Many commercial landlords are concerned with potential COVID-related claims arising from use of common areas of buildings. Common commercial lease provisions may already allocate this potential risk largely to a tenant. Lease forms should be reviewed to confirm that risk allocation provisions appropriately address this risk. Requiring an additional release of liability agreement from an existing tenant is not likely to be an effective means of reducing a landlord’s exposure for potential COVID-related claims by the tenant. A commercial landlord can reduce its potential exposure for COVID-related claims by complying with applicable ordinances and guidelines, including all recommended postings and warnings, letting tenants know how the landlord is complying; and keeping records of landlord’s compliance. Although insurance policies likely exclude coverage for COVID-related claims, claims should still be tendered and denials of claims should be retained in the event that the many pending lawsuits challenging such denials of coverage are successful in establishing coverage for COVID-related insurance claims.
Lease Provisions
Most commercial leases include the following customary provisions that would allocate to the tenant most of the exposure for potential COVID-related claims:
- an indemnity by the tenant of the landlord for all claims arising from tenant’s occupancy of the premises, conduct of tenant’s business and any act, omission or neglect of tenant or tenant-related parties. This indemnity, however, may exclude claims resulting from landlord’s gross negligence or willful misconduct.
- an exclusion of liability of landlord for tenant’s loss of income or for injury or damage to the person or goods of tenant or tenant-related parties.
Some commercial leases include an indemnity by the landlord of the tenant for injury and sometimes property damage occurring in common areas and resulting from landlord’s gross negligence or willful misconduct.
Requiring Additional Release of Liability Agreements from Existing Tenants
Conditioning an existing tenant’s access to certain common areas upon the tenant signing a new release of liability agreement is not likely to be enforceable unless a landlord provides new consideration to the tenant for signing the agreement. As mentioned above, most commercial leases already include indemnities and exclusions from liability. Most commercial leases also include several clauses that may impair the enforceability of a new release of liability agreement unless it takes the form of an amendment to the tenant’s lease. Many commercial leases include an “integration clause” and an “amendment in writing clause” that requires all changes to the provisions of the lease to be in a writing signed by both parties. Even if a landlord provided additional consideration to obtain a lease amendment that further allocated to a tenant potential COVID-related claims, landlords may still face the risk that a court may hold a landlord liable under equitable principles if a landlord was found to have made little or no effort to comply with the applicable ordinances and guidelines.
Ensuring, Communicating and Documenting Compliance with COVID Ordinances
A landlord can reduce its potential exposure for COVID-related claims by complying with applicable ordinances and guidelines re COVID, including all recommended postings and warnings. The concept of “assumption of risk” may apply to situations where people enter facilities or events that are known to create a higher risk of infection, such as enclosed spaces with a larger number of people, despite complying with social distancing requirements and wearing masks. That is why postings and warnings are advised. Additionally, if a lease conditions a landlord’s potential exposure to COVID-related claims on a landlord’s “gross” negligence, a tenant will be challenged in establishing gross negligence if the landlord has a COVID compliance program, is making tenants aware of the program and documenting compliance with the program.
Insurance Coverage
Many landlord and tenant insurance policies exclude losses arising from epidemics and pandemics, so insurance companies are likely to deny coverage and deny the duty to defend against COVID-related claims. A landlord should nevertheless tender a claim to its insurance company and insist that the insurance company issue a denial of the claim. There are presently hundreds of lawsuits in California challenging denials of claims arising from the pandemic. If any of these cases prevail, landlords will want to have made a claim and had it denied.
If you have questions about your leasing rights please reach out to the Lathrop GPM Real Estate team.