Are you Covered, Landlord? Examining the Scope of Tenant Indemnification Obligations in Light of Morlin Asset Management LP v. Murachanian

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Are you Covered, Landlord? 
Examining the Scope of Tenant Indemnification Obligations in Light of
Morlin Asset Management LP v. Murachanian

By: Corin M. Korenaga & Nina K. Prasad

            A recent California Court of Appeal’s decision gives California landlords reason to reexamine the language and scope of their lease indemnity provisions to confirm that their tenants’ indemnification obligations align with landlord expectations.

            In Morlin Asset Management LP v. Murachanian, the California Court of Appeal for the Second District affirmed the trial court ruling that the scope of a tenant’s indemnification obligation in its lease did not extend to personal injury sustained by the tenant’s agent in the project common area. The agent was a third-party hired by the tenant to clean the carpets in the tenant’s second floor dental office premises. While climbing a flight of common area stairs, the carpet cleaner slipped and injured himself. The carpet cleaner subsequently sued the owners of the building and its managers for negligence and premises liability. The defendant landlords filed cross-complaints against the tenant, arguing that the tenant’s lease obligated the tenant to indemnify the landlords against the carpet cleaner’s claims. The indemnity language in the lease stated in relevant part:

“8.7 Indemnity. Except for Lessor’s gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys’ and consultants’ fees expenses and/or liabilities arising out of, involving or in connection with, the use and/or occupancy of the Premises by Lessee. . . .”

            The landlords asserted that the carpet cleaner’s injuries arose from the tenant’s “use and/or occupancy of the Premises.” In other words, but for the tenant hiring the carpet cleaner to service the premises, the injuries would never have occurred, and therefore the carpet cleaner’s claims fell within the scope of the tenant’s indemnification obligations. The tenant countered that the scope of the indemnity only covered occurrences within his suite, not in the common area stairwells. The Court of Appeal sided with the tenant, finding that the lease obligated the tenant to indemnify the landlords only against claims “involving the Premises, which has a limited definition and does not include ‘stairwells.’” The Court further held that the indemnification provision did not cover claims or liabilities arising out of accidents in the common area over which the tenant had no control, emphasizing that non-insurance indemnity agreements must be “particularly clear and explicit, and will be construed strictly against the indemnities.”

            The Morlin decision highlights the need for landlords and their counsel to draft indemnity clauses that comprehensively and precisely impose indemnification obligations on tenants. One of the last things you want to say as a project owner, or hear from your client as an attorney, is, “I thought I was covered for that. What do you mean I’m not?” Below is an example of indemnity language aimed to cover claims arising from tenants’ use of their premises as well as acts of tenants and their agents that may occur outside of their premises but within a landlord’s project:

“Tenant shall be liable for, and shall indemnify, defend, protect and hold Landlord and Landlord’s members, shareholders, partners, officers, directors, managers, employees, agents, contractors, successors and assigns harmless from and against, any and all claims, damages, judgments, suits, causes of action, losses, liabilities and expenses, including, without limitation, attorneys’ fees and court costs, arising or resulting from the use of the Premises, the Building and the Project and conduct of Tenant’s business by Tenant or any of its agents, officers, directors, shareholders, members, managers, partners, employees, subtenants, assignees, licensees, contractors or invitees (collectively, “Tenant’s Parties”), or any other activity, work or thing done, permitted or suffered by Tenant or any of Tenant’s Parties, in or about the Premises, the Building or elsewhere on the Project. . . .”

            If you have any questions or need assistance with indemnity provisions or leases in general, please feel free to contact Corin Korenaga, Nina Prasad or any of the other experienced leasing attorneys at Cox, Castle & Nicholson LLP.

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