Indemnity Clause

What is it?An indemnity clause is one in which ,an individual takes on the obligation to pay for any loss or damage that has been or might be incurred by another individual.

• A provision in aLease under which one party or both parties commit to compensate the other or each other for any harm, liability, or loss arising out of the lease.
• To indemnify means  guarantee against any loss which another might suffer.
• These clauses are one way people allocate risk in their contracts.
• This is one of the most over looked clauses in a lease document.

Pit Falls :The language of the indemnity clause is very important.For example, when does the obligation arise? Does it cover legal fees or just damages? What happens if more than one party is at fault? In most lease documents only the landlords indemnify the tenant where in the land lord is liable for the damages or losses.This is not in the best interest of land lords.

A typical broad indemnity clause :“Lessee agrees to indemnify and hold harmless lessor of and from any and all claims, demands, losses, causes of action, damage, lawsuits, judgments, including attorneys’ fees and costs, arising out of or relating to the work of Lessee.
This is a very broad indemnity clause saying  “You pay if you hurt me, I hurt myself, or some other guy hurts me.”

A narrower version of this clause might say:“Lessee agrees to indemnify and hold harmless lessor of and from any and all claims, demands, losses, causes of action, damage, lawsuits, judgments, including attorneys’ fees and costs, but only to the extent caused by, arising out of, or relating to the work of Lessee.”

Even Refined the clause might read:“Lessee agrees to indemnify and hold harmless Lessor of and from any and all claims, demands, losses, causes of action, damage, lawsuits, judgments, including attorneys’ fees and costs, only to the extent caused by or arising out of or relating to the work of Lessee.In no event shall the maximum liability hereunder exceed the sum of Rs _________.”

Indemnity clauses should be drafted as clearly as possible. Clearly identify what kinds of potential loss you are trying to protect.

Finally ,A good lease document is one in which both the land lord and the tenant are indemnified by each other and both their interests are well protected.