Get a written, formal contract to avoid unnecessary risk.
When a business owner leases or rents property or space to others, it’s important to have a written contract in place that clarifies insurance obligations, claims defense and indemnity agreements. Without it, you’re taking an unnecessary risk.
It’s not uncommon for a commercial operation to lease space to one or more ancillary businesses, such as a small restaurant or café, veterinary clinic or farm/feed store. These agreements are often made with a handshake or by word of mouth. Without a formal, written contract – containing hold-harmless language or indemnity clauses – the property owner can be held liable for claims occurring on the renter’s business.
One such incident occurred when a restaurant was leasing space within a livestock auction barn. During food service, a heavy display fell from the wall – severely injuring a restaurant patron. The restaurant carried liability insurance; however, the limits were insufficient to cover the full cost of treatment.
Since there was no formal language in the lease addressing indemnity, the auction barn’s liability policy was brought in to satisfy the claim.
The auction barn could have been better protected by following these suggestions:
- Require the lessee to sign and abide by a written lease agreement
- Ensure contracts contain hold-harmless language to address incidents caused by renters
- Verify renters have insurance policies with adequate limits