October 6, 2021 | Christianah
In our previous posts, we focused on the importance of clarity and precision when drafting commercial lease agreements. Certain unforeseen circumstances may occur and present risks to be shouldered by the landlord or tenant. Since no reasonable person would gratuitously accept liabilities, it’s important to be clear in the insurance and indemnity clauses who will accept what risks. In our post today, we will examine the importance of these clauses and the principle of immunity under commercial lease agreements.
Insurance can be defined as a buffer or protection from unexpected losses. Insurance policies cover various risks ranging from damage, theft, fire, casualty, repairs, etc. In commercial leases, the most common risks tenants seek to insure are loss of use of the property and repairs to the leased property. On the other hand, landlords are usually concerned with protecting their buildings from damage from a flood, fire, etc., and disruption of rental income.
An indemnity is also a form of insurance. It is where one party assumes the risk of certain losses or contingent liabilities of another party. It is essentially a reallocation of certain risks from one party to another.
Principle of Immunity
The principle of immunity is a common law principle that provides that risk will be assumed by the party who agreed to get insurance to cover such risk or who has been paid the cost of insuring such risk by the other party.
The principle of immunity was established in three classical cases: Cummer-Yonge Investments Ltd. v. AgnewSurpass Shoe Stores Ltd; Ross Southward Tire Ltd. v.
Pyrotech Products Ltd; and T. Eaton Co. v. Smith, commonly called the “Trilogy.” However, parties under a lease can always refute such principle of immunity where they have provided express terms to the contrary in their agreement.
Landlords and tenants need to be aware of risks that may arise under a lease agreement and analyze how to allocate those risks. This will prevent disputes and potential litigation.
For any questions or advice on drafting a lease agreement, please don’t hesitate to contact Northview Law at 905-857-4890 or follow this link to book a free consultation.