord fails to maintain the building's safety standards, an indemnity clause can protect the tenant from being liable for any injuries or lawsuits. As an agent, you should advise your clients to review the indemnity clause carefully and negotiate any terms that are unclear or unfair.

2 Insurance clause

An insurance clause is a provision that requires one or both parties to carry certain types of insurance coverage for the leased property or business operations. For example, a landlord may require a tenant to have general liability, property damage, and business interruption insurance. A tenant may require a landlord to have fire, flood, and casualty insurance. An insurance clause can help both parties reduce their exposure to risk and ensure that they are adequately compensated in case of an accident or disaster. As an agent, you should help your clients determine the appropriate level and scope of insurance coverage and compare different policies and premiums.

3 Sublease clause

A sublease clause is a provision that allows or restricts the tenant's ability to sublet all or part of the leased space to another party. For example, if a tenant needs to downsize, relocate, or exit the lease early, a sublease clause can give them the option to find a subtenant who can take over their lease obligations and payments. However, a sublease clause may also impose certain conditions or limitations on the tenant, such as obtaining the landlord's consent, sharing the profits, or maintaining the premises. As an agent, you should explain the pros and cons of subleasing to your clients and negotiate any sublease terms that are favorable and flexible for them.

4 Force majeure clause

A force majeure clause is a provision that excuses one or both parties from performing their contractual duties in the event of an extraordinary circumstance that is beyond their control. For example, if a pandemic, war, riot, or natural disaster prevents the tenant from occupying the leased space or the landlord from providing essential services, a force majeure clause can relieve them from paying rent or fulfilling other obligations. However, a force majeure clause may also specify the duration, scope, and effects of the event and the parties' rights and remedies. As an agent, you should advise your clients to include a force majeure clause in their lease agreement and clarify the definitions and implications of the clause.

5 Arbitration clause

An arbitration clause is a provision that requires the parties to resolve any disputes or conflicts that arise from the lease agreement through a private and binding arbitration process, rather than through litigation in court. For example, if the tenant and the landlord disagree on the interpretation of a lease term, the amount of rent, or the responsibility for repairs, an arbitration clause can help them settle the matter quickly, confidentially, and cost-effectively. However, an arbitration clause may also limit the parties' rights to appeal, discovery, or trial by jury. As an agent, you should inform your clients of the advantages and disadvantages of arbitration and negotiate any arbitration terms that are fair and reasonable for them.

6 Termination clause

A termination clause is a provision that outlines the conditions and procedures for ending the lease agreement before its expiration date. For example, a termination clause may allow the tenant or the landlord to terminate the lease early for convenience, breach, or default, subject to certain notice, penalty, or cure requirements. A termination clause may also specify the parties' obligations and liabilities upon termination, such as returning the security deposit, restoring the premises, or paying any outstanding rent or fees. As an agent, you should help your clients understand and evaluate the termination clause and negotiate any termination options that are beneficial and practical for them.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?