Protecting Your Assets: Hold Harmless Clauses in Commercial Real Estate

By Published On: October 13, 20212.6 min read

Protecting your property is an investor’s top priority in the acquisition, building and development of commercial real estate. To prevent any contractors, tenants, or buyers from damaging the property or claiming damages against the selling party, hold harmless clauses are often presented and signed by the investor and all other investing parties. Signed by both sides of the agreement, with a hold harmless clause, a responsibility for property damage can be removed from the jurisdiction of one or more parties to keep at least one side free from the chance of a lawsuit.

What is a Hold Harmless Clause?

A hold harmless clause is an agreement that moves property liability onto one or more collaborating parties in an agreement. It’s a statement that absolves a party for any damage or injuries suffered by the party signing the contract. This agreement is most commonly seen as a clause in a larger property contract as the seller puts the responsibility of any current issues — whether it be property liens or claims — onto the buyer at the time of purchase.

But a hold harmless clause can also be found in other contractual agreements between a property owner and an outside party. Landlords often include a hold harmless clause in lease agreements to ensure that the renting tenant assumes responsibility for any damages they cause on the property. Investors also use them in establishing construction projects to protect themselves from any claims, losses, expenses or damage done to a property by a contracting team.

What Does a Hold Harmless Clause Protect?

A hold harmless clause can take form in several forms of writing. These include hold harmless agreements, letters, provisions, clauses in a full contract, or waivers and releases of liability. No matter what form it takes, a hold harmless clause details the specifics of what exactly needs to be protected in the relationship between the property buyer and the other party.

Hold harmless clauses can protect a business from any risks of involvement in a project that the business does not want to hold responsibility for legally or financially. By signing the agreement, the other party accepts responsibility for those risks in the service.

For example, a property owner can request a hold harmless clause from a roofer to protect themselves from liability if the contractor fell off the building. This one-way clause only protects the property owner, making this a unilateral hold harmless clause. However, the roofer also has the opportunity to add a reciprocal hold harmless clause, ensuring his business is protected from any damage done to the roof once he leaves the property site.

What Can’t a Hold Harmless Clause Protect?

There are some concerns that a hold harmless clause cannot protect from a lawsuit or liability. For example, some states do not accept any hold harmless clauses that are overly broad in scope when evaluating the validity of the agreement. If the language is too vague, the removal of responsibility can not be guaranteed. A hold harmless clause can also be considered void if one or more parties have a strong case that they were coerced to sign the agreement and then suffered liability.

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